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Now Available: Philippines Mining Report 2014

Fast Market Research recommends "Philippines Mining Report 2014" from Business Monitor International, now available

 

Boston, MA -- (ReleaseWire) -- 06/03/2014 -- The looming exit of Glencore Xstrata's stake in the US$5.9bn Tampakan copper-gold project reinforces our conviction that mining investment in the Philippines will become less attractive amidst the downturn in commodity prices over the coming years. Despite rice mineral deposits in the country, resource nationalism will remain an issue as the Philippine government looks to implement more onerous regulatory reforms in the mining space.

We believe the retreat of commodity prices and fading attraction of frontier mining will continue to dampen capital flows into the Philippines' mining space over the coming years. As spotlighted by the pending exit of Glencore Xstrata from the USD5.9bn Tampakan project in South Cotabato, the country is unlikely to experience a mining boom anytime soon. In January 2014, Glencore Xstrata announced its decision to sell its stake in the mine in a bid to prune its portfolio and focus on the development of brownfield projects. The Tampakan project, with an estimated 15mn tonnes (mnt) of copper and 18mn ounces (moz) of gold, would be the single largest foreign direct investment in the country. To be sure, investment in exploration and mining projects in the Philippines between 2004 and 2012 reached US$5.8bn, according to the Mines and Geosciences Bureau.

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Brownfield Prevails

In our view, rich mineral deposits in the Philippines will fail to attract significant mining investment over our forecast period to 2018. In a continuation of the trend seen in 2013, mining companies will struggle to maintain a deep portfolio of expansion projects in the face of falling mineral prices and growing demand for shareholders' returns. The pullback in mining expenditure over the past year has encouraged us to adopt a much more sombre outlook on the prospects of frontier mining. As seen in the accompanying chart, capital expenditure (capex) by the top 10 miners (which account for 80% of industry spending) plunged by 16.9% year-on-year (y-o-y) in 2013. This is expected to be followed by y-o-y falls of 9.2% in 2014 and 12.1% in 2015. We believe frontier regions will suffer the brunt of cutbacks in investment given the inherent risks and huge capital commitment associated with immature regulatory frameworks and a paucity of sound infrastructure.

Political Outlook Still Murky

Admittedly, significant progress has been made in the pursuit of peace in Mindanao, where more than a third of the Philippines's gold resources are located. However, we remain only cautiously optimistic on the country's political landscape going forward as the normalisation in relations between the Philippine government and the Moro Islamic Liberation Front (MILF) separatist group is still very much at a nascent stage. As such, our Country Risk team maintains Philippines' short-term political risk rating at 71.3, placing it marginally above the regional average of 69.8.

Resource Nationalism Creeping Up

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