Philippine Stocks: Mining and Oil in Historical Perspective

Most of us agree that 2011 was the year of the Mining and Oil sector in the PSE. To say that this sector merely outperformed the other indices is actually a gross understatement. While the PSE index grew by only 4.07% and most industry sectors gained only 1-digit growth last year, the mining and oil sector surged by a whopping 68.52%. In fact, three of the top 10 best-performing stocks came from the mining and oil sector, with all three generating 3-digit returns.

As of April 26, 2012 the highest gaining stocks are as follows:

As of 02:16:00 ET on 06/04/2012. PMINI: IND    22,986.84  DOWN  842.42    BY   3.54% 

On February 13, 2012 President Benigno Aquino is proposing the nation introduce competitive bidding for mining rights, widen a ban on the activity to more areas, and boost state revenue from the industry, according to a draft executive order obtained by Bloomberg News. The eight-page document, which was sent by Aquino’s office to various departments for feedback, was confirmed by Finance Secretary Cesar Purisima. “Mining should be done in a manner that doesn’t destroy the environment, in a way that benefits are properly shared between the companies and the country,” Purisima said in an interview in Manila Feb. 10. “The revenue that the government shares from mining must be increased.”

The proposals reflect Aquino’s struggle to balance efforts to spur investment in the Southeast Asian nation with the need to protect the environment and ensure Filipinos benefit from the plans. The Philippines, whose government has had annual budget deficits since a surplus in 1997, would join at least 11 countries from Australia to Ecuador that Deutsche Bank AG says announced plans to increase taxes or royalties on sales of resources such as gold and coal last year.

The new guidelines could affect companies including Xstrata Plc (XTA), whose stalled $5.9 billion copper and gold project in the nation would be the country’s biggest foreign investment, and OceanaGold Corp., the Australian gold producer with mines in New Zealand and the Philippines that is developing the $185 million Didipio mine in Luzon in the northern Philippines.

Atlas Consolidated Mining & Development (AT) Corp., a Philippine miner, fell 1.9 percent at 3:04 p.m. in Manila, heading for its lowest close in a month. In contrast, the benchmark Philippine Stock Exchange Index gained 0.3 percent.

Aquino’s proposals include demanding economic valuations before allowing projects, and a review of all existing mining agreements to ensure that they are in line with the new policies, “provided however that the review shall not result in the impairment of contracts,” according to the document.

The Philippines had more than 500 mining lease contracts, permits and agreements with companies including OceanaGold as of Jan. 31, according to the Mines and Geosciences Bureau. In 2004, the Supreme Court affirmed a law that allows overseas investors to skirt a constitutional ban on owning the country’s mining companies, easing foreign access to untapped mineral wealth estimated to be worth $1 trillion.

The draft rules are “profoundly disturbing in that it creates great uncertainty for established and potential investors into the Philippines,” the Joint Foreign Chambers of the Philippines said in a Feb. 9 letter to Aquino obtained by Bloomberg News today. The letter was signed by the American, Australian-New Zealand, Canadian, European, Japanese and Korean chambers as well as by the Philippine Association of Multinational Companies Regional Headquarters Inc.

Investments in exploration and mining projects in the Philippines totaled $3.8 billion from 2004 to 2010, and the industry generated 9.1 billion pesos ($215 million) of taxes, fees and royalties in 2010, according to the Department of Environment and Natural Resources’ Mines and Geosciences Bureau website.

Resources:

 http://www.pinoymoneytalk.com/pse-2011-top-gainers-losers/

 http://www.bloomberg.com/quote/PMINI:IND/chart

http://www.bloomberg.com/news/2012-02-13/philippines-plans-tighter-mining-rules-to-protect-environment.html

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