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PHILIPPINE CONSTITUTION AND MINING LAW
Under the 1987 Philippine Constitution, the state can undertake the exploration, development, and utilization of the natural resources or it can enter into agreements with private parties or contractors under revenue-sharing or production-sharing arrangements. The general rule, as stated in the Philippine Constitution, is that contractors, with whom the state can enter into agreements for the exploration, development, and utilization of natural resources, must be Filipino citizens or corporations whose capital is at least 60% Filipino-owned. A mineral agreement must be held by a Filipino citizen or by a company that is at least 60% Filipino-owned.
The foreign equity limitation is removed for large-scale exploration, development, and utilization of minerals and petroleum, and other mineral oils. This exception is implemented through the Financial or Technical Assistance Agreement (FTAA). Furthermore, an Exploration Permit (EP) and a Mineral Processing Permit (MPP) can be held by a corporation that is up to 100% foreign-owned.
Under the Republic Act No. 7942 or the Philippine Mining Act of 1995 (Mining Act), there are three types of mineral agreements: Mineral Production Sharing Agreement (MPSA), Co-Production Agreement, and Joint Venture Agreement.
Under the Implementing Rules and Regulations of the Mining Act (Mining Act IRR), an applicant that wants to conduct exploration activities over a specific area needs to apply for and obtain an EP. Depending on the exploration results, the EP can be converted into an MPSA or an FTAA.
The Mining Act governs the exploration, development, processing and utilization of mineral resources in the Philippines. The Mining Act and the Mining Act IRR define these agreements, delineate the various mining rights recognized in the Philippines and provide the requirements to acquire these mining rights.
The acquisition of mineral rights is a process that begins with the acquisition of an EP. An EP is a grant from the Philippine government that gives the permit holder the right to conduct exploration for all minerals within a specified area. An EP allows the holder to conduct “exploration”, which is defined under the Mining Act as “searching or prospecting for mineral resources by geological, geochemical and/or geophysical surveys, remote sensing, test pitting, trenching, drilling, shaft sinking, tunneling or any other means for the purpose of determining their existence, extent, quality and quantity and the feasibility of mining them for profit.”
2. Mineral Agreements
These three types of mineral agreements are:
MPSA, under which the Government grants to the MPSA holder the exclusive right to conduct mining operations within a contract area. The share of the government is in the form of excise tax equivalent to a percentage of the gross output. The MPSA holder will provide the financing, technology, management and personnel necessary for the implementation of the MPSA;
Co-production Agreement, under which the Government will provide inputs to the mining operations other than the mineral resource;
Joint Venture Agreement, under which a joint venture company is organized by the government and the contractor with both parties holding equity shares. In addition to earnings from the equity, the government will be entitled to a share in the gross output.
The Philippine Constitution provides that the President may, on behalf of the government, enter into agreements involving either technical or financial assistance for large scale exploration, development and utilization of minerals according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the Philippines.
To implement this Constitutional provision and to promote investments from both domestic and international sources, the Mining Act authorizes the President to execute and approve on behalf of the government FTAAs to be entered into with qualified entities for large scale exploration, development and commercial utilization of mineral resources. The minimum project for development and construction for an FTAA is Fifty Million United States Dollars (US$50,000,000).
The FTAA holder is granted the exclusive rights to explore, mine, utilize, process, refine, market, transport, export and dispose of minerals and mineral products and by products that may be derived or produced from the FTAA area, subject to such permitting requirements that may be applicable under pertinent laws, rules and regulations.
A MPP refers to permit granted by the Philippine government to allow the holder thereof undertake mineral processing. Mineral processing refers to the milling, beneficiation, leaching, smelting, cyanidation, calcination or upgrading of ores, minerals, rocks, mill tailings, mine waste and/or other metallurgical by-products or by similar means to convert the same into marketable products.