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Can Gold Mining Revitalize the Mining Industry? Or Should it?
by Dr. Romulo A. Virola 1
Secretary General, NSCB

Last month, Manny V. Pangilinan and Gina Lopez “clashed” during the Conference on Mining’s Impact on the Philippine Economy and Ecology that was described as “more interesting than the impeachment trial”.2 No, it was not an LQ, but to mine or not to mine, that was their question.

The Philippines is located in the so-called “Pacific rim of fire” and lying beneath it is a hidden wealth of vast mineral reserves, which can be tapped to provide the much-needed impetus to revitalize the mining industry and unleash the mining potential that can significantly boost the economic growth of the country. But of course, under environmentally-sustainable conditions.

And so, with Rio+20 just around the corner, the government, mindful of the huge potential of the mining industry to help eradicate poverty,  tries to strike a balance between faster economic development and responsible and sustainable mining that fosters health and safety for the people, and heightened concern for the environment. Statistically Speaking devotes this issue to mining, specifically gold mining.

The mining sector in the Philippines received a big boost from government when the Mining Law was passed in 1995 (RA 7942) and implemented in 1997. However, nothing spectacular happened to the sector until the turn of the century, when mining showed robust growth and increased its share to GDP to the levels in the eighties. ( Table 1 and Figures 1 and 2)

In the government efforts to manage the country’s mineral resources, the Mines and Geosciences Bureau (MGB)3 is at the helm. The Philippine Development Plan (PDP) 2010-2016 provides the general thrusts with regards to the development of the mining industry in the medium term. Citing MGB estimates that nine million hectares out of the country’s thirty million hectares are geologically prospective for metallic minerals, the PDP recommends the following  to “further increase the sector’s competitiveness and contribution to economic development”:

In the meantime, the debate on mining has intensified. Surely there are benefits to be gained, but there are also costs involved. If we must go towards unleashing the mining potentials, however, it will be strategic to identify sources of growth that can jumpstart and revive the current state of the Mining and Quarrying sector. Manny may agree, but possibly over Gina’s dead body!

Under the Philippine Standard Industrial Classification (PSIC)4, the Philippine economy is made up of 3 major sectors: Agriculture, Hunting, Forestry, and  Fishing (AHFF), Industry and Services.

Mining and Quarrying is one of the sections or sectors of Industry5. It covers the production of all metallic and non-metallic minerals by extraction from nature and its related processes. This includes underground and surface mines, quarries and wells, and all supplemental activities for beneficiating ores and other crude materials for marketing. The end product of metallic Mining is the beneficiated ore or concentrate, which will serve as inputs to the Manufacturing sector for the processing of these ores into metals. Metallic mining covers Copper, Gold, Chromium, Nickel and Other metals such as Silver and Zinc. On the other hand, non-metallic mining covers coal mining, stone quarrying, clay and sandpits which include activities related to the production of non-metallic minerals linked to or used by the construction sector, the  production of crude oil, natural gas and condensate, and  Other non-metallic mining  which captures the rest of the non-metallic mining such as clays, fertilizer materials, and salt mining.

In the Philippine System of National Accounts (PSNA)6, the contribution of  Mining and Quarrying to the economy is estimated7 using the value added approach, or its unduplicated contribution, measured in terms of the compensation, depreciation, indirect taxes, and operating surplus (which includes profit) accruing to the Mining and Quarrying sector.  The sector’s gross value added is expressed at Current Prices, (prevailing market prices) and at Constant Prices8, from which we derive an indicator of the sector’s growth in volume terms.

1At constant 2000 prices, Industry comprised on the average, about 33.2 percent of the total economy for the period 1998-20109.  Mining and quarrying, accounted for the smallest contribution to total Industry, averaging 2.7 percent during the period. Manufacturing accounted for the biggest share of Industry, with 71.0 percent, followed by Construction with 15.5 percent, and EGW with 10.8 percent. ( Tables 2 and 3)

1In fact, among the economic sectors or industries, Mining and quarrying contributed the least to the total economy after Forestry, averaging only about 0.9 percent to total GDP at constant prices during the period 1998-2010. Manufacturing and Trade, accounted for the biggest contribution, with an average share of 23.5 percent and 16.2 percent, respectively. (Table 2)

1Mining and Quarrying contributes an average of 0.4 percent to total employment in the country, generating an average annual employment of 130,000 from 1998-2010. Not contributing much to employment generation really, but greater than the contribution of EGW. Noticeable too is its increased share to total employment since 2008 and the greater growth rate of employment for mining and quarrying than for the entire economy during nine of the past twelve years! (Tables 4, 5, and 6)

Among the mineral commodities, Gold accounts for the biggest share to total mining contributing at constant prices, an average of 30.7 percent covering the period 1998-2010. This was followed by Crude oil, natural gas and condensate with a share of 28.3 percent and Stone Quarrying, clay and sandpits with 17.3 percent. Meanwhile, Chromium and Other metallics (silver and zinc) comprise the least contribution, with an average share of 0.2 percent and 0.3 percent, respectively. (Table 7)

Thus, Gold stands out as the most important commodity in the Mining industry. Now, for some statistics on gold mining.

Mineral reserves refer to the quantity of minerals that can be extracted from a site, estimated using information provided by geological explorations. The quality of ore reserves can be determined by the so-called “average grade”, or the concentration of the mineral (in gram) per ton of ore. For Gold, the average grade of ore is 1.37 gram per ton. 

As of 201010, there were 10 companies in the country that produced gold. Six of them are primary producers, and four are secondary producers. Primary producers are companies that produce Gold as the main product while the secondary producers are companies that produce Gold only as a by-product of Copper and Silver that are produced.

Primary producers

Secondary producers

Among the gold companies, Philippine Gold Processing and Refining Corporation (Masbate Gold Project), Philsaga Mining Corporation (Banahaw Gold Project), and Philex Mining Corporation (Padcal Copper Project) were the top producers of gold in 2010. 

1Looking at the country’s Gold resource/reserves, as of 2010, the potential total quantity of Gold that can be mined is enormous, with an estimated quantity of 4.914 billion metric tons (MT). (Table 8)

6Prices of gold are volatile but have been rising in recent years with the 2011 world market price at a phenomenal US$1570 per troy ounce, more than  five times the level a decade ago. Wished we had nuggets of gold to sell to shouts of Ginto, pilak bumibili! (Table 9)

2Using 2011 world market prices, our gold resources/reserves can amount to PhP7.36 trillion, equivalent to about 76% of the country’s GDP of PhP9.73 trillion in 2011. This is also equal to more than 62.1 times  the income gap of PhP112.7 billion  for 201111,, the amount needed to completely eradicate poverty in the country! Sec. Dinky and her CCT can surely use the money from gold mining! (Table 10)

3The biggest reserves of Gold can be found in Region 12, with 2,189 billion MT,  accounting for 44.4 percent of the total gold reserves. CAR comes in second, with 982.7 billion MT or 20.0 percent; then Region 11, with 893 billion MT or 18.2 percent; Region 6 with 338.4 billion MT or 6.9 percent; and Region 13 with 330.4 billion MT or 6.7 percent. Indeed, Mindanao is our Land of Promise! If only we could have peace! (Table 11)

4The highest quality of gold reserves is in Region 8, hitting an average grade of 11.4 gram Au/MT; followed by Region 10, with 5.28 Au gram/MT; CAR, with 3.31 Au gram/MT; and Region 6 with 2.53 Au gram/MT. (Table 8)

 

While Mining and quarrying contributes the least after Forestry to the domestic economy, it is a major source of the country’s much-needed foreign exchange earnings from metallic exports. Based on the Mines and Geosciences Bureau (MGB) data, the combined mineral exports of gold, copper, silver, nickel ore and concentrates, and chromite generated an increasing stream of dollar earnings for the country during the period 1998-2010, with the highest amount recorded at   $2,673.80 billion or PhP117,932.6 billion in 2010.

5Among the metallics, Gold is the top foreign exchange earner throughout the period, posting double-digit growths in dollar terms since 2005 and accounting for an average of 71.2 percent of total metallic exports for the period 1998-2010. The remarkable performance of Gold was bolstered by the continuing surge in world market prices. In 2010, Gold generated an unprecedented earning of $ 1,674.1 billion or PhP 73,450.8 billion. (Table 12)

7Approved foreign direct investments (FDIs) in the Mining and Quarrying industry is on the average relatively small, accounting for only 2.6 percent of the total approved FDIs.  However,  investor interest in mining surged in 2004-2005 by 3,086.95%, when the new mining law allowed foreign investments in 2005. Huge FDIs were also committed In 2007 and in 2010, boosted by the prevailing high metal prices in the world market. (Tables 13, 14, and 15)

8By country of investor, the Netherlands topped the FDIs  for mining and quarrying covering the period 2003-2010 with an aggregate amount of PhP7, 087.57 billion, followed by the United Kingdom with PhP7,020.74 billion and British Virgin Islands, with PhP 6,034.53 billion.  But who are these prospective investors from the British Virgin Islands? (Table 16)

With the contribution of Gold mining to the domestic and global economy during the period 1998-2010 and its consequence on the environment when not responsibly done, indeed, one  should ask whether, or how the  government should push for the Mining industry to maintain the  stream of income and benefits coming from Gold production, despite the costs.

The country’s huge reserves of Gold coupled with the current high prices of the metal in the world market offer fresh and promising prospects to reduce poverty in the country. They also tempt us to sacrifice sustainability and the future of our children. Manny and Gina must have a Round Two!

Meanwhile, let us enjoy our summer!

 

Reactions and views are welcome thru email to the author at ra.virola@nscb.gov.ph

 

Comment on the article from:
    Ms. Nelia C. Halcon 12
    Executive Vice President
    Chamber of Mines of the Philippines
    (received on 12 April 2012)

 

_______________
1 Secretary General of the National Statistical Coordination Board (NSCB) and Chairman of the Statistical Research and Training Center (SRTC). He holds a Ph. D. in Statistics from the University of Michigan in Ann Arbor, U.S.A. and has taught mathematics and statistics at the University of the Philippines. He is also a past president of the Philippine Statistical Association. This article was co-written with Maria Fe M. Talento, Statistical Coordination Officer VI, of the NSCB. The authors thank Noel S. Nepomuceno, Candido J. Astrologo, Jr., Jessamyn O. Encarnacion, Mildred B. Addawe, Magnolia C. San Diego, Mechelle M. Viernes, Priscille C. Villanueva, Genesis G. Cuizon, Edwin U. Aragon, Simonette A. Nisperos, Sonny U. Gutierrez, Albert Garcia, Andrea Baylon, and Edgard E. Enrado for the assistance in the preparation of the article. The views expressed in the article are those of the authors and do not necessarily reflect those of the NSCB.

2 See article by Riza T. Olchondra, Philippine Daily Inquirer, March 3, 2012.

3 We are grateful to the following officials and staff of the MGB for the data used in this article: 1) Ms. Teresa M. Manalac, Chief, Mineral Economics Section, 2) Ms. Marjorie C. Martinez, Mineral Economics, Information and Publication Division, and, 3) Mr. Rommel Pestano, Mining Engineer.

4 The PSIC is patterned after the UN International Standard Industrial Classification (UN-ISIC). The PSIC is a detailed classification of industries prevailing in the country based on the productive activities undertaken by establishments. The latest version of the PSIC is the 2009 PSIC, patterned after the UN ISIC Rev. 4. The 1994 PSIC had 3 major sectors; the 2009 PSIC has  21 sections.

5 The others are Manufacturing, Construction, and Electricity, Gas,  & Water Supply (EGW).

6 With the assistance of the World Bank, and previously of the Asian Development Bank and the AusAid, thru the Philippine-Australian Governance Facility,  the PSNA has incorporated a number of the recommendations under the 2008 SNA.

7 A more detailed discussion of the general estimation methodology in the PSNA will be one of the outputs of the  World Bank project. 

8 The 2008 SNA actually recommends the use of Chain Volume Measures, but very few countries have been able to implement this recommendation.

9 For the same period, the average shares of AHFF and Services were  13.3  and  53.5 percent, respectively.

10 From the Gold/Siver Commodity Profile publication of the Mines and Geosciences Bureau, 2012

11 Poverty incidence and other measures of poverty, including the income gap, are computed every three years, the latest of which is for 2009.  While the 2012 poverty statistics are still not available, pending availability of the results of the 2012 Family Income and Expenditure Survey (FIES), for purposes of this analysis, the cost of eradicating poverty for 2011 (using income gap) was computed by assuming the same level of poverty situation since 2009.

12 We received comments from Ms. Nelia C. Halcon, last April 12, 2012 which we are sharing with the readers of Statistically Speaking. Ms. Halcon is currently the Executive Vice President of the Chamber of Mines and formerly the Chief of the Mineral Economics Division of the Mines and Geosciences Bureau (MGB). She served the Bureau for more than 20 years.

 

Table 1. Growth Rate and Share of Mining and Quarrying to
Gross Domestic Product (GDP),
in constant 1985 prices

table1
table
Source: National Statistical Coordination Board

 

figure1

figure2

 

TABLE 2. GROSS NATIONAL INCOME AND GROSS DOMESTIC PRODUCT BY INDUSTRIAL ORIGIN
1998 TO 2010
Percent Distribution

table2
Source: National Statistical Coordination Board

 

Table 3. GROSS VALUE ADDED OF INDUSTRY
1998 TO 2010
Percent Distribution

table3
Source: National Statistical Coordination Board

 

Table 4. EMPLOYMENT BY INDUSTRY
1998-2010
(In Thousands)

table4
Source: Labor Force Survey, National Statistics Office

 

Table 5. EMPLOYMENT BY INDUSTRY
1998-2010
(Percent Distribution)

table5
Source: Labor Force Survey, National Statistics Office

 

Table 6. EMPLOYMENT BY INDUSTRY
1998-2010
(Growth Rates)

table6
Source: Labor Force Survey, National Statistics Office

Table 7. GROSS VALUE ADDED IN MINING AND QUARRYING
1998-2010
Percent Distribution

table7
Source: National Statistical Coordination Board

 

Table 8. SELECTED MINERAL RESOURCE/RESERVE INVENTORY OF THE PHILIPPINES, by REGION
as of 2010

table8
Source: Mines and Geosciences Bureau (MGB)

Table 9. World Market Price of Gold
1998-2011

table9
Source: Mines and Geosciences Bureau

 

Table 10. Estimation of Value of Philippine Gold Resources/Reserves Inventory

table10
Notes on the Scenarios:
1. A mineral resource falls under the category of a "measured" resource when it is has been subjected to detailed exploration and study.
2. Scenario 1: 1/4 of the resource base is subjected to detailed exploration and study; the level of confidence of the resource is lower.
3. Scenario 2: 1/3 of the resource base is subjected to detailed exploration and study; the level of confidence of the resource is higher than Scenario 1.
4. Scenario 3: 1/2 of the resource base is subjected to detailed exploration and study; the level of confidence of the resource is much higher than Scenario 2
.

Conversion factors:
1. 1 Kg = 32.1507 troy oz
2. Price of Gold in 2011: $1,570.2 or PhP68,006

Source of basic information: Mines and Geosciences Bureau

Table 11. GOLD MINERAL RESOURCE/RESERVE INVENTORY
OF THE PHILIPPINES, by REGION
as of 2010
Percent Distribution

table11
Source: Mines and Geosciences Bureau (MGB)

 

Table 12. Export of Gold
1998-2010

table12
Source: Mines and Geosciences Bureau (MGB)
Source document: Monthly Report on Production, Sales, Inventory of Metallic Minerals and Employment Data (MGB Form 29-1, Series of 2000)

 

Table 13. Approved Foreign Direct Investment (FDI) by Industry
2003 - 2010
In Million Pesos

table13
Note:
1. Available data of Approved FDIs compiled by Industry is from 2003 onwards

Source: National Statistical Coordination Board (NSCB)

 

Table 14. Approved Foreign Direct Investment (FDI) by Industry
2003 - 2010
Percent Distribution

table14
Note:
1. Available data of Approved FDIs compiled by Industry is from 2003 onwards

Source: National Statistical Coordination Board (NSCB)

 

Table 15. Approved Foreign Direct Investment (FDI) by Industry
2003 - 2010
Growth Rates

table15
Note:
1. Available data of Approved FDIs compiled by Industry is from 2003 onwards

Source: National Statistical Coordination Board (NSCB)

 

Table 16. Approved Foreign Direct Investment (FDI) in Mining and Quarrying by Country of Investor
2003 - 2010
In Million Pesos

table16
Note:
1. Available data of Approved FDIs compiled by Industry is from 2003 onwards

Source: National Statistical Coordination Board (NSCB)

 

 

Posted: 10 April 2012

 

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