VZCZCXRO6112
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHML #1886/01 2210623
ZNR UUUUU ZZH
P 080623Z AUG 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC PRIORITY 1525
INFO RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RHHMUNA/USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 MANILA 001886 
 
SENSITIVE BUT UNCLASSIFIED 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, EB/ESC, AND EAP/PMBS 
DOE FOR TOM CUTLER 
USDOC FOR 4430 ITA/MAC/DBISMEE/KBOYD 
BANGKOK FOR REO JAMES WALLER 
STATE PASS DEPT OF INTERIOR FOR USGS 
STATE PASS USAID 
 
E.O. 12958: N/A 
TAGS: EMIN SENV ECON EINV PGOV RP CM
SUBJECT: Mining in Mindanao: Not Meeting Its Potential 
 
REF: A) Manila 1610 B) Manila 1790, C) Manila 1677 
 
¶1.  (SBU) Summary: The mining sector holds great promise for the 
economic development of Mindanao.  However, reputable mining 
companies currently operating in this region face many challenges, 
including lawlessness, insurgent violence, encroachments by 
small-scale miners, populist resistance, corrupt local officials, 
and banditry.  Working with, rather than around, local interest 
groups would do much towards reducing violence and increasing the 
industry's ability to contribute to the prosperity of Mindanao and 
peace in the region.  This is one in a series of cables on the 
economic challenges of Mindanao, a region often associated with 
poverty and instability (Ref A).  End Summary. 
 
Large-scale is Better 
--------------------- 
 
¶2.  (SBU) While the Philippines as a whole is rich in mineral 
resources, Mindanao is particularly well-endowed with 46% of the 
country's chromite deposits, 41% of its nickel, 34% of its gold, and 
29% of its copper.  However, extracting these reserves in a way 
acceptable to the people of the region has proven difficult.  The 
mining sector's greatest potential contribution to Mindanao's 
development lies in its ability to attract large-scale mining firms, 
many of which are foreign.  Only these firms have the technical and 
financial capacity to undertake mining operations that benefit host 
communities in an environmentally and socially responsible way. 
These large-scale mining firms secure permits from the national 
government, which requires them to obtain environmental impact 
statements, commitments to required labor standards, and detailed 
operational plans before work can begin.  However, these permits do 
not address the other challenges that these mining firms will face 
once in Mindanao. 
 
Encroachment 
------------ 
 
¶3.  (SBU) One of the most significant challenges facing large-scale 
mining operations is dealing with the current residents of the lands 
to which they have obtained mineral rights.  These residents could 
be squatters who are recent arrivals seeking to exploit mineral 
riches for their own gain without permission from Manila, or they 
could be indigenous people with ancestral, albeit unrecognized by 
the legal system, claims to the mineral-rich areas.  The absence of 
clear, uncontested land titles in Mindanao has made it almost 
impossible to clearly distinguish between the two groups.  In some 
cases, squatters and/or indigenous people may even be working for 
local political or commercial power brokers intent on exploiting 
mineral deposits for their own gain. 
 
¶4.  (SBU) Squatters often occupy mineral-rich lands before the lands 
are contracted to large-scale mining firms, extracting minerals 
without the permission or knowledge of the national government. 
Small-scale mining, as is done by squatters and indigenous folk 
alike, is generally not subject to environmental regulation and uses 
methods that result in greater environmental damage, dangerous 
working conditions, and relatively inefficient mineral production. 
Yet, local power brokers may prefer these small-scale operators 
because they are easier to squeeze for a share of the earnings. 
 
¶5.  (SBU) Different regulatory treatment between large and 
small-scale miners is a problem as well.  Small-scale miners pay 
local, not national, taxes.  Large-scale miners pay royalties and 
taxes to the national government, which then, in theory, returns 40% 
to the local government unit responsible for the mining area in 
question.  Such transfers are reportedly often delayed or 
conveniently forgotten.  As a result, local officials have 
additional strong incentives to favor small-scale miners at the 
expense of large-scale miners.  According to Embassy contacts in the 
mining industry, local officials often collude with small-scale 
miners and ignore their presence on lands contracted to large-scale 
companies. 
 
¶6.  (SBU) Near Canadian-owned TVI Pacific's mine in the Zamboanga 
Peninsula of Western Mindanao, small-scale miners have banded 
together to exploit the richest gold and silver reserves of TVI's 
exploration area.  Furthermore, local government officials have 
attempted to undermine TVI's contract with the national government 
by declaring the area in question a "people's mining area," open 
only to small-scale miners. 
 
MANILA 00001886  002 OF 003 
 
 
 
Popular Resistance 
------------------ 
 
¶7.  (SBU) Large-scale miners also face resistance from local 
Catholic Church leaders, leftist politicians, insurgent groups, and 
sometimes the broader population.  Catholic bishops in Mindanao 
recently reiterated their opposition to all large-scale mining on 
the grounds that "mining can never be sustainable."  The influence 
of the Catholic Church on Filipino culture magnifies these views 
among the broader population.  Environmental damage at mining 
operations in the late 1990s drives much of this negative sentiment 
to this day.  Some bishops in South Cotabato Province of southern 
Mindanao have called for a provincial ban on all open-pit mining, 
which would close the national government-approved Swiss and 
Australian-owned Tampakan project in one of the world's largest gold 
and copper areas. 
 
¶8.  (U) Insurgent elements, such as the Moro Islamic Liberation 
Front (MILF), also oppose large-scale mining because they feel that 
the Moro (read Muslim) people pay all the costs in terms of 
environmental damage and social disruption, but receive none of the 
benefits.  In a press release recently published on its website 
"Luwaran", the MILF said, "Spare the remaining natural resources for 
our people and not for the benefits of those huge multinational 
companies and their local contacts whose interests do not 
necessarily jibe with the masses of our people." 
 
Banditry 
-------- 
 
¶9.  (SBU) Insurgent groups, such as the MILF, the New People's Army, 
and others, run banditry operations near mining concessions.  Since 
law enforcement in rural areas of Mindanao is spotty, both large and 
small-scale miners frequently operate under "protection rackets." 
Miners privately admit to paying fees or "revolutionary taxes" to 
bandit groups on a regular basis to avoid trouble, or even for 
protection.  The Filipino owner of a gravel mine in a 
conflict-affected area near Iligan City told Embassy officers that 
every truckload of gravel that leaves his mine is forced to stop and 
pay an unofficial tax. 
 
Pay Up, or Suffer the Consequences 
---------------------------------- 
 
¶10.  (U) One company that did not succumb to this extortion was Apex 
Mines, partly owned by UK-based Crew Gold Corporation.  Apex 
operates a gold mine in the Compostela Valley of southern Mindanao. 
In March 2008, members of the New People's Army (NPA) disarmed the 
mine's guards and set fire to buildings and mining equipment.  The 
local police chief attributed the attack to the company's 
unwillingness to pay the extortion money demanded.  This was the 
third time NPA rebels had attacked the mine, burning mining 
equipment each time. 
 
¶11.  (SBU) Revolutionary taxes and small-scale mining at Mount 
Diwalwal, one of the country's largest gold fields, allegedly fund 
NPA operations in the area.  Rivalry among small-scale miners and 
among local politicians at the site has caused two decades of 
continuing conflict, leaving hundreds dead.  Unsustainable mining on 
the mountain left the area at risk for massive landslides as well. 
Between the political instability and environmental damage at the 
mountain, few reputable companies are willing to risk developing its 
gold reserves.  In April 2008, the Philippine Supreme Court ruled in 
favor of an agreement between the national government and the ZTE 
Company of China that granted exclusive mining rights in the 
Diwalwal fields to ZTE.  However, local officials have told Embassy 
officers that the agreement will be impossible to implement because 
locals, including themselves, do not support it. 
 
¶12.  (SBU) Comment: Development of mining in Mindanao also suffers 
from the same problems as it does in the rest of the Philippines 
(reported in ref C).  However, the greater level of violence and the 
less effective governance and rule of law in Mindanao makes these 
problems more serious there.  The potential of the mineral sector to 
truly contribute to economic development in the region will only be 
reached if violence is curbed, rule of law becomes effective, 
environmental regulations are effectively implemented, and public 
confidence in mining and in the government's environmental 
protection efforts are restored.  Given these enormous obstacles, 
 
MANILA 00001886  003 OF 003 
 
 
post does not plan on prioritizing mining in its policy reform 
efforts until at least the security situation in Mindanao improves. 
End Comment. 
 
KENNEY