THE PHILIPPINE MINING INDUSTRY: LEGAL AND ENVIRONMENTAL FRAMEWORK,

TYPES OF MINING PERMITS/CONTRACTS 1. Mining Lease Contracts (MLCs) 2. Exploration Permits (EPs) 3. Mineral Agreements 4. Financial or Technical Assistance Agreement 5. Mineral Processing Permit 6. Quarry Permit 7. Small-Scale Mining Permits 8. Sand and Gravel Permits 9. Ore Transport Permits

TYPES OF MINING PERMITS/CONTRACTS Under Presidential Decree No. 463 Declaration of Location (DOLs) A registered document attesting to the filing of a mining claim that allows the claimowner (mining applicant) to enter, occupy and conduct mineral exploration within the claimed area; With the enactment of the Philippine Mining Act of 1995, DOL-holders were given the priority right to apply for any of the new modes of permits/agreements under the mining law. Mining Lease Contracts A mining contract which allowed the lesee to explore, develop, extract and utilize minerals from the contract area; The Mining Act respected this contracts up to the end of its terms, after which it shall not be renewed, but eh lessee is given the preferential right to apply for a Mineral Agreement.

Mining Act of EXPLORATION PERMITS Allows the permittee to conduct exploration work for a limited period only. With a term of two (2) years, renewable for like periods, up to 8 yrs for metallics and 6 yrs. for non-metallics; Maximum area: 16,200 hectares/province; 32,000 has in the entire country. Area relinquishment: 25% for the first 2 years; Thereafter, 10% of area/year; Open to 100% foreign ownership; Priority to enter into either an MPSA or FTAA after submission and approval of Declaration of Mining Project Feasibility; Can be transferred or assigned to other qualified individuals/corporations.

Mining Act of Mineral Agreements a) Mineral Production Sharing Agreement (MPSA) Contractor has the exclusive right to conduct mining operations within a specified contract area. Limited to Filipinos or Filipino-owned corporation (Foreign equity not to exceed 40%); Minimum authorized capital of PhP 10 M and PhP 2.5 M paid-up Maximum area: 8,100 Hectares/Province; 16,000 Has for the entire country; 2 years Exploration Period (renewable); 3 years Construction and Development Period; the rest for production; Contract period of 25 years; renewable for another 25 years; Can be transferred or assigned to any qualified individuals/corporations; Can be converted into an FTAA

Mining Act of Mineral Agreements b) Co-Production Sharing Agreement An Agreement between the Government and the Contractor wherein the the former shall provide inputs to the mining operations other than the mineral resource. b) Joint Venture Agreement An Agreement where a joint venture company is organized by the Government and the Contractor with both parties having equity share. Aside from the earnings in equity, the Government shall be entitled to a share in the Gross Output.

Mining Act of Financial or Technical Assistance Agreements (FTAA) Minimum authorized capital: US$ 4,000,000; Minimum project construction cost: US$ 50,000,000; Open both to local and up to 100 % foreign-owned corporations; Maximum area: 81,000 hectares/applicant for the entire country; Area relinquishment: First 2 years - 25%; 10% annually thereafter; Mandatory Expenditures, per Hectare: Y1 & 2=$2/ha; Y3 & 4=$8/ha; Y5=$18/ha; Y6=$23/ha; Contract periods (max): Exploration – 6 yrs; Pre-Feasibility – 2 yrs; Feasibility – 2 yrs; Construction & Development – 3 years; the rest for production; Can be converted back into an MPSA; Can be transferred and assigned to qualified individuals or corporations ;

Fiscal Regime of FTAA Entitled to a 5-Year Cost Recovery Period During this period, the company is exempted from payment of various national taxes to enable the company to recover its pre-operating expenditures. After the initial investments have been recovered, or at the end of the 5-year period, whichever comes first, the company will start to pay the usual taxes and fees. Payment of Additional Government Share under the following coditions, subject to: Net-Mining Revenue: A portion of the difference between the cumulative Net Mining Revenue and the cumulative of the Government share to achieve a sharing.

TAXES AND FEES National Government Income Tax = 35 % of Taxable Income; Excise Tax = 2 % of actual value of minerals extracted; Customs Duties and Fees= prescribed under Tariff and Customs Code Value Added Tax= 10 % of Purchase Value of Goods/Services; Capital Gains Tax = % of the gain; Tax on Interest Payments to Foreign Loans = 15 % of Interest; Tax on Foreign Stockholders Dividends = 15 % of dividend Royalties, if extracted from government Mineral Reservation = 5% of market value; Documentary Stamp Tax = graduated, depending on type of business transaction Local Government Local Business Tax: usually minimal, rate depends on LGU; Real Property Tax: Max. of 2 % on Fair Market Value of Property; Occupation Fee: PhP 50.00/hectare/year (for non-mineral reservation) ; PhP /hectare/year (for mineral reservation) Community Tax : Approx PhP 15,000

FISCAL INCENTIVES 5-Year Income Tax Holiday; Deductions from Labor Expense; Tax and Duty Exemptions on Imported Capital Equipment Tax Credit on Domestic Capital Equipment; Exemptions from Contractors Tax; 5-year Cost Recovery Period for FTAAs; 5-year Income Tax Carry Forward of Losses, available anytime during the first 10 years of operations Income Tax Accelerated Depreciation

Other Permits: MINERAL PROCESSING PERMITS A 5-year Permit, renewable for like periods, up to a maximum of 25 years; Allows both local and up to 100% foreign-owned corporations; Requirement to submit adequate ore supply contract to justify the establishment of the processing plant; Can be granted for cement plants, smelters and refineries; beneficiation plants; marble cutting and processing plants, and others of similar nature.

Environmental and Social Provisions Environmental Impact Assessment All mining projects are considered to be environmentally critical and therefore subject to environmental impact assessment (EIA) and to secure the necessary Environmental Compliance Certificate from the Department of Environment and Natural Resources. Activities during the exploration period are, however, exempted from the EIA/ECC requirement. Environmental Work Program In lieu of the ECC requirement during the exploration period, all companies have to submit an Environmental Work Program (EWP) to correspondingly address any and all environmental impact that the exploration activities may incur. This EWP has to have a definitive financial commitment that has to be included in the annual exploration budget of the concerned company.

Environmental Protection and Enhance Program (EPEP) During the development and production periods, and in order to give support in attaining the objectives of the Environmental Compliance Certificate granted, the company has to implement a duly approved EPEP. This means that a company has to implement specific annual plans, programs and activities to institute environmental protection measures and/or rehabilitate mining-affected areas. Contingent Liability and Rehabilitation Fund (CLRF) The company has to deposit in a government bank a minimum amount to ensure just and timely compensation for damages and progressive and sustainable rehabilitation. The Fund has two components: Monitoring Trust Fund (MTF): Minimum of $1, to handle the expenses of a multi-sectoral Multi-Partite Monitoring Team (composed of national and local government, non-government organization or NGO, and company representatives) in the conduct of regular environmental monitoring; Rehabilitation Cash Fund (RCF): Minimum of $100,000 for the company to use to undertake environmental protection and rehabilitation measures; the amount to be replenished regularly.

Final Mine Rehabilitation/Decommissioning Plan Five (5) years before final decommissioning of the contract/mining area, company must submit to a Mine Rehabilitation Committee (composed of representatives from the National and Local Government, non-government organization, and from the company) a final mine rehabilitation and/or decommissioning plan(s), including its financial requirements up to post-decommissioning over a 10-year period for monitoring purposes. Mine Waste and Tailings Fees Payment of PhP 5.00 per Metric Ton of mine waste materials and Php per MT of mill tailings not utilized within a 2-year period; Payment of $1.00 pet MT for any discharge of solid materials for tailings not properly discharged into areas other than the duly approved tailings disposal area

Other Mandatory Environmental and Social Expenditures Allocation of approx. 10% of the total capital/project costs for the initial environment-related capital expenditures; Annual allocation of a minimum of 1% of the direct mining and milling costs to undertake/implement the companys Social Development Management Program; Royalty payment of 1% of the Gross Output for the Indigenous Cultural Communities, if the project/mining area falls within a duly recognized Ancestral Land or Domain.