By Erik dela Cruz
MANILA (Reuters) - Conflicting regulations and a freeze on new mine deals in the Philippines are strangling development of its rich mineral resources, with mining investment over the next four years at risk of being less than half the $12 billion touted by the government.
The Southeast Asian nation has huge mineral reserves, estimated to be worth $850 billion, ranking third in the world in gold, fourth in copper and fifth in nickel, according to the Philippine Mines and Geosciences Bureau agency.
But conflict between national and local rules, a strong anti-mining lobby and a recent bid to raise mining royalties are scaring off foreign investors, mining officials say.
Failure to attract investment may set back President Benigno Aquino's efforts to deliver inclusive growth, particularly in the countryside, as the nation struggles with the highest unemployment rate in Southeast Asia at 7 percent.
"Our industry today is at a crossroads," Benjamin Philip Romualdez, president of the Chamber of Mines of the Philippines, told a mining conference last week, pointing to the policy confusion and myriad rules holding back the sector.
The uncertain future of the $5.9-billion Tampakan project, one of the world's biggest copper-gold deposits, led by global miners Xstrata Plc and Indophil Resources N.L, underlines the risks foreign investors face.
Sagittarius Mines Inc, the Philippine unit of Xstrata and Indophil, now doubts it will be able to start commercial production at the undeveloped Tampakan mine, in South Cotabato province, by 2016 as originally slated due to local regulations.
The province imposed a ban in 2010 on open-pit mining -- to be used at Tampakan -- in stark contrast with national laws, under which such methods are permitted.
"With this policy inconsistency, investors will likely look elsewhere for stable rules," said Peter Wallace, head of the Wallace Business Forum in Manila, a consultancy which advises miners and other foreign firms on operating in the Philippines.
Investors are also waiting for a new mining tax after Aquino asked legislators to pass a measure that gives the government a bigger slice of revenue from minerals. At present, the state only collects a royalty of 5 percent of the gross revenue from 11 of 35 mines operating within so-called mineral reservation sites.
Manila has stopped approving new mineral agreements with foreign and local investors until the new law takes effect, although activity related to exploration can proceed.
House Speaker Feliciano Belmonte said on Tuesday the mining tax reform may not be passed by Congress ahead of midterm elections in May, with the measure likely to be taken up in the next legislative session in July.
The Philippine mining sector, along with other international competitors, also faces hurdles from a slowdown in the economy of top metals consumer China and weaker global prices.
Investment in mining, which once made up a fifth of the country's exports, amounted to $3.8 billion in the last six years, including about $700 million last year which was just half a government forecast.
The Tampakan mine, predicted to have a 17-year lifespan, is the biggest of several mining projects in the country, which the Mines and Geosciences Bureau had estimated would bring in up to $12 billion in new investment between 2012 and 2016.
Actual investment will be a long way short of that figure if the $5.9-billion project, expected to contain 15 million metric tons of copper and 17.6 million ounces of gold in the biggest undeveloped reserves in Southeast Asia, fails to get going.
Sagittarius has put construction on ice as it looks to convince the provincial government to reverse its ruling on open pit mining and win public support. Complicating the issue is the environment department's decision not to issue clearance for the project until the provincial ban is lifted.
"Until we have some clarity on where the ECC (environmental compliance certificate) is going, we can't really start giving a more definitive timeline," Sagittarius spokesman John Arnaldo told Reuters when asked about the project's commercial launch.
Aquino in July issued an executive order which, as well as including the proposed royalty increase, attempted to clarify the inconsistency between local and national mining rules, but it was silent on Tampakan and similar conflicts.
Sagittarius may have to go to court to end the ban on open-pit mining, South Cotabato Governor Arthur Pingoy has said.
One potential bright spot for the industry comes as the government and Muslim rebels on the island of Mindanao close in on a peace deal after nearly 15 years of violence-interrupted talks, potentially paving the way for more investment in the country's impoverished but resource-rich south.
But other frustrations are festering, with the mining chamber's Romualdez saying that some companies are planning to take the government to court over new rules that would call for revisions to mine deals after 25 years.
They are currently automatically renewed for another 25 years under the same terms and conditions, but the government says this should be changed to help improve returns.
Anti-mining sentiment is also hampering the sector, with a raft of environmental groups and the Catholic Church in the country opposing developments.
Khevin Yu, campaign officer for the Philippine Movement for Climate Justice (PMCJ), a non-governmental lobby group, described Tampakan as a "very dangerous project" that could trigger environmental calamities for the local population.
Security problems around the Tampakan site have restricted fieldwork by Sagittarius personnel. A security guard there was shot dead in June, media reported, about a month after another guard was injured in a similar shooting incident.
(Editing by Rosemarie Francisco and Joseph Radford)