Open Pit Mining Ban – Should the Philippines Jump Onto the Bandwagon?

By on November 17, 2017

By Fernando Penarroyo

 

Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law Offices (www.punopenalaw.com). He specializes in Energy and Resources Law, Project Finance and Business Development.

 

Open pit mining or strip mining is a method of extraction for ore or some energy resource that occurs at the surface of a mining site. In contrast with underground mining, surface mining is much more efficient and offers some advantages over deep shaft or underground mining.

It is more cost effective than shaft mining because more ore can be extracted quickly and efficiently. The working conditions are safer because there is less risks of flooding, cave-ins, rockfalls or release of toxic gases.

Open pit mining is the preferred method for mining gold, silver, copper, nickel, iron, coal and uranium. It is more economical and efficient as it is cheaper to operate an open pit mine because less manpower and equipment are required. Space is not restricted in open pit mining.

Trucks and mining machinery are free to move around as they need to. More machines can move more ore and haul off waste rock more quickly. Open pit mining also uses larger extraction vehicles, increasing the amount of ore harvested per day.

Unfortunately, this economy comes with a strict environmental cost, because the surface environment is destroyed and polluted during the mining process. An open pit mining operation virtually eliminates any biologic life at the surface.

Vegetation is stripped, and the surface at the dig site is left completely barren. Without replanting and restoring the ecosystem, a strip mining site can take decades to recover. Abandoned mining pits can also pose extreme risks. The slope of the mining walls can be steep or even vertical, and the structural stability of access points is constantly changing as erosion occurs. Without vegetation to stabilize the surface, landslides and rockslides can occur without warning.

The environmental impacts of large mining operations, particularly surface mines, may include surface disturbances, fugitive dust, and contaminated mine waters from ex-posed mine walls and waste piles.

Acid mine drainage or AMD, is a serious environmental concern associated with strip mining. AMD occurs when sulfide-rich rocks that contain ore are broken down from exposure to water and air at the surface.

The sulfides form sulfuric acid, which dissolves nearby rock and releases dangerous metalloids into local streams and groundwater. This polluted water can kill life along water sources for miles.

Philippine Open Pit Mining Ban

During his confirmation hearing in Congress, the Secretary of the Department of Environment and Natural Resources (“DENR”), Roy Cimatu said that he will uphold President Rodrigo Duterte’s plans to ban open-pit mining. Duterte said he agreed with banning open pit mining given the environmental damage. By issuing DENR Administrative Order (“DAO”) No. 2017-10 entitled “Banning the Open

Pit Method of Mining for Copper, Gold, Silver, and Complex Ore”, Regina Lopez, Cimatu’s predecessor, imposed a ban on open pit mining during the 10 months she served as DENR Secretary-designate before being replaced after failing to win congressional confirmation.

Currently, DAO 2017-10, which has not been repealed, threatens the country’s mining industry with bans on future open pit mining projects like the Tampakan, Silangan Mindanao, and Kingking Projects, just to name a few.

The Chamber of Mines of the Philippines continues to lobby the government to lift the ban and in-stead implement the Mining Act of 1995, which recognizes open pit mining as an accepted method for mining shallow and near surface mineral deposits. It will also have adverse impacts to energy security as domestic coal production is mostly done through open pit mining.

Is DAO 2017-10 procedurally and substantively legal?

DAO 2017-10 is inconsistent with the provisions of the Constitution and the Mining Act of 1995. Citing open pits as perpetual liabilities causing adverse impacts to the environment due to the generation of acidic and/or heavy metal-laden water, erosion of mine waste dumps and/or vulnerability of tailings dams to geological hazards, DAO 2017-10 thus ordered.

“The use of the open pit method of mining for the extraction of copper, gold, silver and/or complex ores is hereby prohibited. Mining contractors who have not commenced commercial operation but have approved Declaration of Mining Project Feasibility for open pit mining are given a period of six (6) months to review their planned mining methods accordingly.”

Locally, several local government units in the Philippines have taken the initiative to ban all types of mining or open pit method of mining on the same basis cited by DAO 2017-10, to name a few:

  1. On November 23, 2009, the City Government of Occidental Mindoro passed an ordinance banning large scale mining exploitation for 25 years. The ordinance bans “land clearing, prospecting, exploration, drilling, excavation, mining, transport of mineral ores and products and such other activities in furtherance of and/or preparatory to all kinds and forms of large-scale mining in the province of Occidental Mindoro for a period of 25 years.”
  2. On June 2010, the Provincial Government of South Cotabato amended its environmental code and banned open pit mining. The environmental code of the province specifically states “open pit mining method and all other forms of mining shall not be allowed in the province of South Cotabato.”The Provincial ordinance caused the non-issuance of environmental compliance certificate (ECC) of Xstrata-Sagittarius Mines (SMI) Tampakan cop-per-gold project which is worth $ 5.9 billion. In its sustainability report, Xstrata-SMI has claimed that the Tampakan copper-gold project is a world-class 2.4-billion ton resource containing 13.5 million tons of copper and 15.8 million ounces of gold.The report further states that when developed, it has the potential to generate foreign investment amounting to over US$5 billion, employment opportunities for up to 8,000 to 9,000 people during construction and for around 2,000 during operations.
  3. On January 2011, Zamboanga del Norte banned open pit mining. The ban deeply affected the Canadian-backed TVI Resource Development Phils., Inc., which is into extracting gold, silver, copper, and zinc. It is estimated that since its operation TVI has paid excise taxes totaling P205 million in 2003-2010. Some 40% of that amount, or about P82 million, had gone to local governments hosting the project, as required by law. TVI stands to lose US$448 million in revenue for the closure of Canatuan copper-gold mine due to the ordinance.

Section 2, Article 12 of the Philippine Constitution recognizes mining as a viable method of utilizing our mineral sources. It states that:

“The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

However, the Philippine Mining Act of 1995 does not expressly prohibit open pit mining method as it allows mining in general. Section 3 states that “mine wastes and tailings” are defined as the “soil and rock materials from surface and underground mining and milling operations with no economic value to the generator of the same.”

The definition contemplates open-pit mining as an acceptable method of mining. In the exercise of its delegated legislative powers, DENR should conform with the Constitution and existing laws. In Metropolitan Bank and Trust Company, Inc. v. National Wages and Productivity Commission (G.R. No. 144322, October 1995) the Court clarified “that when the application of an administrative issuance modifies existing laws or exceeds the intended scope, as in this case, the issuance becomes void, not only for being ultra vires, but also for being unreasonable.”

It is worth mentioning that on 18 September 2012, the Department of Justice (“DOJ”) came out with Opinion No. 87, series of 2012 in response to the questions of the Department of Interior and Local Government (“DILG”) about local government ordinances that ban open-pit mining activities. In the seven-page legal opinion, the DOJ raised the general rule that ordinances are valid only if they are consistent with the Constitution and existing laws and that the national legislature is still the principal of the LGUs.

On 08 November 2012, the DILG issued Memorandum Circular No. 2012-181, which directed provincial, city, and municipal elective officials to confine themselves only to the imposition of reasonable limitations on mining activities conducted within their respective territorial jurisdictions that are consistent with national laws and regulations.

The DILG Memorandum Circular explained that local governments are inferior to the national government and the power of legislation of LGUs is merely a delegated power coming from Congress. Municipal governments are only agents of the national government and cannot act as superior to the principal or exercise powers higher than those of the national government.

The DILG, citing Lina v. Paño (G.R. No. 129093, 30 August 2001), stressed that the principle of local autonomy under the 1987 Constitution simply means “decentralization”; it does not make local governments sovereign within the state.” Governors and mayors were then directed to “take appropriate measures for the amendment of the provisions of existing relevant ordinances and guidelines…”

The Ban on Open Pit Mining Bandwagon

Broad & Fischer-Mackey explained that there have been indications that the era of unquestioning “extractivism” has ended and that at least some governments are initiating policies to incorporate environmental externalities, policies that suggest a changing development paradigm in the direction of environmental – and concomitant social and economic – ‘well-being’ as envisioned in “buen vivir”.

The ban on open pit mining is not novel and has been implemented in several jurisdictions abroad. In Central America, three countries—Costa Rica, Honduras, and El Salvador—imposed restrictions on future mining in their territories. Costa Rica has a national ban on open-pit gold mining.

The moratoriums on mining in Honduras and El Salvador, however, are ad hoc and temporary, similar to the moratorium Guatemala has already attempted. Similarly, scattered bans on the use of cyanide to extract gold from low-grade ore, commonly used in open-pit mining, are in place, including in Montana, USA. Germany, the Czech Republic, Hungary, Turkey and several Argentine provinces have cyanide bans.

In July 2012, Guyana placed a ban on the granting of new mining licenses for gold and diamond mining in rivers due to environmental and regulatory concerns, pending further study of the environmental impacts. In 2013, the Zimbabwean government banned “alluvial” gold mining (that is, along rivers, creeks and streams) due to environmental concerns.

El Salvador and Costa Rica are two nations where the governments have responded to pressure from poorer communities and from wider civil society to institute some types of moratoria on gold mining despite heavy pressure from foreign mining firms to allow mining.

Across the globe, governments are asserting domestic environmental regimes to stall or stop min-ing projects involving foreign investors. In turn, this trend has fueled a new generation of arbitration tribunals cases like the complaints against El Salvador and Costa Rica. Governments are also vulnerable to having their weak institutional practices e.g. approval of mining projects and EIAs, despite significant evidence of environmental and social harms, diminish the legitimacy of any decision to close a mine.

Recently, the government of El Salvador won a long-running legal battle when an international arbitration panel, the International Center for Settlement of Investment Disputes (“ICSID”) at the World Bank in Washington, ruled that the country did not have to pay compensation to a mining company that was denied a concession to drill for gold.

The ICSID, a body that arbitrates disputes initiated by private companies whose rights as investors have been allegedly violated by host governments, accepted El Salvador’s argument that the company, Pac Rim Cayman, did not meet all the legal requirements to receive a mining permit. The ruling was a relief to the El Salvadoran government, which faced a demand for $314 million in compensation from Pac Rim Cayman for the loss of expected profits from its mining venture.

The Interplay of Civil Society, Local Business and Government

A case study conducted by Broad and Cavanagh offers ample evidence to posit the following three conditions for governments to take action to protect the environment, even while sacrificing potentially lucrative foreign exchange earnings:

  1. The Citizen—conditions related to civil society: Poorer people, whose natural resource base is threatened by mining move from individual awareness to concern, to become organized, and to engage with other sectors of civil society in pressuring their government to implement policy changes.
  2. The Merchant—conditions related to domestic economic elites and a political economy argument: Segments of the domestic economic elite who have interests based in protecting natural resources are more powerful than the elite and corporate interests that benefit from exploiting minerals.
  3. The Prince—conditions related to governments: Individuals and agencies within democratic governments who are willing and able not only to respond to civil society, but also to understand the ecological realities of natural resource exploitation, play a central role.

Broad and Cavanagh cited that the Philippines would be a useful case for comparing and contras-ting the roles of the Citizen, the Merchant, and the Prince.

The Philippines has strong civil society organizations and a current government that includes individuals in the executive, legislative, and judicial branches that one might expect to be concerned about the environmental impacts of mining.

This raises the question of whether it is the domestic elite’s links to mining—and the underlying political economy of mining— that explain why the national government’s policy debate about mining has thus far focused on marginal reform (and increasing revenue from mining) rather than significant action to resolve environmental issues.

Related to this, in the Philippines, does mining and other extractive activity continue at least in part because the global mining elite has long established connections with local mining and extractives elites?

Implications of Open Pit Mining Ban

A government’s decision to ban open pit mining would result in some costs particularly the lost of mining revenues. However, some argue that a country will not benefit from mining until it adopts a law that accurately accounts for mining’s environmental and social costs. Another potential economic impact from a ban is a reduction in foreign direct investment. Finally, a mining ban may cost the country millions in arbitration costs.

Governments should be concerned about liability from investor lawsuits were it to decide to shut down current mining projects.

However, if due process is followed to implement domestic environ-mental regime, the government should not face liability for its decision. If on the onset, the government and the investor are aware that an open pit mining operation is the only way to go for a particular resource, the retroactive surface mining ban could result in liability for the government.

The mining company could assert unfairness arising from a change in the country’s legal regime that invalidated their reliance on the existing law at the time of the investment.

Alternatives to Open Pit Mining Bans

As alternatives to outright open pit mining bans, some governments have started to impose more extensive material use restrictions, mine location restrictions, and mine reclamation standards. Among the alternatives are:

  1. Material Use Restrictions

Legislation imposing restrictions on practices at the mining site, such as setting strict regulations regarding materials used in the mining process have often been resorted to.

Several jurisdictions have enacted outright bans on the use of toxic chemicals such as cyanide. Costa Rica’s 2010 ban on open pit mining included a general suspension of all exploration projects in which companies used cyanide and mercury to extract minerals.

The state of Montana first voted to ban the use of cyanide in 1998, while countries throughout Europe have been addressing and imposing restrictions on cyanide use since 1997.

However such bans have also faced challenges and lawsuits because concrete data supporting the effectiveness of cyanide bans have been limited.

  1. Mine Location Restrictions

Another common type of legislation is a restriction on the mine location. One of the goals in restricting areas available to mining was to prohibit the location of mining sites near headwaters of rivers and lakes. In 2010, Argentina adopted a national law calling for protection of glaciers. This translated into a national ban on mining on glaciers and “periglacial” areas.

  1. Mine Reclamation Restrictions and Standards

A third piece of legislation is a thorough set of mine reclamation standards particularly regulations that requires mining companies to obtain a bond to cover estimated mine closure and reclamation costs.

The bonds have the potential to be grossly inadequate in covering the actual costs of closing and restoring the mining site.

Pitfalls of an Open Pit Mining Ban

The Philippine government is fully aware that existing mineral agreements entail that some deposits can only be extracted through open pit mining given the available data already known to both regulators and developers.

An open pit mining ban would in effect cause these mineral agreements to be impaired if the ban is imposed. Needless to say, a ban on a particular extraction process is tantamount to an impairment of pre-existing contracts.

There are numerous reasons in support of governments honoring pre-existing contracts, which include the government’s desire to continue to collect the revenue from mining contracts and the motivation to maintain business standing and investment relationships.

The government has a legitimate interest in avoiding any breach of valid mining contracts which could result to expensive arbitration and litigation in addition to associated damages resulting from an adverse outcome of the case against the host government.

While the environmental footprint is visibly large, proper rehabilitation process using world’s best practice can lessen the impact of open pit mines. Another issue regulators face when enacting open pit mining ban is illegal mining, as illegal miners may continue to extract the minerals on un-supervised land. It could then be that an environmental disaster sought to be avoided through the imposition of an open pit mining ban is replaced by an equally disastrous consequence arising from unmonitored and uncontrolled illegal mining.

Conclusion

An open pit mining ban is not likely to be effective, given the country’s current legal framework.

The government should also be circumspect in imposing such a ban because it may open itself to arbitration and litigation exposing itself to claims for damages by affected mineral agreement holders. Imposing a ban will further aggravate uncertainties concerning the administration of environmental regulations, public policy and the legal system.

By not imposing a ban, the government can maintain an investment atmosphere conducive to risk capital and avoid the influx of illegal miners.

There are other forms of legislation that will achieve the the purpose of environment protection and preventing negative impacts on the health of surrounding communities.

Also, the government should strengthen the institutions involved in monitoring and supervising mining operations so that they will have the scientific and legal basis to close certain mining operations because of environ-mental degradation safety issues.

The government can thus develop the mining industry by attracting investments without compromising the protection of communities and the environment from the adverse impacts of open pit mining.

References

Casey Dawson, Why Honduras Should Not Jump on the Ban Wagon: A Study of Open Pit Mining bans and their Pitfalls, 37 Suffolk Transnat’l L. Rev. 67 (Winter, 2014)

Max Roman Dilthey, Open Pit Mining Pros & Cons

Raquel Aldana and Randall S. Abate, Banning Metal Mining in Guatemala

Robin Broad and John Cavanagh, Poorer Countries and the Environment: Friends or Foes? World Development Vol. 72, pp. 419–431, 2015

Robin Broad & Julia Fischer-Mackey, From Extractivism Towards Buen Vivir: Mining Policy as an Indicator of a New Development Paradigm Prioritising the Environment

Ronnie Daniels, The Advantages of Open Pit Mining (Updated April 24, 2017).

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