SC bans 3 mining firms for violating 60-40 rule

Categories: Business Updates

Date Posted: 30 Jun 2014

THE Supreme Court (SC) has barred three mining companies from operating in the country for violating provisions that limit foreign ownership in mining firms, particularly those covered by the mineral production-sharing agreement (MPSA), to 40 percent.

In a decision penned by Associate Justice Presbitero Velasco Jr., the Court’s Third Division affirmed the 2010 ruling issued by the Court of Appeals that disqualified Narra Nickel Mining and Development Corp., Tesoro Mining and Development Inc. and McArthur Mining  Inc. from exploring the country’s rich natural resources, particularly  in Palawan.

The case stemmed from the case filed by Filipino-owned mining firm Redmont Consolidated Mines Corp. before the Panel of Arbitrators (POA) of the Department of Environment and Natural Resources (DENR) against the three companies claiming that they are owned and controlled by MBMI Resources Inc., a Canadian company, and are, therefore, disqualified from engaging in mining activities through MPSAs, which are reserved to companies that are 60-percent Filipino-owned.

Redmont took interest in mining and exploring certain areas in Palawan, but discovered that the areas have pending applications for MPSAs in the names of Narra, Tesoro and McArthur.

The applications for MPSA assigned to Narra, Tesoro and McArthur mining companies in 2006 or earlier covered more than 12,100 hectares in Palawan.

On December 14, 2007, the POA ruled that the three companies are foreign corporations and are disqualified to engage in mining activities.

Their MPSAs were declared null and void. It also gave due course to Redmont’s applications for exploration permit.

However, the Mines Adjudication Board (MAB) reversed the POA in its September 10, 2008, decision.

It ruled that it is the Securities and Exchange Commission, and not the POA, that has jurisdiction on the issue involving the nationality of a mining corporation, and that POA has no power over disputes on MPSAs.

When MAB denied its motion for reconsideration, Redmont elevated the case to the CA, which ruled in its favor on October 1, 2010.

“A grave violation of the Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under our country’s nose through a myriad of corporate layering under different, allegedly, Filipino corporations,” the SC said.

It pointed out that “the intricate corporate layering utilized by the Canadian company, MBMI Resources Inc., is of exceptional character and involves paramount public interest since it undeniably affects the exploitation of our country’s natural resources.”

“Finally, the instant case is capable of repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy Filipino corporations through various schemes of corporate layering and conversion of applications to skirt the constitutional prohibition against foreign mining in Philippines soil,” it stressed.

In their petition before the SC, the three mining firms sought the reversal of the CA ruling, saying the issue has become moot and academic because their MPSAs have been converted into a financial or technical assistance agreement (FTAA).

They also pointed out that the best tool to determine the nationality of a corporation is the “Control Test” as stated in the Foreign Investment Act of 1991.

The High Tribunal noted that while the controversy was pending before the CA, Redmont challenged before the Office of the President the FTAAs that have been issued to the three mining companies.

President Aquino, in a decision issued on April 6, 2011, canceled and revoked the FTAAs for violations of the Constitution, the Small Scale Mining Law, the Environmental Compliance Certificate, the Foreign Investment Act and Executive Order 584.

The SC noted that the manifestation filed by Narra, Tesoro and McArthur on October 19, 2012 that the foreign-ownership issue being hurled against them has become moot as MBMI was able to sell/assign all its shares/interest in the “holding companies” to DMCI Mining Corp., a Filipino corporation.

But the Court held that such move “only proves that they were in fact not Filipino corporations from the start.”

“The recent divesting of interest by MBMI will not change the stand of this Court with respect to the nationality of petitioners prior to the suspicious change in their corporate structures.  These new documents filed by petitioners are factual evidence that this Court has no power to verify,” it stressed.


Written By: Joel R. San Juan


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