Manila's Philex seeks new mines ahead of Padcal closure

MANILA Fri Mar 23, 2012 11:45am EDT

MANILA (Reuters)- The Philippines' top miner of gold and copper, Philex Mining Corp (PX.PS), expects to bring a new $1-billion mine into commercial production by 2016 and wants to acquire operating mines to sustain profitability, the company's president said.

Philex, controlled by Hong Kong-listed conglomerate First Pacific Co Ltd (0142.HK), is also exploring ways to extend the production life of its only operating mine, Padcal in the northern Philippines, which is one of the country's oldest.

"Padcal will be shutting down by 2020," Eulalio Austin said at the Reuters Mining and Metals Summit on Friday. "And with the declining quality of its ore, we also expect our copper and gold output to drop, and that will naturally hurt our revenue."

He said construction of the company's new $1-billion Silangan mine in the mineral-rich southern Surigao del Norte province would begin in 2014, with the mine scheduled to come on stream two years later.

Acquiring new mines or opening new ones will help cushion the revenue impact of the expected decline in Padcal's output, said Austin, who is also chief operating officer of the $2.3-billion firm that has been operating since 1958.

Philex, the country's largest miner of gold and copper by volume, was in talks to acquire operating mines in the Philippines, Austin said, but he declined to give details, citing confidentiality concerns.

"We are pushing for acquisition of operating mines because that's easier than opening new mines, with all those permit requirements," he said at the summit, held at the Reuters office in Manila.

HOPEFUL FOR SILANGAN

Amid an uncertain business environment, Philex hopes the Silangan project and possible acquisitions will sustain its profitability, Austin said.

Philex made a record net profit of 5.8 billion pesos ($135 million) last year, up 45 percent from the previous year, fuelled by higher output and metal prices.

But unease is growing in the Philippine business community over proposals to increase the government's share of mining revenues through higher taxes and a possible review of existing contracts.

The Philippines is preparing to issue a new mining policy that would raise tax revenues and overhaul rules but which miners believe will kill the industry and drive investors away from the country's largely untapped $1-trillion resource base.

Still, Austin said those challenges would not stop Philex from pursuing the Silangan project, on which it will spend 3.3 billion pesos this year, or two-thirds of its capital expenditure budget of 4.7 billion pesos, to pay for access rights and land banking.

Silangan, which has a 25-year mine life, is estimated to hold 5 billion pounds of copper and 9 million ounces of gold, valued at more than $30 billion, based on last year's metal prices.

The project is adjacent to the Kalayaan copper-gold prospect, which Philex plans to explore with partner Manila Mining Corp (MA.PS).

DECLINING PADCAL OUTPUT

Austin said Philex aims to produce 9.4 million metric tonnes (10.36 million tons)of ore from Padcal this year, which will match last year's record output of 9.5 million tonnes or ore, which yielded 130,000 ounces of gold and 36 million pounds of copper.

Padcal, which has been operating non-stop since 1958, is estimated to have ore deposits of about 80 million tonnes remaining.

Philex sells about 60 percent of Padcal's output to Japan's biggest copper smelter, Pan Pacific Copper, part of JX Holdings Inc (5020.T), and the rest to smelters in South Korea and China.

"We cannot produce more from Padcal unless we install an additional conveyor linking the underground part with the surface," he said, adding that this year's output is expected to be of lower grade than last year's.

"Exploration work is ongoing in Padcal and we will know roughly three years from now if we can extend the mine's life beyond 2020."

Austin said Philex was also looking to reopen its rehabilitated Bulawan mine in central Negros Occidental province, which was shut in 2005, hurt by the drop in metal prices.

Philex closed steady in a market .PSI that ended flat. Its shares have fallen about 3 percent this year, bucking the broader market's gain of 15 percent.

($1=43 pesos)

(Editing by Clarence Fernandez)

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