PASAR Restoration To Ramp Up Production


BMI View: We believe both mined and refined copper production in the Philippines are set to experience strong gro wth over the coming years given ongoing regulatory improvements and the scheduled release of several key mining projects. The restoration of The Philippine Associated Smelting & Refining Corporation (PASAR) should further bolster growth in the copper sector and help the government to achieve its intended shift towards producing more value-added output. Overall, we expect mined copper production in the Philippines to grow from 63kt in 2011 to 129kt by 2016, an average growth rate of 15.6% per annum.

We believe both mined and refined copper production in the Philippines is set to experience strong growth over the coming years given ongoing regulatory improvements and the scheduled release of several key mining projects. Our positive outlook on the country's copper sector is further brightened by the recent restoration of the Philippine Associated Smelting & Refining Corporation (PASAR) after a fire halted production in January. Overall, we expect copper production in the Philippines to grow from 63kt in 2011 to 129kt by 2016, an average growth rate of 15.6% per annum.

Momentous Growth Ahead
Copper Mine Production & Growth

The Philippines' exports of mined copper have increased more than sixfold over the past 10 years, from 11kt in 2002 to 86kt in 2011. On the other hand, the country's exports of refined copper have decreased over the period, from 143kt in 2002 to 123kt in 2011, a decline of approximately 14%.

Exports of Unrefined Copper To Surge
Philippines - Exports of Unrefined & Refined Copper (kt)

We expect China to remain the top export destination for mined copper from the Philippines. The country accounts for approximately 40% of the Philippines' copper exports in 2011, at more than 137kt of mined copper. This is followed by Japan, at 21% or 71kt of mined copper exports from the Philippines.

China To Remain Top Export Destination For Mined Copper
Philippines - Exports of Mined Copper (kt), 2011

Although the Philippines is in the lower-half of our Asia mining risk/reward ratings and is considered one of the most corrupt and challenging countries in the region to do business, we are generally optimistic about the country's future mining outlook. The government has issued a new set of regulations that will limit illegal small operations in the Philippines and ease investor concerns over the mining industry. It has also granted approval to some of the massive planned investments by foreign companies, best exemplified by Xstrata's $5.9bn plan to develop one of the world's largest untapped mining deposits in the southern Philippines over the next five years. In addition, President Aquino has mounted a credible campaign against corruption, with the recent ouster of chief justice, Renato Corona, being seen as a major achievement towards stamping out corruption for a country where impunity reigns.

Asia Mining Risk-Reward Ratings
Rewards Risks
Source: BMI
Industry Country Rewards Industry Country Risks Risk/Reward Ratings
Australia 57.5 61.4 58.9 87.5 86.9 87.2 67.4
Indonesia 62.5 52.5 59.0 54.6 44.9 49.7 56.2
Malaysia 42.5 65.4 50.5 61.6 73.7 67.7 55.7
China 55.0 51.8 53.9 49.1 69.1 59.1 55.4
Philippines 50.0 50.8 50.3 51.7 41.5 46.6 49.2
India 45.0 43.1 44.4 63.2 53.2 58.2 48.5
Japan 17.5 63.3 33.5 84.4 77.9 81.1 47.8
South Korea 10.0 70.7 31.2 74.7 57.5 66.1 41.7

The scheduled release and expansions of several key mining projects should continue to drive copper production in the country over the coming years. Due to the country's proximity to China and the resultant low shipping costs, copper mining companies in the Philippines have fared very well in recent years, although political risks remain and could serve to curtail production. Most of the production growth will occur during the end of the forecast period due to the Tampakan mine coming online in 2015 and 2016. In the near term, we do not expect any substantial growth drivers as most of the existing copper projects in the Philippines are still in the early to mid-level exploratory stage.

Table: Key Copper Projects And Expansions
Company Mine Capacity/Reserves Status/Year
Source: Bloomberg, Company reports
Bezant Resources Manyakan 34.1ktpa copper metal over 42-year mine life Awaiting pre-feasibility study
Cadan Resources Kalamatan Target resource of 270kt to 2.9mnt contained copper metal Undergoing drilling programme
Cadan Resources Tagpura Maangob Target resource of 3mnt to 11.9mnt contained copper metal Undergoing drilling programme
Copper Development Corporation Hinoba-an 36ktpa copper metal over 18-year mine life Undergoing pre-feasibility study
Philex Mining Bayugo Resource 995kt of copper, @ 0.84% grade Undergoing drilling programme
Philex Mining Boyongan Total reserves of 67.8mnt @ 0.87% copper for 590kt contained copper metal; Estimated mine life of 15 years Undergoing bankable feasibility study
Xstrata Tampakan 375ktpa copper metal over 17-year mine life 2016

We expect Thailand to remain the top export destination for refined copper from the Philippines. The country accounts for approximately 32% of the Philippines' copper exports in 2011, at more than 39kt of refined copper. This is followed by China and South Korea, at 27% and 20% of refined copper exports from the Philippines respectively.

Thailand To Remain Top Export Destination For Refined Copper
Philippines - Exports of Refined Copper (kt), 2011

Refined Production Also Set For Growth

PASAR's processing capacity could be further ramped up should Glencore International decide to embark on a planned investment of US$600mn to expand output at the company's Philippines copper smelter. The smelter at PASAR, which is 78.2% owned by a Glencore Subsidiary, has an annual processing capacity of 720kt of copper concentrate while the refinery has an annual capacity of 215kt of cathodes. We believe the restarting of PASAR's operations will significantly increase the country's capability to produce value-added products, in line with one of the trends we see in Indonesia. The Philippines government aims to shift its mining industry towards producing more value-added output by setting up processing plants and raising more revenue from its largely untapped $1 trillion mineral resources.

This article is tagged to:
Sector: Mining
Geography: Philippines, Philippines, Philippines, Philippines

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