NARRA NICKEL MINING AND DEV’T CORP., ET AL. V.

REDMONT CONSOLIDATED
MINES CORP.,
G.R. NO. 195580, 21 APRIL 2014
[VELASCO, JR., J.]

DOCTRINE:

There are two acknowledged tests in determining the nationality of a corporation: the control test and the
grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopts the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws pertaining to the controlling
interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens. The
first part of paragraph 7, DOJ Opinion No. 020, stating “shares belonging to corporations or partnerships
at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality,” pertains to the control test or the liberal rule. On the other hand, the second part of the DOJ
Opinion which provides, “if the percentage of the Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to such percentage shall be counted as
Philippine nationality,” pertains to the stricter, more stringent grandfather rule.

FACTS:

Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the DENR
separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and Development,
Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra) applications Mineral
Production Sharing Agreement (MPSA) on the ground that they are not “qualified persons” and thus
disqualified from engaging in mining activities through MPSAs reserved only for Filipino citizens.
McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino) owning
5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares;
MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation; Tesoro and Mining and
Development, Inc., is composed, among others, by Sara Marie Mining, Inc. (Filipino) owning 5,997 out of
10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also
owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.; Narra Nickel Mining and Development
Corporation, is composed, among others, by Patricia Louise Mining & Development Corporation (Filipino)
owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000
shares; MBMI also owns 3,396 out of 10,000 shares of Patricia Louise Mining & Development
Corporation;

ISSUES:

1) IS THE GRANDFATHER RULE APPLICABLE?

2) WHETHER MCARTHUR, TESORO AND NARRA ARE FILIPINO NATIONALS.

HELD:

(1) YES. The instant case presents a situation which exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual
participation, direct or indirect, of MBMI, the grandfather rule must be used. The Strict Rule or the
Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules which states, “but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of Philippine nationality.” Under the Strict
Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership.

(2) NO. [P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners’ corporate owners. xxx Noticeably, the ownership of the “layered” corporations boils down to
xxx group wherein MBMI has joint venture agreements with, practically exercising majority control over
the corporations mentioned. In effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are NOT Filipino nationals and must be
considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.