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Profitable and sustainable gold mining

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 january 2011  F E A T U R E

Profitable and sustainable

gold mining
industry monitor

Gold mining generates billions of revenues for both public and private sectors. Is there a way to manage extraction
rates to sustain both profits and resources?

Jovi C. Dacanay
Senior Economist

and

Kristina Castellano
Johann Dale Diaz
Rachelle Flores
Iñigo Taojo
Industrial Economics Program
UA&P School of Economics

M
ining activities exact a heavy toll on the environment. Though environmental
impact is minimized when operations are efficient, well-designed, and fully
compliant with regulations, it is undeniable that mining affects the environment
negatively.
Some of mining’s environmental effects: Habitat modification Gold deposits are usually
Erosion and sedimentation Water erosion transports found deep in the mountains where many organisms
large quantities of sediments, especially when rely on for survival. Terrestrial (grasslands, forests) and
disturbance of surface materials is significant, as aquatic (lakes, ponds, rivers) habitats are disrupted
in the mining process. The degree of erosion and and disturbed by the large consumption or release
sedimentation depends on the prevalence of vegetative of water, manipulation of topography, and release of
cover, type of soil, slope length, and degree of the chemicals.
slope. Erosion and sedimentation have the largest Surface and groundwater Mining firms require
effect on surface water and wetlands. Erosion affects massive quantities of water for their operations. This
social organisms and vegetation; revegetation efforts kind of large consumption causes a drawdown of the
are hindered because the topsoil and its nutrients are groundwater table (aquifers) which in turn reduces
diminished, making it harder to grow plants. water available for recharging wetlands and surface
Fugitive dust emissions Dust from mining activities water bodies, on which many organisms depend.
contain toxic metals such as arsenic and lead which Cyanide and other chemical releases and acid mine
contaminate the air and the surface water, causing drainage formation are effects of pollution from gold
sedimentation and turbidity problems. In large-scale ore processing.
earthwork—involving ore crushing, conveyance With all these environmental costs, studying the
of crushed ore, loading, blasting, mine and motor behavior of mining extractions becomes imperative.
vehicle traffic, use of hauling roads, waste rock piles, To be specific, we ask the following questions: (1)
and windblown tailings—dust emissions are large. Are there trends in extraction rate for specific time
F E A T U R E 

intervals? (2) When does the extraction rate increase equations and find an optimal level of extraction
or decrease? (3) What events affect the behavior of using computable equilibrium models
gold mining extraction rates? (4) In the long run, can b. Explore a model which can compute for
a specific extraction rate be sustainable? optimal costs of mining

Significance of the study Background

Gold mining is an important industry in the Gold has been part of Filipino culture since ancient
Philippines, especially in the regions of Mindanao times. In fact, the Ayala Museum in Manila holds
where not all lands are arable. Rich in minerals some of the oldest and most intricate gold jewelry
and ores, lands that would otherwise be idle can be made in Asia, long before other countries in the region
explored as mining sites. were producing gold jewelry.
Another reason is that Bangko Sentral ng Pilipinas The gold rush in the Philippines started in the
(bsp) needs equivalent gold reserves for the money 1980s. Gold extraction methods were less efficient,
they print. The bsp buys gold from different local and use of harmful chemicals like cyanide was a
producers, including abc Mining Corporation, the common practice. Gold prices rose to more than
subject of our study. US$800 per ounce in 1979, dropped to less than
$500/oz in 1983, and climbed back up to more than
Table 1 • Revenues from gold supply (2007-2009) $1400/oz today. Inefficient production processes and
2007 2008 2009
the high volume of extraction created a lot of waste
Total supply (tonnes) 3,920 3,862 4,147
that polluted rivers. Uncontrolled operations caused
erosion and destruction of the mountains, depleting
Value, P billion 108.3 111.0 110.8
gold stores and eventually leading to the closure of
Value, US$ billion 2.35 2.50 2.33
mining firms.
Source: Business Monitor International
A number of mining firms have begun efforts to
make their operations much more sustainable, not
Objectives, scope, and limitations just for their own profits but also for the preservation
abc Mining Corporation is a medium-scale mining of mining resources and the environment. New
company based in Tagum, Davao Del Norte, extraction methods that use less toxic chemicals
Mindanao. When the other big mining companies produce less pollutants, and innovations in extraction
in the country shut down during several financial processes mean higher output from lower intensity
crises in the country, abc saw it as an opportunity to activities.
innovate and raise productivity. The company hired
top engineers and updated its equipment, building Related literature
skills and operational capacity to gain leadership in Gold has long been considered an essential component
the industry. of official reserves for national banks, and is thus
Data used in discussions include price per gram, especially marketable. However, it is particularly
gold produced and sold, and rate of extraction. The vulnerable to depressed prices, perhaps especially
company is a price-taker and sells only to the bsp. Our over the next decade. As the long-term price trend
UNIVERSITY OF ASIA & the

regression only covers four years of gold production is downwards, mining technology has enabled
output, from 2007 to 2010, and only 2010 for gold extraction from low grade deposits, and further gold
extraction rates. Monthly data is used to get more sales by central banks are likely (Green, 2001). As
data points and so as to generate detailed trends. This to the importance of gold mining in productivity,
paper aims to: Weber (2001) claims the share of gold mining from
a. Quantitatively explain the rate of extraction emerging economies is almost 70%—third only to
THE PACIFIC

through time by utilizing regression processes and copper and iron ore mining. Gold mining however
is on the list of next-generation sectors at risk which

Not the company’s real name.
have nonperforming loans.
 january 2011  F E A T U R E
The World Commission on Environment and
Development (1987) defines sustainability as
“development that meets the needs of the present
without compromising the ability of future generations
industry monitor
to meet their own needs.” The initial assumption for
any mining resource is that minerals are unevenly
distributed and, unlike agricultural resources, cannot
be reproduced or replaced. Sustainability in the mining
context retains the idea that a particular mineral
has a finite quantity and that continual production
will eventually deplete the resource as they are non-
renewable (Mudd, 2007).
Increasing production leads to exhaustion occurring
earlier than if production were held constant. The
mining of a non-renewable finite resource is therefore
argued as clearly unsustainable because a mining
company must discover additional reserves or acquire
them to keep profiting (Mudd, 2007). On the positive
side, mining projects boost employment and generate
economic rent paid to governments, enabling
reinvestment to further develop human and physical
capital, improve living standards, and provide the
means for a better future (United Nations, World Bank
2002). Lins et al. (2007) summarizes on both accounts:
mining is an inherently unsustainable activity since it
is based on the extraction and development of non-
renewable resources but, on the other hand, mining
companies as production agents have the ability to
turn non-renewable resources into rents, a flow of
wealth above and beyond profit, which can be used
to generate sustainable development in the countries
and communities where they operate, given the right
incentives.
In the life-cycle of a mine, there are five phases
of mining operations: The first is prospecting where
the direct methods of discovery, normally limited to
surface deposits, consists of visual examination of
either exposure of the deposit or the loose fragments
that have withered away from the outcrop. The
second is exploration where the land is surveyed as
mineral deposit or an ore body, which includes an
estimation of the mineral deposits in the area. The
third is development and planning for mining safety
and permanence of passage for workers, machines,
ore, waste, air, water and utilities. The fourth is
exploitation where the mining method is decided
based on technology, environmental concerns, and
economics, including whether to engage in surface
mining with mechanical excavations or underground
mining or caving. Finally, the fifth is reclamation,
which is important in terms sustainability or meeting
economic and environmental needs of the present
while still providing for the future. Essentially, it is this
continually evolving cycle of deposits discovered and
developed versus the known prospects or resources
remaining which is a key issue surrounding resource
depletion or availability (Mudd, 2007).
The process that deserves emphasis in the viewpoint
of sustainability is that of exploitation, first in lieu
of extraction of a finite resource and second in the
processing of raw materials which create effluence in
the environment. The production cycle of extraction
includes operations such as drilling, blasting, loading
and hauling, and the trend in modern mining is to
eliminate or combine functions to increase continuity
of extraction. Extraction costs primarily consider the
depth of the deposit, where low-cost operations are
mined first followed by the harder mine deposits. Xose
(2009) claims that changes in geologic characteristics
can limit the productivity and economic growth of a
mining operation. According to Green (2001), two
costs have to be taken into consideration. The first
type of cost is current extraction costs; the second, the
loss of future net receipts, reflects the fact that as the
mine is depleted, society loses a potential source of
future income.
Effluence levels in the environment from mining
operations have been attracting public attention. Lins
et al. (2007) mention that mining companies have
sought to reduce emissions of carbon, nitrogen and
sulfur dioxides generated in smelting and combustion
processes. In the case of gold, which requires mixing
cyanide in water to separate the metal from the ore, the
safe disposal of tailings—the mixture of wastewater,
chemicals and ore left over from the extraction
process—is at issue.
Given the considerations that need to be taken into
account, mining is extremely risky. According to the
un and wb report (2002), a geological reserve has no
guarantee of being successfully developed what with
legal and political requirements for environmental and
social impact assessments, pre-operating expenditure,
borrowing costs and commodity prices, and given
that mining companies are essentially price-takers
F E A T U R E
in the marketplace. Mudd (2007) is of the view that
mining is inextricably linked to economics and social
issues such as land use, giving rise to more exploration
as prices rise due to preceived shortages in supply.
Mineral prices are highly volatile, and have generally
not kept pace with inflation. The mining industry has
generated low return on investment, and marginal
returns lead to many mines being closed suddenly
before the ore body is depleted (Green 2001).
Lins et al. (2007) suggest that various factors must
be taken into account, including public investments
and payments made to the government in addition to
the traditional factors, such as net sales, payments and
debts. One of the fundamental questions posited by the
un for mining industries concerns what information
financial institutions and financial markets need to
properly assess the risks associated with any project
so as to sufficiently incorporate those risks into their
financial costs.
An initial suggestion by the un was to go “back to
basics” on benefit-cost analysis to ensure that all costs
are included, as well as a public-private partnership
where the private sector determines the pace of mineral
development and the government provides policies
and regulations that ensure accuracy and integrity
of information disclosed by the mining companies.
Green (2001) states that sustainability implies
requiring proponents to go beyond minimizing
damage, with mining companies contributing to
improving ecological and community conditions for
the long term, and that durable net gains should be
maximized. In terms of intergenerational equity, this
means ensuring that the capital future generations
inherit, both natural and human made, is no less than
the current capital stock (Green, 2001).
More empirical frameworks have been put forward
by other authors. Xose (2009) for example explains
an index for economic sustainability in mining in
terms of corrected total factor productivity, which
includes technical change, subequilibrium, scale,
allocative inefficiency, and resource depletion. Lins et
al. (2007) reports that frameworks such as the Global
Reporting Initiative (gri) 2002 includes specific
performance indicators as well as principles for good
reporting, such as completeness and materiality
emphasizing on a specific time span. gri guidelines
are periodically updated to include new criteria of

importance to stakeholders, such as intangible or
“external” factors that have not been previously used
to judge a company’s value (Lins et al., 2007). Mudd
(2007) studied the production history of mines by
looking at changes in ore grade for various minerals
and metals as well as quantifying production wastes
where possible. “Life cycle assessment” attempts to
assess the total cost to produce a unit quantity of a
particular metal, accounting for water and energy
consumption, toxicity, and the effects of recycling
with trends of ore grades, amount of waste materials,
and the extent and success of rehabilitation (Mudd,
2007). Following the assumptions of Greenspan
(2001) mentioned earlier, to determine sustainable
income, net revenue is divided into an income stream
and a user cost stream. The principle is that the user
cost stream would be based on the amount that needs
to be reinvested to provide a permanent income
stream once the ore body is depleted. Eggert (2001)
suggests calculating upfront costs of mine design,
construction, and equipment purchase; ongoing costs
of operation, maintenance, new-reserve development,
and environmental remediation; and final costs of
closure with an application of valuation for future
costs and benefits.
Experience however has shown that proposed
frameworks for the sustainability of mines are either ill
defined or are hard to implement. A fundamental flaw
in approaches to sustainable development is they do not
recognize that economies must be constrained within
ecological limits and where there is such recognition,
the limits are not explicitly identified, nor are
measures put in place to ensure they are not exceeded.
According to the un (2002), financial markets have
failed to distinguish between mining projects that
present better or worse risks, thereby under-pricing
bad risks and over-pricing good risks, and if financial
markets were given the ability to distinguish these risks
UNIVERSITY OF ASIA & the
more realistically, better investment decisions could be
made, thereby increasing the availability of financing
for well run projects. Adaptive management in terms
of resource extraction is subject to a wide variation
in interpretations, and is often misinterpreted as
“using information as it becomes available to modify
THE PACIFIC
decisions” or as an excuse for flexible management
(Green, 2001). Green, on the other hand recognizes
the problems involved in valuing capital, in particular
 january 2011  F E A T U R E
natural capital, and in determining the conditions
under which total capital stock is kept intact.
Further prospects in sustainability have been
explored, however, and some findings provide
industry monitor
directional, if not conclusive, insight. Xose (2009)
states that technological change shows the most promise
and its effects on growth have amply compensated
for the effects of reserves depletion on said growth.
Giurco et al. (2009) back up this claim by stating
that technology is expected to assist in reducing the
cost of labor through automation and in reducing the
current costs of identifying, extracting, and processing
materials. Another area where technology plays a
role is in the measure of ore grades and extraction.
Mudd (2007) argues that the excavation, transport,
and management of waste rock presents a significant
cost given by the ratio of waste rock to ore as rock
dumps cover a significant area and therefore require
major costs in rehabilitation. Again, Giurco et al.
(2009) support this claim by stating that impact of
increased scale is compounded by declining ore grades,
meaning more materials are being excavated to extract
resources, with consequent greater amounts of waste,
as well as greater demand for water, energy and other
local resources for processing lower grade ores. For
many commodities the extent of waste rock mined far
exceeds the ore mined, especially in the case of copper,
gold and black coal, where sulphides are likely present
in tailings and waste rock, leading to significant risks
like acid mine drainage in the future (Mudd, 2007).
Giurco at al. (2009) summarizes that “metal use” must
be decoupled from mineral extraction to overcome
the common policy of countries which promote using
virgin materials to meet demand, instead of utilizing
mineral stocks which are already circulating in the
economy.
Lins et al. (2007) proposed that researching the
social, environmental, and economic impacts of
decision-making before committing to new ventures
is important as a way to define best practices but also
for companies to solicit feedback from stakeholders
and work to ensure their operations continue to satisfy
these stakeholders. Green (2001) proposed that one of
the key measures required to achieve sustainability is
that depletion quotas for nonrenewable resources be
set by government and auctioned to the highest bidder
who would then have the right to extract and sell the
quantity of minerals covered by their quota amount.
Lastly, Eggert (2001) makes the following forecasts on
the mining industry: First, the boom or expansion in
mining is likely to be temporary. Second, the costs
of adjusting to booms and busts in mining are high.
Third, there are significant external benefits associated
with the shrinking of other non-mining sectors, such
as having more highly educated workforce available
for the manufacture of metals and minerals.
Gold production
Gold production is a step-by-step process. After finding
the deposit and getting access to it, the gold is mined,
transported and placed in processing chambers which
convert large rocks into small particles (see Figure 1).
The quantity of gold resources can be measured
in terms of its mass (ounces) or weight (grams) and
priced according to market value per unit or the price
at which the gold extractor (producer) is willing to
sell. The amount of gold that can be extracted from a
certain mining spot depletes every year. Although gold
is renewable over the long term, the rate of extraction
should be controlled because supply is finite in the
short run.
Since the rate of extraction can either be
increased or decreased, technological change is a
major determinant in speeding up or slowing down
production. Operations of mining firms may be
controlled by imposing requirements during and
before the process, including the satisfaction of certain
criteria before permits are issued.
Figure 1 • Conceptual framework
Technological Capital
change accumulation
Quantity
Gold Rate of
resources extraction
Time
Production
pattern
Environmental
sustainability
Consumption
pattern

AngloGold Ashanti Annual Financial Statements, 2009.
F E A T U R E
Capital accumulation is also a driving force of
extraction rate; the higher the capital, the greater the
likelihood that the company will purchase additional
machinery and labor.
Production pattern refers to the behavior of
the output from a given level of capital and input.
The amount of gold ores extracted is dependent
on the extraction rate and the firm’s average gold
production.
Since gold ore is extracted from nature, it does incur
costs to the environment. Environmental sustainability
may categorized into either output or input. In terms
of gold resources, the rate of harvesting ores should be
managed to allow sufficient time for renewal.
Social costs are the effects on society (externalities)
caused by mining activities that either harm or benefit
the community. Positive and negative externalities
determine whether there is a need for government
intervention. Increasing negative externalities could
lead to market failure.
Empirical method
To determine the optimal periodic production
extraction path, we use Hotelling’s rule for efficient
depletion of non-renewable resources. In this
theory, it is assumed that there are zero extraction
costs, competitive markets, fixed constant real rate of
interest, and price is exogenous to each mining firm.
Using quantity, time and price variables, discounted
marginal profit must be equal in each period. That is,
Where dP = change in price
dt = change in time
P = initial price
R = rate of extraction
r = rate of interest

Daly (1973, 1974, 1992, 1996, 1999) and Daly and Cobb
(1989).
1. Output rule: Waste emissions from a project or action being
considered should be kept within the assimilative capacity of the local
environment, without unacceptable degradation of its future waste
absorptive capacity or other important services.
2. Input rule: Harvest rates of renewable resource inputs must be
kept within regenerative capacities of the natural system that generates
them. Depletion rates of non-renewable resource inputs should be set
below the historical rate at which renewable substitutes were developed
by human invention and investment.

Hotelling (1931).

In essence, we expect not a single rate of extraction
but a time-path schedule of extraction where the
slope is the rate of extraction at any given t. If the
computed rate of extraction is less than the rate of
interest r, then the conclusion is it pays to reduce
extraction. If it is less, it will be better to increase
the rate of extraction. Once both are equal, then the
firm becomes indifferent to increasing, decreasing or
keeping their extraction rate.
Another empirical method that will be used is regres-
sion analysis. This will consist mainly of the amount of
gold per grams produced and sold, the price of sold
gold per gram, and other variables derived from these
such as revenue and rate of extraction (see Figure 2).
Figure 2 • Market price vs. quantity sold
Heat market price and quantity sold
Source: abc Mining Corporation
There will be two different regressions: First,
for the price of gold, using price as the dependent
variable and time and supply or production as the
independent variables.
log(P) = c + log(t) + log(s)
Where P = price
t = time
s = supply/production
UNIVERSITY OF ASIA & the
The second will be for the rate of extraction. The
model uses rate of extraction as dependent variable
and the growth rates of gold price, gold supply, and
revenue as independent variables.
log(R) = c + pgr + sgr + rgr
THE PACIFIC
Where R = rate of extraction
pgr = price growth rate
sgr = supply growth rate
rgr = revenue growth rate
 january 2011  F E A T U R E

Rule for efficient depletion of nonrenewable resources with the production of one company (in this case,
After solving for the rate of extraction using the abc) over time.
formula provided above as well as the rate of interest Looking at the p-values, they are all very close to 0
using the formula below, we conclude that abc Mining which means that all variables are significant at 1%.
industry monitor

Corporation does not adhere to Hotelling’s theory. Also, with a relatively high r-squared of 0.83, this
indicates that the independent variables explain the
dependent variables well. Lastly, the high f-statistic
of 92.799 suggests that the independent variables are
jointly significant.
Where r = rate of interest
Pt = initial price Table 3 • Price model
Pt+1 = succeeding price Coefficient p-value
const 7.6177 <0.00001
As shown in Table 2, their rate of extraction is either logs -0.162784 0.00011
less than or equal to their rate of interest which leaves logt 0.3561 <0.00001
them room to increase their extraction. However, they R-squared 0.830053
do not always do so. F (2, 38) 92.79932

For the rate of extraction model, on the other hand,

Table 2 • Actual gold extraction rate (2010)
the growth rate of supply has a negative coefficient
 
Rate of
extraction (%)
 
Rate of interest
(%)
Actual gold
extraction rate
of -0.145 which indicates that it is negatively related
Jan -3.3 < -3.2 95.077
with rate of extraction. Therefore, as supply decreases,
the rate of extraction increases. Meanwhile, both
Feb -1.4 = -1.4 97.810
the growth rates of price and revenue have positive
Mar 3.5 < 3.7 95.425
coefficients, which means they are positively related
Apr -1.3 = -1.3 96.316
to the dependent variable. This implies that, as either
May 18.0 < 22.0 97.469
or both independent variables increase, the rates of
Jun -0.8 = -0.8 94.959 extraction by their coefficients also increase.
Jul -11.3 < -10.2 95.625

Aug -3.4 < -3.3 95.544 Table 4 • Rate of extraction model

Sep 2.5 < 2.6 96.316 Coefficient p-value
Oct 7.5 < 8.1 97.469 const -0.151246 0.00012

Nov -2.7 = -2.7 95.272 pgr 0.812342 <0.00001

sgr -0.145134 0.00014
Dec 4.4 < 4.6 95.698
rgr 0.14816 0.00017
Source: abc Mining Corporation
R-squared 0.992848
F (2, 38) 1573.271
Instead of Hotelling’s theory, they consider the
selling price of gold. In May 2010, although the Similar to the price model, all the p-values are also
comparison shows that abc is indifferent about close to zero, indicating that all independent variables
increasing or decreasing their rate of extraction, they are significant at 1%. Also, the r-squared of 0.99
increased the rate because the price offer of P2,001.81/ means that all the independent variables explain the
gram for that month was the highest for that year. dependent variable very well and that all are jointly
significant as the f-statistic shows.
Regression analysis
For the price model, the log of supply has a negative Manage extraction rates by predicting price
coefficient of -0.162 while the log of time has a The rate of extraction is a primary concern of many
positive coefficient of 0.356. Both have less than 1 mining firms, first because they impose not only
elasticities which indicate that gold price is inelastic accounting but environmental costs as well, and
F E A T U R E
second because they contribute to the profitability of
a firm both in the short and long run. Because of this,
there is a need to regulate the extraction rates of many
mining firms.
abc Mining Corporation data shows that it still
has room for improvement in terms of becoming
economically efficient in ore extraction rates. Following
Hotelling’s rule of efficient depletion of non-renewable
resources, abc’s optimal rate of extraction should be
equal to their rate of interest. But 8 out of 12 months
for the year 2010, the firm has a lower extraction rate
than interest rate, and hence should increase their rate
of extraction. At the same time however, they should
consider the current and future spot prices of gold in
the world market to balance profits with cost.
In the regression model of price, we have seen
that there are two significant factors that affect price:
supply or production of gold and time, with negative
and positive effects respectively. Since the values are
logged, both coefficients show inelastic relationships:
A 16% decrease in supply will increase prices by 1%. A
36% increase in time (i.e., after 10-11 days) following
the current trend, will likely see prices increasing by
1%. This pricing model can be of great help to abc
Mining Corp. in their consideration of prices and
even future prices.
The next regression model shows that three
significant factors affect extraction rates: price growth
rate (positively), supply growth rate (negatively), and
revenue growth rates (positively). The greatest effect
comes from concurrent prices; a 1-point increase in
price growth rate increases the firm’s rate of extraction
by 81%. A 1-point decrease in supply or production
growth rate increases the firm’s rate of extraction
by 14%. A 1-point increase in revenue growth rate
increases the firm’s rate of extraction by 14%. Again,
spot prices have the most significant effect on abc’s
rate of extraction.
Finally, since prices have the largest effect on
extraction rates, the group recommends better
modelling and forecasting for gold prices to help
further optimize abc’s rate of extraction.
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the Tulsequah Chief Mine. Environmental Mining Council
of British Columbia. Retrieved 26 March 2011 from http://
riverswithoutborders.org/home/wp-content/uploads/2007/04/
greenreport.pdf
Industry Forcast - Philippines - 2010. (12 May 2010).
Retrieved 25 January 2011 from Business Monitor International
http://www.businessmonitor.com.libproxy.nlb.gov.sg/cgi-bin/
request.pl?SessionID=636101720712275&view=articleviewer
&article=348610&service=17&iso=PH&metaid=190,197
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2011 from http://media.wiley.com/product_data/
excerpt/11/04713485/0471348511.pdf
Stark, Jeffrey J. L. (2006). Environmental Safeguards and
Community Benefits in Mining: Recent Lessons from the Philippines.
Foundation for Environmental Security and Sustainability.
Lins, C. Horowitz, E. (2007). “Sustainability in the Mining
Sector.” Brazilian Foundation for Sustainable Development.
Accessed 26 March 2011 from http://www.fbds.org.br/fbds/
IMG/pdf/doc-295.pdf
Mining in the Philippines: Concerns and Conflicts(2006). Fact
Finding Mission.
Mudd, G. (2007). “The Sustainability of Mining in Australia:
Key Production Trends and Their Environmental.” Department
of Civil Engineering, Monash University and Mineral Policy
Institute. Retrieved 26 March 2011 from http://nowandfutures.
com/d2/SustMining-Aust-aReport-Master.pdf
United Nations and World Bank.(2002). “Finance, Mining
and Sustainability.” United Nations Environment Programme,
The World Bank, The International Finance Corporation.
UNIVERSITY OF ASIA & the
Mining, Minerals & Sustainable Development. Retrieved
26 March 2011 from http://siteresources.worldbank.org/
INTOGMC/Resources/financeminingsustainability.pdf
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THE PACIFIC
Economic Sustainability of the Mining Industry.” National
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redalyc.uaemex.mx/redalyc/pdf/496/49615575003.pdf
 january 2011 10
AVIATION
Domestic air traffic to double in less than 10
years
industry monitor
Domestic air traffic in the Philippines is expected to
more than double to over 40 million passengers in less
than 10 years, one of the country’s major airlines said.
The rise of low-cost carriers such as Cebu Pacific Air
already saw domestic air traffic jump sharply to more
than 17 million passengers last year, said the carrier’s
vice president for commercial planning, Alex Reyes.
Citing industry figures, Reyes said Philippine air
carrier fleets would rise to 67 narrow-bodied jets this
year compared with 47 in 2008, leading to more pressure
for lower fares, which could drive passenger traffic even
higher.
But Reyes warned surging traffic would require
massive investments in passenger terminals, runways,
and more airport personnel to handle the extra load.
Reyes said Cebu Pacific, the country’s largest budget
carrier and number-one airline in terms of passengers,
will run out of space at its assigned Manila airport
terminal next year.
Cebu Pacific is in talks with the government to
expand the capacity of naia’s Terminal 3, which handles
both domestic and international traffic, to 20 million
passengers a year from 13 million, he said.
Source: Manila Bulletin Online, 22 January 2011
BPO
BPO sector seen posting $11B revenue this year
Business process outsourcing (bpo) industry players are
set to implement various initiatives, including aggressive
marketing of the country’s outsourcing services to more
customers in key markets, to achieve a revenue growth
of 20% in 2011.
Oscar Sañez, Philexport trustee for the information
technology (it) services sector, said they will continue
promoting the bpo sector in markets where more
investments are expected to come from, like the United
States, Europe, and Australia.
Sañez said they also intend to improve the quality of
recruits through scholarship programs for the near-hires
and the implementation of the k+12 program which
adds two years to basic education in the country.
Apart from these initiatives, Sañez also underscored
the need for the country to pass important legislation
for the bpo sector.
Source: The Philippine Star Online, 5 January 2011
n e w s
ELECTRONICS
Record investments for electronics sector
Investments in the country’s electronics industry reached
a record $2.318 billion (B) or P102.5B in 2010.
seipi president Ernesto Santiago said the 2010
investment figure was the highest in the Philippine
semiconductor and electronics industry’s history. For
2011, Santiago said that they are looking at a 10%
growth.
According to Santiago, last year’s investment is 380%
higher than the 2009 figure of $484 million, making
2010 the seventh time the industry has breached the
$1B mark. The last time was in the years 2007, 2000,
1997, 1996, 1995, 1994.
Santiago also reported that during seipi’s meeting with
President Aquino, the industry expressed its desire to
double exports from $22B in 2009 to $50B in 2016.
The industry is bullish for 2011 and reported that
the electronics sector will continue to be the driver of
growth of Philippine exports. 
Source: The Philippine Star Online, 25 January 2011
FOOD AND BEVERAGE
asean coffee federation in the works
Coffee enthusiasts in the region are forming a federation
to address the growing popularity of the beverage amid
dwindling production.
Philippine Coffee Board chair Nicholas A. Matti said
industry associations in Indonesia, Laos, Malaysia, the
Philippines, Singapore, and Thailand recently met in
Pattaya, Thailand and Pakse, Laos to organize the asean
Coffee Federation.
Designed to have a common platform for dialogue,
the group also endeavors to promote coffees from asean
countries to the growing Asian market for the beverage.
Source: Manila Bulletin Online, 26 January 2011
GARMENTS
Chinese garment makers to move here due to
labor advantage
Overwhelmed with the high cost of labor, Chinese
garment manufacturers are looking at the Philippines
as its relocation site because of its reliability in terms
of skilled manpower, prompt delivery, flexibility and
design capabilities.
Wei Lin, vice-president of the China National
Garment Association, said labor cost in China is getting
n e w s
very expensive but the Philippines’ highly skilled labor
makes it cost effective for Chinese garment manufacturers
to outsource in the Philippines.
He said Chinese garment firms are not only looking
at the Philippines as an outsourcing destination but as a
location for investments.
Wei has also noted government policy directions that
would ensure the competitiveness of Chinese garment
manufacturers, as well as security issues for investors.
Lawrence delos Santos, president of the Confederation
of Garment Exporters of the Philippines, further cited
Philippine operations for their reliability, flexibility,
stability and quality.
Source: Manila Bulletin Online, 18 January 2011
PHARMACEUTICAL
Health department mulls new round of drug
price cuts
The Department of Health will deliberate early this year
whether it will implement another batch of drug price
cuts under the Cheaper Medicines Act.
The last round of price cuts took effect from March 31
to August 1, 2010. It covered some 100 drugs classified as
anti-cholesterol, antihypertensive, medicines for bladder
and prostate disorders, antidepressant, anti-psychotic,
anticancer, anti-asthma, anticoagulant, eye preparations,
anti-hepatitis B, antiviral, antibiotic, antibacterial, anti-
inflammatory, pain reliever, and dialysates/solutions.
The first round took effect as early as August 2009
and as late as September 2009 and covered over 100
drugs or pharmaceutical formulations. The Cheaper
Medicines Act or Republic Act 9502 authorizes the
health secretary to recommend to the President the
maximum drug retail price based on rates that are subject
to regulation in the Philippines and in other countries;
available market supply; and cost to the manufacturer,
importer, trader, distributor, wholesaler or retailer.
Source: Business World, 3 January 2011
POWER AND ENERGY
Wind power company to invest $125M more in
RE project
Subic Wind Power Generation Inc. (swpgi) will invest
$125 million (M) for the expansion of their renewable
energy project in the Freeport, according to the Subic
Bay Metropolitan Authority (sbma).
sbma chairman Feliciano Salonga said the Subic
agency has approved the request of swpgi to expand its
11
business and include the establishment and operation of
a solar energy project on top of its original proposal to
establish and operate a wind farm.
swpgi, a subsidiary of the China-based Sunnew
Investments Ltd., committed $75M last year for the
establishment of a 25-wind turbine farm that would
generate some 50 megawatts of power.
However, after ocular surveys and initial data
gathering in Subic, the firm decided to also build a solar
energy project that would yield 100–200 megawatts of
energy, Salonga said.
The expanded project will be worth $125M, covering
some 300 hectares of land at Subic’s Mount Sta. Rita
and Redondo Peninsula, and will generate 150–200
megawatts of power. It is also expected to employ about
150 workers, and earn the sbma some $816,000 in
annual lease rentals.
Salonga said that swpgi’s renewable energy project
will not only bring the Subic Freeport at the forefront of
the green energy movement, but will also help stabilize
power supply in the Luzon grid.
Source: The Philippine Star Online, 10 January 2011
SHIPPING
New shipping line strengthens Subic’s position
as maritime hub
The development of the Subic Bay Freeport as a major
maritime hub in the Asia-Pacific region has taken a new
tack with the entry of Tiger Lines as the third shipping
line that will make regular calls on the port of Subic Bay.
In their presentation, Tiger executives noted
that Subic was once a us military base that has been
successfully transformed into a financially independent
authority and industrial/export freeport zone.
Among the strategic advantages they cited were the
modern port with its 600,000 teu capacity and four
brand new cranes that can process 100 teus per hour,
quick turnaround time, low tariff rates, and the presence
UNIVERSITY OF ASIA & the
of numerous industries in the Subic and Clark freeport
zones that import raw materials and export finished
products.
They also noted that the presence of the modern
Subic-Clark-Tarlac Expressway, convenient feeder
roads, and lack of truck bans open a large market for
their business in neighboring provinces.
THE PACIFIC
Tiger Lines hopes that the establishment and efficient
operation of a new container line out of sbict will lead
to the full utilization of the Subic Bay container port.
Source: Manila Bulletin Online, 30 January 2011
 january 2011 12 i n dustr y statistics

Gross value added (GVA) in financial intermediation by industry group

Q1 2008 to Q4 2010 (current prices)
Unit: P million
industry monitor

2008 2009 2010

Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Banking institutions 58,608 54,740 56,213 51,451 65,261 62,196 64,053 59,664 74,612 71,029 74,630 70,817

Non-banks financial intermediation 31,322 58,038 31,872 44,475 32,207 55,461 38,847 47,218 36,835 59,,957 45,455 54,307

Insurance 20,591 19,115 19,103 24,432 21,787 21,075 20,972 23,149 23,369 22,680 25,511 27,609

Activities auxiliary to financial

intermediation 6,680 7,984 6,559 8,743 7,438 8,680 7,661 8,856 7,968 9,056 8,800 9,769

GVA in financial intemidiation 117,201 139,876 113,747 129,102 126,694 147,412 131,534 138,886 142,784 162,722 154,396 162,502

GVAin financial intermediation by industry group

Q1 2008 to Q4 2010 (constant 2000 prices)
Unit: P million
2008 2009 2010

Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Banking institutions 39,380 35,255 3,4945 32,559 41,730 39,145 40,014 36,094 45,859 42,388 44,655 42,348

Non-banks financial intermediation 21,191 37,605 19,990 28,122 20,303 34,761 24,190 29,329 22,379 36,161 27,393 32,402

Insurance 13,896 12,365 11,950 15,493 13,658 13,122 12,986 14,599 13,968 13,855 15,348 16,534

Activities auxiliary to financial

intermediation 4,545 5,207 4,138 5,582 4,702 5,452 4,788 5,55 4,852 5,435 5,297 5,844

GVA in financial intemidiation 79,462 90,431 71,023 81,756 80,393 92,481 81,978 85,477 87,058 97,838 92,692 97,127

Source: National Statistical Coordination Board

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