PH small-scale gold mining and China

mine1This is an old Reuters special report, Philippines’ black market is China’s golden connection  dated August 22, 2012. The story mentioned the following:

* Hundreds of small-scale mines in Mt. Diwata (or “Mt. Diwalwal”), Monkayo, Compostela Valley, Mindanao. One person  sold 5.49 grams of gold in his hand – his share of the day’s output – for 8,260 pesos ($200). That’s more than 16 times what a manual laborer earns daily in Manila.

* Up to 90 percent of small-scale Philippine gold production is being smuggled out, much of it to China. Potential PH government revenue loss is big.

* The Philippines, the world’s 18th largest gold miner, produced just over 1 million troy ounces of gold in 2011, worth $1.6 billion at current prices. About 56 percent of that came from small-scale miners.

* A top central bank official told Reuters new taxes on gold sales imposed last year appear to be a key factor in the alarming rise in gold smuggling.

* “All the production of small-scale mines, almost all, now goes to the black market, because there is no tax in the black market,” said Rex Banggawan, an accountant for a small-scale mining cooperative that buys and sells gold in the mountain city of Baguio in northern Philippines. “After that, smuggling is automatic.”

* Arthur Uy, Governor of Compostela Valley, the top small-scale gold mining province in the Philippines, said the black market in gold is mainly based in the capital, Manila. “Most of the gold is being smuggled out to Hong Kong, that’s the biggest market,” said Uy, a two-term governor.

* The amount of gold sold by small-scale miners and traders to the Philippine central bank in the second quarter plunged 98 percent from a year earlier. By law, all gold produced by miners in the Philippines should be sold to the central bank at around world market prices. Small-scale gold mining output is the main source of the central bank’s gold reserves, which hit a record high of $10.4 billion early this year.

* Traders and officials say the biggest factor behind the spike in the gold smuggling trend the past year is a 2 percent excise tax and a 5 percent withholding tax approved in 2008 but which the Bureau of Internal Revenue (BIR) only started enforcing last year. The tax is imposed on gold sales to the central bank, so is usually borne by the traders.

* Tagum city, the provincial capital of Davao del Norte, is the biggest gold-buying centre nearest to Mount Diwata. Gold traders in Tagum say if not for the tax, they would rather sell to the central bank than in the black market where prices fluctuate fast.

This is a case of “adverse selection” problem — things that people do not want to hear and see are the things that they get. When large-scale and corporate mining is demonized, small-scale mines that hardly comply with government taxation and environmental persist and even expand.

One way to bridge the gap between large-scale corporate mining and small-scale guerrilla type mining, is to encourage the latter to pool resources and become more transparent, more accountable, for their activities. In the form of mining cooperatives, or a hybrid of medium- to large-scale gold mining with lots of small investors.

When a business enterprise becomes big, like the multinationals or local firms which have joint venture and partnership with multinationals, they are forced to become more transparent. Government will simply enforce rules to all, small- or medium- or large-scale players.

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