Xstrata Copper Backs Off Philippine Project

| About: Xstrata Plc (XSRAY)

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Xstrata Scrubs Tampakan Mine for Present

In a press release from General Santos City in the Southern Philippine Island of Mindanao, Xstrata Copper (OTC:XSRAY) has put a hold on its planned $5.6 billion development at Tampakan. Construction is delayed from 2013 to at least 2015 and production from the mine cannot start earlier than 2019.

There have been a number of problems since Xstrata started its work in the area 10 years ago. Security issues include trespass, shootings and unruly demonstrations; this limits field activities in the project area. The largest problem, however, is political. There is uncertainty regarding provincial regulations. South Cotabato passed regulations that are more restrictive than national policy.

Presidential Order

On July 6, 2012, Philippine President Benigno S. Aquino III signed Executive Order N. 79. One of the provisions asserts the primacy of the National Government over mining. Section 12 of the document says in part, "LGUs (Local Government Units) shall confine themselves only to the imposition of reasonable limitations on mining activities conducted within their respective territorial jurisdictions that are consistent with national laws and regulations." Sections 13 through 17 lay out a plan to integrate the regulation of mining at the national level, including "One-Stop Shopping" for all of the permitting process. However, it appears that existing and proposed mines will have to resubmit some material.

The Tampakan Project

Sagittarius Mines, Inc., Xstrata's joint venture with the Tampakan Group of Companies, has provided the National Government's Mining Industry Coordinating Council with an updated project development plan for the Tampakan Copper-Gold Project that outlines the potential for commercial production to commence in 2019. After the May 2013 local elections, Sagittarius will focus its efforts on resettlement plans for indigenous people who will be displaced by the project. The company said, "The scope of our community and consultation activities is unprecedented in the Philippines and reflects leading standards, consistent with the commitments of our managing shareholder, Xstrata Copper, and its partners in this joint venture."

The Tampakan Copper-Gold Project is located on the southern Philippine island of Mindanao, approximately 40 kilometers north of General Santos City. The project represents one of the largest undeveloped copper-gold deposits in the Southeast Asia-Western Pacific region. The Tampakan Project is a 2.94 billion metric tonne deposit, containing 15 million tonnes of copper and 17.6 million ounces of gold at a 0.2% cut-off grade.


Xstrata is the world's fourth largest producer of copper. Xstrata Copper has operations and projects in eight countries and employs over 20,000 people. The parent corporation has a market cap of $49 billion and employs over 70,000 people worldwide. In a merger of equals, Xstrata plc is merging with Glencore International plc, the world's largest commodity dealer. Final approvals from various countries are in process.


Capital expenditures are being curbed throughout the mining industry, and specifically in the copper mining industry. The largest of these is the BHP Billiton (NYSE:BBL) Olympic Dam project. This delay by Xstrata is one more act that reinforces the sentiment that there will be a copper shortage starting in 2016, thus raising prices. Other copper miners include Rio Tinto (NYSE:RIO), Freeport-McMoRan Copper and Gold (NYSE:FCX) and Southern Copper (NYSE:SCCO).

Disclosure: I am long BBL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.