Opinion No. 24-27 Re: Foreign Equity Ownership for Mineral Processing Companies

Securities and Commission Exchange

7.1M.-1 LIPINAE

OFFICE OF THE GENERAL COUNSEL

09 October 2024

SEC OGC Opinion No. 24-27 Re: Foreign Equity Ownership for Mineral Processing Companies

2 7th Floor, Capital House Building 34th St., Cor. 9th Avenue, Bonifacio Global City, 1634 ccello.nickelprime@gmail.com NICKEL PRIME INC.

Attention: Atty. Caleb P. Cello Legal Counsel

Dear Sir:

requesting for opinion on the foreign equity ownership of mineral processing companies. This pertains to your Letter dated 27 July 2023 and clarificatory email dated 16 August 2023,1

As stated in your Letter and email, the relevant facts and provisions of laws are as follows:

I. Nickel Prime, Inc. ("Nickel Prime") is looking to establish a mineral processing company in the

Philippines. On the other hand, Nickel Prime's affiliate, Nickel Prime Solutions, Inc. ("Nickel Solutions"), shall be the owner of the said processing plant.

2. Foreign ownership is restricted for enterprises that undertake activities listed in the Foreign Investment Negative List ("FiNL"). Under the Twelfth (12th) Regular FINL,2 there exists up to development, and utilization of natural resources." forty percent (40%) foreign equity restriction to industries involved in the "exploration,

3. Republic Act ("R.A.") No. 7942, otherwise known as the "Philippine Mining Act of 1995," defines utilization as the "extraction, mineral processing and/or disposition of minerals."

processing company is subject to the forty percent (40%) foreign equity restriction under the relevant laws. In view of the foregoing, you would like to seek the Commission's opinion on whether a mineral

To answer your query, we have to qualify based on the type of mining activity to be pursued:

A corporation at least sixty per centum (60%) of whose capital is owned by Filipino citizens shall be deemed qualified to enter into the different modes of mining agreements with the State, i.e. Co-production Agreement ("CPA"V, Joint Venture Agreement ("IVA"), and Production-sharing Agreement ("PSA").

2 purposes of granting an Exploration Permit ("EP"), Financial or Technical Assistance Agreement A legally organized foreign-owned corporation shall be deemed a Qualified Person for the ("FTAA"), or Mineral Processing Permit ("MPP").

1 As clarified in the email dated 16 August 2023, Nickel Solutions, which is an affiliat 2 Executive Order No. 175, promulgated on 27 June 2022. of Nickel Prime. will be f the plant

www.sec.gov.ph | ogc_picc@sec.gov.ph 14/F The SEC Headquarters, 7907 Makati Avenue (+63 2) 8818 8260 / (+63 2) 8818 5348 Saicedo Village, Bel-air, Makati City e CHARL

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Modes of Mining Agreements with the State- Forty percent (40%) foreign equity: Different CPA, JVA, or PSA.

of whose capital is owned by Filipino citizens.3 enter into CPA, JVA, or PSA with Filipino citizens, or corporations or associations at least sixty per centum The 1987 Constitution grants to the State the option to directly undertake mining activities, or to

cooperative at least sixty percent (60%) of the capital of which is owned by Philippine citizens are qualified as contractors in CPA, JVA, or PSA with the State. Sections 3 (g) and 3 (aq), in relation to Section 26 of the statute, provide: In relation to the foregoing. under R.A. No. 7942, a corporation, partnership, association, or

Definition of Term Section 3

As used in and f purposes of this Act, the following terms, whether in singular or plural, shall mean:

X X X X X X X X

agreem ient or to a financial or technical assistance agreement. (g) 'Contractor' means a qualified person acting alone or in consortium who is a party to a mineral

X X X Xx Xx

partnership, association, or cooperative organized or authorized for the purpose of engaging in mining with technical and financial capability to undertake mineral resources development and duly registered in accordance with law at least sixty per cent (60%) of the capital of which is owned by citizens of the Philippines: Provided. That a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical assistance agreement or mineralprocessina permit (aq) 'Qualified person' means any citizen of the Philippines with capacity to contract, or a corporation,

X X X KXX X X X4

Modes of Mineral Agreement Section 26

For purposes of mining operations, a mineral agreement may take the following forms as herein defined:

contractor shall provide the financing, technology, management and personnel necessary for the implementation of this agreement. the exclusive right to conduct mining operations within a contract area and shares in the gross output The a. Mineral production sharing agreement is an agreement where the Government grants to the contractor

Government shall provide inputs to the mining operations other than the mineral resource. b. Co-production agreement is an agreement between the Governme ent and the contractor wherein the

Government and the contractor with both parties having equity shares. Aside from earnings in equity, the Government shall be entitled to a share in the gross output. c. Joint venture agreement is an agreement where a joint-venture company is organized by the

X X X X X X X X X

Resources ("DENR" Administrative Order ("DAO") No. 2010-21, "otherwise known as the "Revised exploration,5 development,t and utilization of natural resources. Department of Environment and Natural Implementing Rules and Regulations of R.A. No. 7942, or the Philippine Mining Act of 1995" defines Laws" of the 12th FINL also allows forty percent (40%) foreign equity for corporations engaged in the utilization as "the extraction, mineral processing and/or disposition of minerals."7 Item No. 16, "List A: Foreign Ownership is Limited by Mandate of the Constitution and Specific

3 1987 Constitution, Article XII, Section 2. 4 Emphasis, italics, and underscoring supplied. 5 "Exploration" means searching or prospecting for mineral resources by geological, geochemical and/or geophysical surveys, remote Sensing, test pitting, trenching drilling, shaft sinking, tunneling or any other means for the purpose of determining their existence. extent, quality and quantity and the feasibility of mining them for profit. [DENR DA0 No. 2010-21, Section 5{aj)]] 6 "Development" means the work undertaken to explore and prepare an ore body or a mineral deposit for mining, including the construction of necessary infrastructure and related facilities. [DENR DA0 No. 2010-21, Section 5(s)] DENR DAO No. 2010-21, Section 5(cu).

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exploration, development, and utilization of natural resources. Thus, as a general rule, the forty percent (40%) foreign equity restriction is applicable for the

. Foreign-owned Corporation: Qualified Person

for purposes of granting an EP, FTAA, or MPP.

processing permit." exception, "a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical assistance agreementa or mineral The last proviso of the aforequoted Section 3(aq) of R.A. No. 7942 provides that, by way of

12th FINL, which allows full foreign participation through FTAA entered into with the President.9 large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country." The foregoing is likewise provided as a footnote reference for Item No. 16, "List A: Foreign Ownership is Limited by Mandate of the Constitution and Specific Laws" of the agreements with foreign-owned corporations involving either technical or financial assistance for Section 2, Article XII of the 1987 Constitution provides that "[t]he President may enter into

cyanidation, calcination or upgrading of ores, minerals, rocks, mill tailings, mine waste and/or other metallurgical byproducts or by similar means to convert the same into marketable products.1o Consequently, an MPP shall be granted to a Qualified Person for mineral processing.1 On the other hand, "mineral processing" is defined as the milling, beneficiation, leaching, smelting.

association or cooperative duly registered in accordance with law in which less than fifty percent (50%) of the capital is owned by Filipino citizens.12 Apropos to the above, "Foreign-owned Corporation" means any corporation, partnership,

restriction shall not apply. Based on the foregoing, for purposes of granting an MPP, the forty percent (40%) foreign equity

therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances.13 if, upon further inquiry or investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered void. circumstances and documents disclosed/submitted and relevant solely to the particular issue raised It shall be understood that the foregoing opinion is rendered solely on the basis of the facts,

Please be guided accordingly.

Very truly your.

ntmmlCimn Romuald C Padilla eneral Counsel

13 Paragraph 7, SEC Memorandum Circular No. 15, Series of 2003. exploration, development and utilization of mineral resources. [DENR DA0 No. 2010-21, Section 5(ak)] An FTAA may be entered into for the exploration, development and utilization of gold, copper, nickel, chromite, lead, zinc and other minerals: Provided, That no FTAAs may be granted with respect to cement raw materials, marble, granite, sand and gravel and 10 DENR DA0 No. 2010-21, Section 5(bd) 11 DENR DAO No. 2010-21, Section 5(be) Construction aggregates. (DENR DA0 No. 2010-21, Section 50.) 12 DENR DAO No. 2010-21, Section 5(am) F icial or Technical Assistance Agreement (FTAA)" means a contract involving financial or technical assistance for large-scale