Downstream industry dev’t to face challenges

A SHIFT to developing downstream processing of ores, which the country has been considering for a long time now, may not be as beneficial to the local mining industry as expected.

“We broke even in the first half this year compared to making a billion last year because we had to take losses from our investments in processing plants,” said Jose Bayani D. Baylon, vice-president for corporate communications of Nickel Asia Corp., during the last day of an industry summit held last week.

The country’s largest nickel mine by output, listed Nickel Asia saw profit slump in the first half of the year, reporting a net income attributable to equity holders of the parent at P24.4 million, 98% lower than the P1.49 billion posted a year ago, with profitability of the two plants affected by very low nickel prices realized during the period.

“[I]f we do not learn the lessons from Nickel Asia, we’re going to damage the mining industry.” Mr. Baylon added. “We have to understand that the profitability even of processing is dependent of factors outside our control, which are the global metal prices.”

Metals and mining expert at McKinsey & Co. Hidayat Liu said the profit from putting up downstream processing plants is considerably hinged on the movement of commodity prices in the global markets.

“The concern is if you are not at the right timing, you could be squeezed from both ends where the price of commodity is falling and yet you need to make such a massive commitment to build a downstream,” Mr. Liu said in an interview with BusinessWorld, adding that countries may learn from Indonesia’s implementation of its mining law which banned the exports of raw ore.

Mr. Liu noted that following the ban, small industry players in Indonesia, which in aggregate, contribute a considerable share on the country’s mineral output, dissolved, leaving in the scene the big players who can afford these downstream facilities.

Presently, the government is crafting its development road map for this administration which will include the promotion of downstream processing of raw ore for higher revenue returns.

“We’re in the process of formulating the new development plan, we have projections on target,” Mercedita A. Sombilla, director of the National Economic and Development Authority’s Agriculture Natural Resources and Environment Staff, said in a panel discussion at the summit on Thursday.

In a separate interview with reporters, Ms. Sombilla said the initiative to develop these road maps for all minerals “is founded on a good study.”