Defaulting on Nature

[Editor’s Note: This article was originally published as part of “The Big Dig: Mining Rush Rakes up Tons of Conflict,” a Newsbreak special issue on the mining industry, published in 2008]

 

Executives of Australia’s Lafayette Mining Ltd. may have thought themselves truly blessed in the late 1990s when they acquired claims over mining areas on Rapu-Rapu Island that contained not one or two but four minerals. There was gold, but also silver, zinc, and copper beneath the hills of the island-municipality off the province of Albay.

Nowadays, the company must be feeling particularly cursed after a string of disasters and setbacks tied up Lafayette in knots and immobilized the P1.8-billion mining venture. The project was supposed to last for seven years or until 2012, but the company’s ability to continue as a viable commer-cial concern from month to month is no longer assured.

In October 2005, waste water containing cyanide and other toxic substances from Lafayette’s mineral processing facilities spilled into nearby creeks on two separate occasions, killing fish and crustaceans along the waterways that flow into the Albay Gulf. The government immediately shut down the company’s mining operations, which were allowed to resume only in February 2007 after it put in place remedial measures and paid a P10-million fine to the Pollu-tion Adjudication Board.

Then, in March 2008, talks with new Malaysian investors who were to inject badly needed fresh capital to the company fell through. Shortly after, the cash-strapped Australian parentfirm and its Philippine unit suspended payments on some US$374 million in debt and sought judicial help for financial rehabilitation.

Lafayette’s Korean partners―LG International Corp. (LGIC) and Kores Inc., a Korean government investment company―have since agreed to take over the company and pay off the creditors. It remains to be seen if they will live up to their promise to abide by the commitments promised by the company to the community and local government officials.

Lafayette’s close brush with bankruptcy underscores the risks that financially troubled mining companies pose not just to their owners, lenders, and employees but also to host communities and nature as money dires up for social and environmental programs. As the company itself admitted in its petition for rehabilitation filed with a Pasig City court: “No funds have been reserved yet for mine closure/rehabilitation, retrenchment pay for employees, settlement of liabilities to government for unpaid taxes and employees for unpaid salaries, demobilization/pre-termination costs with existing agreements and mothballing the plant facilities.”

Early warning signal

The Lafayette mine in Rapu-Rapu was one of the first large-scale mining projects to start commercial operations after the Supreme Court upheld the controversial 1995 mining law in December 2004. The national government has held up the Rapu-Rapu Polymetallic Mining Project as an example of responsible and sustainable mining in accordance with strict guidelines laid down by the new mining law.

Instead, the mine became an early warning signal for everything that could go wrong amid what officials liked to describe as a “world-class” mining law and tough environmental regulations. Mining industry leaders and government officials were deeply disappointed.

The toxic waste spills, which were blamed on the company starting mining activities ahead of the completion of the tailings dam and spillways, quickly galvanized fresh opposition to large-scale mining in Bicol and throughout the country. In January 2006, the Catholic Bishops Conference of the Philippines promptly issued a statement calling for a moratorium on mining and the suspension of the 1995 mining act.

In the coastal towns surrounding the waters of Albay Gulf, fishermen were blaming Lafayette for the growing incidence of fish kills. “The people told me that their fish catch is dwindling and this is affecting their livelihood,” said Catholic priest Rex Arjona, the chancellor of the Diocese of Legazpi.

Both the company and the Department of Environment and Natural Resources (DENR) denied that the toxic spills poisoned the waters around Rapu-Rapu Island, citing studies by scientists from the University of the Philippines Natural Science Research Institute and the Bureau of Fisheries and Aquatic Resources. Still, the popular outcry against the toxic waste spills convinced Arjona and Catholic leaders in the Bicol region who are already crit-ical of large-scale mining to begin with, to urge the government to shut down Lafayette’s mining activities for good.

In a pastoral letter issued in December 2005, Sorsogon Bishop Arturo Bastes said the fish kill is causing an “economic disaster” as 70 percent of the population in the area depend on fishing for livelihood. He called for the closure of Lafayette “for the common good of the people of Bicol region.”

President Arroyo, already under political pressure because of allegations of cheating in the May 2004 polls, named Bastes to head an independent commis-sion to investigate the disaster in March 2006. She also asked lawmakers to review the 1995 mining act to toughen even more environmental protection, just less than a year since the Supreme Court up-held the law.

When the Bastes commission issued a report in May 2006, its findings and recommendations hardly surprised anyone. It blamed Lafayette for the accident and urged the government to shut down the company’s operations and declare a mining moratorium in Rapu-Rapu because of the island’s “fragile small-island ecosystem.” It also found the Environmental Management Bureau and the Mines and Geosciences Bureau (MGB) culpable for failing to adequately monitor Lafayette.

Reopening

The DENR also issued its own report a month later, in June 2006. It concurred with most of the findings of the Bastes commission, noting that the spills could have been avoided had the company strictly followed its environmental action plan, especially for the tailings management scheme and tailings dam safety standards.

The department also asked Lafayette to implement remedial measures, such as the desilting of the creeks where waste-water spilled, and the completion of the rain drainage canal. It also required Lafayette to revise its Final Mine Rehabilitation and Decommissioning Plan, a detailed outline of steps the company must take to restore the natural condition in the site after mining operations cease. The DENR instructed the company to begin building up a P137-million fund to finance the implementation of the plan, and deposit half of the amount within six months of the plan’s final approval.

In February 2007, Lafayette was finally allowed to operate again after it instituted the remedial measures that the DENR rec-ommended and paid the P10-million fine.

Understandably, anti-mining projects were unhappy with the DENR decision. Clemente Bautista Jr., coordinator of the Kalikasan People’s Network for the Environment, warned that apart from fish kills, the people of Rapu-Rapu would also have to contend with contaminated drinking water supply.

In December, the company submitted its mine decommissioning plan to the MGB after holding consultations with various stakeholders, according to company lawyer and spokesman Bayani Agabin.

“The mine decommissioning plan was drawn up based on the identified environmental impacts and after consultation with all stakeholders. Consultation sessions were conducted with the residents and officials of the direct-impact barangays as well as the employees,” he says.

The plan, according to Agabin, includes reforestration, a program to stabilize pit slopes, strategies to address acid mine drainage (AMD, or the outflow of acidic water from closed or abandoned mines), and livelihood programs for employees and residents of the surrounding barangays.

Reynulfo Juan, regional director for Bicol of the MGB, reviewed Lafayette’s mine decommissioning plan and pro-posed several alternative post-mining land uses, such as a rehabilitation center, retreat and study center, eco-tourism site, and agro-forestry projects.

Juan adds that Lafayette should hold more public consultations, noting that “very minimal attendance was obtained during the consultation.” He also recommended that the company must also ensure the long-term stability of a tailings dam. And to properly manage AMD, Juan says, Lafayette should consider constructing and maintaining an acid neutralization and heavy metal removal plant to handle acid water.

Debt suspension

But just when the mine decommis-sioning plan was being reviewed by the MGB’s head office in Manila, financial troubles forced both Lafayette’s parent firm in Australia and the Philippine subsidiary to suspend debt payments in March. The company sought judicial help to oversee talks with creditors, contractors and suppliers on extending maturities on some $374 million in loans and liabilities after talks with a Malaysian investors for fresh capital infusion failed.

Lafayette’s petition for corporate rehabilitation filed at the Pasig City Regional Trial Court in March outlined an integrated rehabilitation plan that revolves around stretching debt maturities and the entry of new investors. Without debt relief and fresh capital, projected monthly revenues of $3-$3.5 million will not be enough to cover monthly operating costs estimated at $4 million.

The petition was silent on the status of the final mine decommissioning plan, particularly the P137 million needed to finance it. It merely mentioned company’s “legal and moral responsibility to carry out environmentally-sustainable operations,” and promised to honor these obligations.

Horacio Ramos, the MGB director, says that the bureau intervened in Lafayette’s rehabilitation proceedings to make sure that the company’s environmental and social commitments are taken care of alongside or even ahead of obligations to creditors and suppliers.

But the standing of environmental and social commitments made by a company that is near-bankruptcy and undergoing financial rehabilitation is legally murky.

Agabin explains: “We have what we call preference of credits in our Civil Code where taxes and wages enjoy preference over loans to banks or suppliers. There is no provision in the Civil Code or the mining act which provides that commitments due to the community enjoy the same preference.”

Personally, Agabin believes that Lafayette’s commitments to the community and environmental protection should be prioritized. “These should be paid ahead. This is the position we have taken.”

But that is not really up to him or the existing shareholders of Lafayette but to the new investors bringing in fresh capital. “We shall try to convince the new investors to incorporate this in the amended rehabilitation plan,” he admits.

 

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