Tax exempt or not? OceanaGold first shipment halted
MANILA, Philippines - The first shipment of copper-gold concentrates from the Philippines' first fully foreign-owned and operated large scale mine turned out to be more than an eventful day.
On Monday, February 25, local authorities in Nueva Vizcaya province, the host of the OceanaGold's Didipio mine, stalled the trucks transporting the ore from the mine to the nearby port.
At the core of the issue is timing of tax payments. OceanaGold asserted that its operations are covered by the 5-year tax exemption period granted under its Financial and Technical Assistance Agreement (FTAA) permit from the national government.
The Bureau of Internal Revenue Commissioner Kim Henares, however, told Reuters it had recently ruled that miners must already start paying a 2% excise tax once the mine start producing ores.
The two are negotiating and discussing interpretations of the tax regime when the Monday event happened.
"The Company wishes to advise that it is currently in discussions with various government departments over interpretations of tax exemptions pertaining to OceanaGold’s Financial and Technical Assistance Agreement," OceanaGold said in its February 25 statement.
"Due to these clarifications on tax exemptions being sought, some of the trucks used for transporting concentrate are being held by local government agencies and thus transportation of copper-gold concentrate has been temporarily suspended. While these discussions take place, mining and processing operations continue."
To tax or not?
The Didipio mine is the first mining tenement in the Philippines to operate under Financial or Technical Assistance Agreement (FTAA), a contract that allows foreigners to own up to 100% of a local mining venture.
FTAA contractors are allowed to recover pre-operating expenses for 5 years, including exemptions from customs duties, corporate income taxes and fees for imported capital equipment.
The exemption interval, which lasts from the approval of the Declaration of Mining Project Feasibility to the end of the recovery period, also covers value-added taxes on imported goods and services, withholding taxes on interest payments on foreign loans and dividends to foreign stockholders and national taxes excluding excise taxes on minerals.
FTAA contractors are required to pay taxes, fees and royalties once the recovery period expires.
The Didipio mine was commissioned only in December 2012.
In July 2012, the Aquino government issued a new mining policy (Executive Order No. 79) that industry players have criticized as flip-flopping, but economic managers have defended as efforts to extract just share from the extractive industry.
The EO 79 seeks the crafting of a reform law that increases government's revenue share.
In October 2012, OceanaGold announced that it has signed an offtake agreement with trading firm Trafigura for the sale and purchase of copper concentrate from the Didipio mine in the first quarter of 2013.
Trafigura is an international commodity trader that specializes in the supply and transport of concentrates. It owns and operates concentrate storage facilities in China and other countries.
Under the agreement, 100% of the output of the mine would be sold to Trafigura at "competitive terms and conditions, including treatment and refining charges.”
The offtake will be conducted for a minimum period of 5 years from the start of production at the Didipio mine. Trafigura will manage all land and sea transportation from the mine site to smelters.
As of February 25, Oceanagold said it has delivered approximately 2,500 tonnes of copper-gold concentrate to port and has an additional 2,500 tonnes awaiting transport from the mine site.
OceanaGold is a gold producer with interest within the Asia-Pacific region. It has projects in the Philippines and in the South Island of New Zealand.
The Didipio mine's production is estimated at an annual average of 100,000 ounces of gold and 14,000 tons of copper. The project is expected to average a 16-year mine life.
For the 2013 fiscal year, the firm is expected to produce 285,000-325,000 ounces of gold and 15,000-18,000 tons of copper from its New Zealand and Philippine operations. - Rappler.com