Glencore Xstrata unit cuts budget for $5.9 billion Philippine mine project

MANILA (Reuters) – A Glencore Xstrata Plc (GLEN.L ) unit will eliminate as many as 920 jobs and cut the budget for its delayed $5.9 billion Tampakan copper-gold mine project in southern Philippines because it could not guarantee the start of production by 2019.

Sagittarius Mines Inc, which is 62.5 percent-owned by Glencore Xstrata, said it had revised the work plan as the Tampakan project still faces “substantial development challenges” including a ban on open-pit mining in South Cotabato province.

“Until these challenges are resolved it is not possible to determine when commercial production could commence,” Sagittarius spokesman John Arnaldo told Reuters on Tuesday.

The turn of events involving what could be the single-biggest foreign direct investment in the Philippines reflects the challenging environment for mining investors looking to develop the country’s untapped mineral wealth worth an estimated $850 billion.

Although the Southeast Asian country has recently won investment-grade ratings from global debt watchers Fitch Ratings and Standard & Poor’s, policy uncertainty continues to hound the Tampakan project.

Australian miner Indophil Resources N.L. (IRN.AX ), which has a 37.5 percent interest in the project, remains optimistic about the future of the Tampakan mine.

Richard Laufmann, Indophil chief executive, said Indophil was still in talks with Glencore Xstrata regarding the revised work plan, but he ruled out a shutdown of the Tampakan project.

“This modification of activity at what is a world-class minerals deposit is temporary and every effort will be made to restore the work program to its original plan,” he said in a statement.

DOWNSIZING

A provincial ban on open-pit mining, in place since 2010 although it runs counter to the national mining policy, and the difficulty of getting regulatory and public approvals have stalled the Tampakan project.

The revised work plan and budget will result in an 85 percent reduction of the workforce, affecting about 920 jobs. Monthly expenditures will be cut to $1 million from $4 million, Arnaldo said. To date, Sagittarius has spent more than $500 million for the initial phase of the project, he said.

Discovered in 1992, the Tampakan mine is predicted to have a 17-year lifespan with estimated deposits of 15 million tons of copper and 18 million ounces of gold.

In December last year, Sagittarius announced it was pushing back the target date to start production at the Tampakan mine by three years to 2019 as it struggled to win regulatory and community approvals.

Three months later, Sagittarius was granted an environmental compliance certificate by the government, removing just one of the hurdles delaying work on the project.

(Reporting by Erik dela Cruz- Editing by Matt Driskill)