EXPLORATION 1997 — Philippine gold mining company gains Toronto listing

A Philippine mining company has taken advantage of the hot market for mining stocks in Canada by spinning off its gold assets and listing the resulting subsidiary on the Toronto Stock Exchange.

Philex Gold (PGI-T), the gold mining and exploration arm of Manila-based Philex Mining, recently started trading on the TSE after raising $80 million through an initial public offering of 7.3 million common shares at $11 per share. The subsidiary is managed by President Robert McCallum, former vice-president of operations of now-defunct gold miner Corona, and Gerard Brimo, chairman of Philex Mining. In compliance with Canadian governance requirements for public companies, the majority of Philex Gold’s directors are Canadain residents.

The idea of placing Philex’s gold operations into a separate, Canadian-based entity was first proposed by Rothschild Australia after changes to the Mining Act in the Philippines allowed foreign ownership of exploration and mining properties.

The new act, which includes fiscal and tax incentives to encourage mining, has improved the investment climate in the Philippines substantially, says David Constable, director of investor relations for Philex.

“[Philippine President Fidel] Ramos has done an outstanding job of liberalizing rules, bringing in foreign investment and routing out corruption,” he says. “The only unknown is, Who will succeed Ramos in 1998, when the president must step down from a single 6-year term of office?” But although the new mining laws allow 100% foreign ownership of mining projects, the exclusive right to conduct mining operations is reserved for companies owned at least 60% by citizens of the Philippines. To satisfy this condition, 40-year-old Philex Mining (which now has an 82% stake in its gold subsidiary) will continue to hold a majority position in Philex Gold.

Prime hunting ground

As a result of restricted exploration in the past and the country’s location on the Ring of Fire (a volcanically active and mineral-rich trend that encircles the Pacific Ocean), the Philippines is considered prime hunting ground for gold and base metals.

Philex Gold intends to use its 40% share of the proceeds from the public offering ($32.3 million) to expand reserves, which currently stand at 21.3 million tons grading 0.072 oz. per ton. It will also embark on an aggressive exploration program in the Philippines, with the intention of boosting annual production to 300,000 oz. by the year 2000.

The gold miner’s flagship operation is the Bulawan mine, which, in 1996, produced 90,083 oz. of the yellow metal at a cash cost of US$199 per oz. With proven and probable reserves of 11.4 million tons grading 0.095 oz. per ton, Bulawan is expected to produce about

1 million oz. gold from underground and open-pit operations by the end of its projected 8-year life. This year’s output is forecast to reach 165,000 oz., whereas cash costs are expected to drop to US$180 per oz.

Situated on the island of Negros, the Bulawan deposit was acquired by Philex in 1990. Mapping, as well as geochemical and airborne geophysical work, has identified nine other mineralized zones on the property, and the Bulawan orebody itself remains open at depth and along strike.

Mineralization consists of disseminated gold within an altered dacite porphyry brecciation zone. The gold is generally fine-grained and free.

High-grade ore (grading more than 0.044 oz. gold per ton) is processed through a carbon-in-leach plant, while lower-grade material (0.017-0.044 oz.

gold) is sent to the heap-leach pads.

Heap leaching

A heap-leach operation is also planned for the Sibutad project on Mindanao island, which should add a further 35,000 oz. to Philex’s total gold production in 1997. Construction on the Phase I heap-leach pad is almost complete, and a Phase II pad is planned for 1998. The mine, which consists of four separate deposits, is expected to reach full production of 135,000 oz.

per year at a total cash cost of US$160-170 by the year 2000.

Philex also plans to inject US$15 million into its exploration programs in 1997, including almost US$4 million for property acquisition and staking. The work will include drilling on target areas within the Bulawan and Sibutad claims, as well as investigating an old mine on the company’s Sanfran project in eastern Mindanao.

Both Sanfran and North, a grassroots project, lie along the Philippine Fault, where numerous epithermal-type gold deposits have been found. The Pioneer, another advanced-stage exploration project on the island of Luzon, is underlain by a volcanic caldera with associated epithermal mineralization.

Last year, Philex Gold reported a net profit of $US10 million (27 cents per share) on revenue of US$33.5 million as the Bulawan mine began its first year of commercial production. The company secured an average realized gold price of US$390 per oz. during the year.