Gone is the gold: The vanishing mineral riches of Eastern Mindanao

For many miners, the mineral-rich region of eastern Mindanao may be the long-awaited El Dorado, but for the government, it is the wild west, a dangerous, impenetrable area.

Rafael Baniqued thinks it's the latter. Baniqued has been in the region since the seventies, when only a few people knew of the region's potential.

Now, Baniqued is the owner of a gold processing facility and a trader in the middle of one of the country's most valuable and infamous trades. Where is all the gold?

The country's gold trade has become notorious because gold has been missing from the Philippines for more than a year now —an open secret that has baffled tax and environment officials.

Where does it go? Everybody has informed conjectures, but no one has come up with a definitive answer, nor a solution to stop the loss of revenue from gold smuggling.

Miners, traders, and government officials have observed that gold started to disappear from the market when the Bureau of Internal Revenue (BIR) mandated the collection of excise and withholding taxes from small scale miners and traders in 2011.

The speed of gold's disappearance was swift. The BIR started collecting the taxes in July 2011, three years after the order was signed; by December of that year, Environment Secretary Ramon Paje announced a massive drop in the gold buying trade of the Bangko Sentral ng Pilipinas.

According to the DENR, gold production based on the sales to the BSP —the only authority in the Philippines to buy and sell gold— declined 76 percent to 1,722 kilograms in the third quarter of 2011 from 7,166 kg in the same period in 2010.

In the first quarter of 2012, practically no gold was being traded in the formal market. Despite rising metal prices worldwide, the amount of gold traded in the country plunged by an unbelievable 92 percent in the first quarter of the year to 618 kilograms, worth P1.35 billion.

The government's Mines and Geosciences Bureau (MGB) said first half figures for Philippine metals was “lackluster,” with gold production down by 63% to 8,382 kg from 22,804 kg in the same time last year.

Tax collectors, bankers, and environment officials could only look on at the flight of the yellow metal. “We lost this gold from the perspective of the BSP,” Diwa Guinigundo, BSP deputy director said in an interview. In the pre-tax years, gold accounted for as much as 14% of the country's gross international reserves. “Now, it is less than 10%,” he said.

Government officials said the gold is being traded in the underground market or smuggled abroad to avoid the BIR's reach. “Gold is a very saleable and popular commodity,” Jasareno said in an interview. “It's very easy to convert gold into cash,” he added. It's also very easy to smuggle gold out of the country. Outbound smuggling

Jasareno said the gold from the Philippines is being sold to Hong Kong, Malaysia, Singapore, and Indonesia. Hong Kong, he noted, appears to be the main market because of its proximity to gold-hungry China.

Most of the gold mined in the country comes from small-scale miners. The BSP is the only authority in the country that buys and sells gold from this group. Sixto Dy, a lawyer from the BIR, noted that the law mandating small-scale miners to sell their gold to the BSP at prices competitive with those prevailing in the world market was made with the hardships of gold mining in mind.

“This law was enacted in line with the government’s policy to promote, develop, protect, and rationalize viable small-scale mining activities, which rely heavily on manual labor using simple implements and methods, in order to generate more employment opportunities,” he said. PHL gold industry —impenetrable?

Philippine officials admitted that the gold mining industry and trade in the country is something that they find impenetrable, despite having laws to regulate it.

Guinigundo said the trade of gold in the Philippines is surrounded by secrecy and danger.

Atty. Gerardo Florendo of the BIR's Large Excise Tax Group, the division that monitors large miners, said the tax collectors on the ground have been harassed and threatened.

One of their regional directors who was stationed in Mindanao was killed by riding-in-tandem assassins in Marikina two years ago. There was talk that the murder was connected to his work in the gold-rich region.

Clearly, the government's plan to collect gold from traders and miners has “backfired,” Guinigundo said. In July 2011, excise tax from gold had reached P74 million, BSP data said. As of July 2012, it was down to P7.2 million.

King of Metals

According to the World Gold Council, the Philippines is among the top 20 gold producers in the world, sitting at number 17 as of 2010.

Gold is the king of Philippine metals, accounting for about 55 percent of the country’s total mineral output. Of this volume, over 60% comes from small-scale mining, MGB said.

The national gold production trend is an anomaly in the world. While the country's gold production is shrinking, world production is increasing. According to the WGC, supply and demand of the yellow metal in the last two years was stable. In 2011, global supply was at 4,497 tonnes, a slight improvement from 2010's 4,350 tonnes.

According to the organization, gold takes the single largest share of Philippine metallic commodities at 30.7%, followed by crude oil, natural gas, and condensates. In 2010, the country mined 40 tons of gold, about 1.5% of the world's total gold production. For that year, the country's gold production was worth some $1.6 billion.

Gold mining in the Philippines is a crude process that depends on indigenous people and low-income workers to pan for the mineral in the rivers and tunnels of Region XI, putting a lot of stress on the environment.

Baniqued, who owns one of the processing plants in Compostela Valley, said a 20-ton sack of ore takes at least 72 hours to process using high heat and chemicals such as carbon, cyanide, and borax.

When the gold is extracted from the ores, it is melted and then sold to middlemen. The gold trade in Mindanao seems to be anarchic, but Baniqued said miners and traders are governed by trust and credibility. Both sides must show that they are trustworthy – that their gold is pure and that their prices are right – in order to be able to participate in the market.

Burgeoning underground market

The government's imposition of taxes on gold has attracted gold buyers all around the world, who saw an opportunity in the growing underground market.

BIR and BSP officials have taken notice of almost daily newspaper advertisements encouraging Filipinos to sell their gold jewelry at a handsome price, no questions asked, from buyers who have parked themselves in posh hotel rooms. In Region XI, mine operators have reported of Chinese businessmen leasing lands and financing the mining operations.

But almost nothing is known of these buyers nor of the financiers. BIR has sent employees to investigate these gold buying stations, only to be turned away. “They were told that their jewelry has no value,” according to an official.

This is one layer of the underground market for gold. Florendo said these foreign buyers, who melt and recycle gold jewelry, are not covered by the BSP rule that all gold must be sold through the bank. “What they are buying are jewelry,” he said, allowing them to avoid tax obligations.

Asked if these buyers pay a tax to the government, Florendo said that was highly unlikely. These buyers are mobile and so is their main commodity.

“It is very difficult to monitor gold sales that do not pass through the BSP. Also, smuggling of gold out of the country is very difficult to catch,” Dy said.

Customs Commissioner Rufino Biazon admitted that the country's porous borders and the portability of gold make it difficult for them to track possible exit points for the commodity.

Of course, there have been unverified reports that gold is leaving the country illegally, he said. The Customs once tailed a businessman who has a history of buying gold bars here, but that came to nothing.

Biazon said there is minimal monitoring of what goes out and not much detail is gathered by the agency in terms of the smuggling of minerals.

Gold miners and traders in Compostela Valley have denied that gold is being smuggled out of the Philippines and have decried the taxes.

“There is no black market. The export of gold is not regulated, it's even undervalued,” said Lucio Castillo, a mining engineer. “There is no small-scale mining in the Philippines, only small operators,” he added.

Castillo is also the secretary of the Alliance of Advocates in Mining Advancement for National Progress, based in Davao del Norte. Like Baniqued, he has seen the growth of mining in Region XI since the seventies, first as a mining engineer employed by the government.

Baniqued, who also serves as AAMA chair, said it was the government's fault for not being able to control the gold trade, especially in Compostela Valley and surrounding provinces. “Why should the government be afraid of us? It is the people who should be afraid of the government,” he said.