San Miguel proposes to reopen Nonoc nickel mine in Surigao City

SURIGAO CITY, Philippines – Diversified conglomerate San Miguel Corporation will reopen the Nonoc nickel mine with a new US$2.5 billion refinery, in a deal that is only awaiting the approval of President Aquino.

A major aspect of the “friendly takeover” bid would be San Miguel’s construction of a modern nickel refinery and its offer to shoulder a portion of the mine operator’s standing obligations— some $300 million to the national government and P200 million in real property taxes to the city government, said Mayor Ernesto Matugas, who took part in the talks between San Miguel and Philnico’s controlling partners early this year.

In last Thursday’s Philippine Stocks Exchange disclosure, San Miguel said its board has approved the Nonoc nickel mining projects, along with the Skyway and South Luzon Arterial Road projects.

The construction of a “modern, eco-friendly refinery” was the latest detail to emerge in the deal, Matugas said, adding this information was relayed to him by San Miguel CEO Ramon Ang during a recent meeting in Manila.

Matugas said he and his brother, Surigao del Norte Rep. Francisco Matugas (1st district), were invited to the San Miguel-Philnico talks because any agreement that would emerge from the negotiations would be “fruitless” owing to Philnico’s tax obligations to the local government. Ferdinand K. Constantino, San Miguel corporate information officer, earlier confirmed the negotiations.

In the MOU, San Miguel offered US$85 million for Philnico’s outstanding debt of US$263.8 million to the Department of Finance, and at least P50 million for the company’s P200 million unpaid real property taxes to the city government, the mayor said.

“I had initial reservations about this offer because we would only be getting 25 percent of what is owed to us,” admitted the mayor, who last year had unsuccessfully tried to sell Philnico’s mothballed refinery plant in Nonoc as payment for the unpaid taxes. “But we’re willing to accept a lower amount considering the huge economic potentials the reopening of Nonoc will bring to the city.”

San Miguel’s pared down offer would be paid in the form of P50 million worth of works to extend the runway at the Surigao City airport by an additional 800 meters, he added.

The San Miguel-Philnico MOU would honor Philnico’s existing contracts with Shuley Mine Inc. (SMI) and another Nonoc sub-operator, Matugas said.

SMI, which employs around 1,400 Nonoc islanders, is currently completing its fourth shipment for the year.

Matugas said the MOU, signed by San Miguel’s Ang and Philnico President Evaristo Narvaez, has been forwarded to Executive Secretary Paquito Ochoa. It will need President Aquino’s imprimatur to be enforceable.

The mayor said the Nonoc nickel mine reopening would create at least 8,000 new jobs, including subsidiary industries in the area of food, transportation and services.

Surigao City, he said, could earn some $25 million in annual realty taxes (approximately P1 billion at prevailing exchange rates), derived from one percent of the $2.5 billion refinery cost.

Apparently in preparation for the refinery’s construction, San Miguel has been conducting due diligence to acquire local cement company Pacemco, said Matugas and Celestino Negapatan, provincial director of the Department of Trade and Industry in Surigao del Norte.

“Construction cost is relatively economical if you have a stable supply of cement,” Negapatan said, adding he was not privy to the Nonoc deal and only got wind of the Pacemco acquisition plan from the local business sector.

Earlier, the Jinchuan Group Ltd of China had offered $1 billion to rehabilitate the refinery, but a final deal with Philnico never materialized.

Philnico acquired the refinery from the government in the 1990s, but the national government—through the Privatization and Asset Management Office—seized the property back because the company failed to pay the full acquisition cost.