2017 SEC Form 17-A Annual Report
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S.E.C. Number 10044 File Number______ PHILEX MINING CORPORATION (Company’s Full Name) 2nd Floor LaunchPad, Reliance Street corner Sheridan Street, Mandaluyong City, Metro Manila 1550 (Company’s Address) 631-1381 to 88 (Telephone Numbers) December 31 (Fiscal Year Ending) (month & day) SEC FORM 17-A Annual Report Form Type _____________________________ Amendment Delegation (If applicable) December 31, 2017 Period Ended Date __________________________ (Secondary License Type and File Number) 1 SEGURITIES AND EXCHANGE COMMISSION SEC FORIVI 17-A ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141 OF GORPORATION CODE OF THE PHILIPPINES S@et' l lll{rl ona 1 . For the calendar year ended December 31. 2017 c tr G la {, (:! I C <,rl.l rtrl B t o 2. SEC ldentification Number 10044 r6r !lacltonic Divi.i.. c 3. BIR Tax ldentification No. 000-283-731-000 APR 'I 2018 T 4. Exact name of issuer as specified in its charter: D tr iEcErvEo R€ YIEIT UF IIENIS'O Province, Country or other jurisdiction of incorporation or organ b (SEC Use Only) lndustry Classification Code: 7 2nd Floor LaunchPad. Reliance Street corner Sheridan Street. Mandaluvonq Citv. Metro Manila Address of principal office Postal Code 1550 I {632} 631-{381 to 88 lssuer's telephone number, including area code Former name, former address, and former fiscal year, if changed since last report 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 & 8 of the RSA Number of Shares of Common Stock Outstanding Title of Each Class and Amount of Debt Outstanding Common shares, Pl par value (as of Dec.31,20171 4,940,399,068 Debt Outstanding (as of December 31,20171 89,396,876,486 11. Are any or all of these securities listed on a Stock Exchange? YesIX] No[ ] lf yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchanqe Common Shares 12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a) - 1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding twelve ('12) months (or for such shorter period that the issuer was required to file such reports). YesIX] Not l (b) has been subject to such filing requirements for the past 90 days. Yes[X] NoI I l3.Aggregate market value of the voting stock held by non-affiliates: P29.395 billion based on closing price at the Philippine Stock Exchange on April 10, 2018. 2 PART 1 BUSINESS AND GENERAL INFORMATION Item 1. Business CORPORATE PROFILE Philex Mining Corporation (“PMC” or the “Company”) and its subsidiaries had been originally organized into two main business groupings: the mining business, which is directly under PMC, Philex Gold Philippines, Inc. (PGPI) Silangan Mindanao Exploration Co., Inc. (SMECI) and Silangan Mindanao Mining Co., Inc. (SMMCI), and the energy and hydrocarbon business under PXP Energy Corporation (PXP), formerly Philex Petroleum Corporation, not until July 15, 2016, when PXP and its subsidiaries ceased to be subsidiaries of PMC as a result of loss on control through property dividend distribution. Thus, currently, the Group focuses on its core mining business. Mining Business The Company was incorporated in the Philippines in 1955 and has been listed in the Philippine Stock Exchange since November 23, 1956. PMC, its wholly-owned subsidiaries namely, PGPI, SMECI and SMMCI (through SMECI), are primarily engaged in large-scale exploration, development and utilization of mineral resources in the Philippines. PMC has been operating the Padcal Mine in Benguet for the past 60 years using the underground block-cave method, with a starter mine in 1958. It is one of the longest operating mines in the country and provides PMC its biggest source of revenue. In February 2016, the Company disclosed the results of exploration near the surface of Bumolo Project, which area is within Mineral Production Sharing Agreement (MPSA) 156- 2000-CAR, with an estimated 21.7 million tonnes of inferred resources at 0.21% copper and 0.30 grams per tonne gold, at a cut-off of 0.274% copper equivalent. An additional drilling program, including metallurgical testing, was completed and yielded preliminary resources and grades of Indicated category at 11.4 million tonnes of 0.19% copper and 0.30 grams per tonne gold at 0.312% copper equivalent cut-off grade. The accessibility of the near-surface Bumolo ore to the existing Padcal mine and mill infra-structures makes it encouraging to pursue a mine feasibility study for the project. PGPI, on the other hand, operated the Bulawan mine in Negros Occidental until the second quarter of 2002. The Company’s exploration strategy in the late 1980’s was focused on gold exploration, which resulted in the acquisition and staking of a number of primarily gold claim holdings throughout the Philippines. In July 1996, these gold assets were transferred to PGPI. These assets included the Bulawan mine in Negros Occidental, Negros Island, which operated commercially from January 1996 until 2002, when it was decommissioned due to unfavorable metal prices. The Bulawan mine currently has remaining resources of 23.9 million tonnes, including that of the Vista Alegre area. Exploration projects in the Vista Alegre area include the Nagtalay project and the Laburan/Skid 9 project, which have completed the geological modelling and preliminary resource estimation. 3 SMECI, through SMMCI, completed the acquisition of the Silangan Copper and Gold Project (the “Silangan Project”) covering the Boyongan and Bayugo deposits in Surigao del Norte, Northeastern Mindanao, Philippines in April 2010 and had been progressing with the project’s development since then. All mineral rights held by SMMCI with respect to the Silangan Project area remain valid and subsisting. The Silangan Project has secured and currently maintains all major permits from the Department of Environment and Natural Resources (“DENR”), such as the Environmental Compliance Certificate (“ECC”); Declaration of Mining Project Feasibility (“DMPF”); and Special Tree Cutting and Earth Balling Permit (“STC-EB”), among others. The project has also secured the ISO:14001 Certification for Environmental Management System issued by Certification International Philippines Inc. (“CIPI”) in June 2016. SMMCI has initiated further studies to demonstrate project feasibility in order to develop the Silangan Project in an environmentally sound, socially acceptable, technically compliant and economically viable manner. Based on latest results following these parameters, the project is envisioned to be an underground mine with (1) a starter mine (Phase 1) to initially extract the near surface ore and improve the groundwater condition of the ensuing underground mine; and (2) the main mine (Phase 2) to extract most of the deep seated ore for the planned mine life. These studies are being advanced to include more details in support of project financing requirements. Meanwhile, community development and environment enhancement programs are continuing in compliance with the ECC conditions and environmental, social and governance (“ESG”) commitments to the local communities. Energy and Hydrocarbon Business On February 29, 2016, the Company’s Board of Directors approved a property dividend consisting of shares of stock of PXP at the ratio of seventeen PXP shares for every one hundred shares of PMC, which was approved by the Securities and Exchange Commission on June 22, 2016. The transaction reduced PMC’s shareholdings in PXP, effective July 15, 2016, from 64.7% to approximately 19.8%, and allowed PMC to leverage on its key strengths and focus its resources on its core business of metals mining, particularly with respect to the extension of Padcal’s life of mine, commercial operations of the Silangan project and development of other Company mining tenements. PXP’s market capitalization as of April 10, 2018 amounted to P29.395 billion. 4 CORPORATE OBJECTIVES CORPORATE OBJECTIVES 2018 2019 2020 2021 2022 Increase operational efficiency in Padcal Extend Padcal’s life of mine through extensive exploration around Padcal and possible conversion of mineral resources under new parameters Manage Silangan Proceed with mine development of under DAO-2017- Silangan 10 Pursue joint-venture and/or farm-in/out agreements for other tenements Support energy and hydro-carbon exploration activities of an affiliate Launch right and principled mining as enhancement to responsible mining PRODUCTS/SALES For the past 60 years, the Company has operated the Sto. Tomas II deposit at Padcal, Tuba, Benguet Province – the first underground block caving operation in the Far East. The Company’s Padcal mine produces copper concentrates, containing copper, gold and silver. Total ore extracted and processed from start of operation to 2017 aggregated to 409.279 million tonnes, producing 2.278 billion pounds of copper, 6.183 million ounces of gold, and 6.660 million ounces of silver. Based on the Sales Agreement entered into by the Company and Pan Pacific Copper Co., Ltd. (Pan Pacific), a major Japanese copper producer jointly established by JX Nippon Mining & Metals Corporation and Mitsui Mining & Smelting Co., Ltd., in March 2004, 60% of the Company’s annual copper concentrate production, approximately 40,000 dry metric ton of current production level, is committed to Pan Pacific up to contract year April 2018 to March 2019. Starting contract year April 2019 and onwards, this volume can go from 40% to 70% at the discretion of PMC. Pan Pacific processes the concentrates through its smelter plants and produces products, such as refined copper and precious metals. Pan Pacific is one of the leading buyers of copper concentrates in the world, procuring approximately 1.7 million tonnes of copper concentrates annually from around the world.