Integrated Annual Review 2012 Annual Financial Report 2012 Mineral Resources and Mineral Reserves Regional overview  
 

6.3.3 Far Southeast, Philippines

Salient features
Overview
  • Planned bulk underground gold-copper mine
  • Located in northern Luzon, 250km north of Manila
  • Based within existing mining camp – with access to established infrastructure

Mineral Resources
892 million tonnes containing:

  • 19.8 million oz gold
  • 9.921 mlb copper

Development stage

  • Prefeasibility/data gathering

Scheduled start of production

  • 2022

Ownership

  • (Joint venture) Gold Fields 40%; Lepanto Consolidated Mining Company 60%

Material sustainability issues

  • Negative legacy of historical mining in area relating to land stability, water quality and employment
  • Some challenges around land access for surface drilling and other purposes
  • Relatively challenging FPIC/ FTAA processes (see below) – with an FTAA a prerequisite for majority Gold Fields ownership)

Key stakeholders

  • Local communities (including majority Kankana-ey indigenous people)
  • NGOs (including the Cordillera People’s Alliance, the Benguet Mining Alert and Action Network and the Catholic Church)
  • Local, provincial and national government and regulators

Progress in 2012

Key points:

  • 40% ownership following a third US$110 million down payment under existing 60% option agreement
  • Maiden Inferred Mineral Resource in September 2012
  • Refocusing of strategy from pre-feasibility to data gathering

Third down payment

Following positive ongoing drilling results, we made a third down payment of US$110 million in March 2012 under our option agreement with Lepanto and Liberty Express Assets to acquire a 60% interest in the Far Southeast project. To date, Gold Fields has paid US$230 million for 40% of Far Southeast and we have retained the option to acquire the remaining 20% interest for a further payment of US$110 million.

Maiden Inferred Mineral Resource

In April 2012, we commenced a significant 100,000 meter geological drilling programme focused on infill-drilling to a level appropriate for resource declaration – as well as significant levels of geotechnical drilling to determine the location of shafts, declines and surface infrastructure. Drilling activities were carried out in parallel with ongoing due diligence and scoping studies to assess various bulk underground mining options.

The success of the drilling programme – as well as positive data from 35,000 meters of historic third-party drilling – resulted in the declaration of a maiden Inferred Mineral Resource of 892 million tonnes at 0.7 g/t gold and 0.5% copper for a total of 19.8 million ounces of gold and 9.921Mlb of copper (effective 12 September 2012).

Additional underground geological drilling to increase Mineral Resource confidence and test potential high-value positions is on schedule. Surface geotechnical drilling is also ongoing, but faced a number of challenges during the year. This included drilling for a potential shaft site at the Crusher plant site stalling at approximately 500 meters in poor ground conditions, as well as ongoing delays to surface drilling at Madayman due to ongoing picketing by local activists.

New strategy

In August 2012, we postponed the prefeasibility study for Far Southeast in favour of a data collection phase, which is scheduled to run from January to June 2013. This decision was undertaken in recognition of the need to successfully conclude the Free Prior and Informed Consent (FPIC) and Financial and Technical Assistance Agreement (FTAA) processes (see below) before resource development activities can be ramped-up – as well as the need to ensure unrestricted access to drilling sites. As such, activities during this phase will focus on:

  • Securing FPIC and conversion to the FTAA
  • Negotiating land access to conclude geotechnical drilling for the tailings and overburden sites
  • Completion of the geological drilling programme and resource model update
  • Completion of a scoping study on a potential starter mine

Outlook

We will continue to focus on obtaining surface access for drilling and community support for the project – as well as navigation of the relatively challenging FPIC/FTAA process. This includes plans for an extensive communication and engagement process. As a result, we will continue to scale back of technical activity on the project – including both geotechnical surface drilling and underground drilling.

The current data collection phase will be completed during 2013, whilst the prefeasibility study will recommence in 2014 (subject to the securing of an FTAA).

Licence to operate

FPIC

A key focus of our efforts is on securing FPIC from local (indigenous) Kankana-ey people for our exploration activities. This will not only underpin our social licence to operate, but is also a regulatory prerequisite for obtaining an FTAA (which allows foreign entities to own a majority in a project of this nature – and is thus a prerequisite for the project to proceed).

In support of the National Commission on Indigenous People (NCIP), Far Southeast established a technical working group with the local community and other stakeholders. This has been successful in driving the FPIC process forward and ensuring alignment between all relevant stakeholders. The initiative is being adopted as best practice by the NCIP and Far Southeast is being used as a model to support the incorporation of the working group as a National Standard Practice.

A December 2012 meeting with the Chairperson of the NCIP suggested that there was general support for a successful outcome to the FPIC process.

FTAA

In November 2011, we submitted an application for an FTAA in preparation for our acquisition of a majority stake in Far Southeast. In June 2012, however, the FPIC process was suspended at the national level pending the finalisation of new national mining legislation. The process recommenced in August following the release of new national guidelines, but this period of suspension delayed our FTAA application. Nonetheless, we anticipate completion of the FTAA process in 2013.

Piloting of 'shared value' approach

We are piloting the 'shared value' approach adopted at Group level to support local community development – as well as the FPIC process. This is focused on the generation of shared benefits and leveraging our economic impact to support an integrated, strategic hub of socio-economic development – including through our legally mandated and well-integrated Community Development Programmes (required under the Mining Act). These include, for example, construction of farm-to-market roads, hog-raising programmes, fertiliser production, a coffee seedling project, improved water systems and many other linked initiatives.

Tailings dam near Far Southeast, Philippines
Tailings dam near Far Southeast, Philippines
 
Mineral Resources and Mineral Reserves Overview 2012 - Far Southeast, Philippines

Technical Short Form Report 2012: Exploration and Growth Projects