The Philippines’ sovereign wealth fund, Maharlika Investment Corporation (MIC), has pivoted to investing in the country’s resource development sector with the recent signing of a binding term sheet with Makilala Mining Company Incorporated (MMCI).

Makilala is the Philippine affiliate of Australia’s Celsius Resources Limited (ASX, AIM: CLA). The  binding term sheet is for a bridge loan facility of up to US$76.4 million aimed at propelling the Maalinao-Caigutan-Biyog Copper-Gold Project (MCB Project) in Kalinga province towards full-scale development.

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The move has raised concerns from both the business and anti-mining sectors which are perplexed as to why government funds are to be spent on a junior mining venture with little financial capability to show for itself.

Records provided by a concerned business leader to Vantage Point show that while the MCB Project presents promising financial potential, its mother company Celsius Resources faces significant financial challenges:

• Unprofitable since 2016: Celsius has incurred continuous losses, with a net loss of A$8.4 million for the year ending June 30, 2024.
• Declining earnings: The company’s earnings have declined at an average annual rate of -37.9% over the past five years.
• Minimal revenue and market value: The company generated less than US$1 million in revenue (A$647.00) and has a market value of A$29 million.
• Limited cash reserves: The group had net cash outflows from operating and investing activities of A$2.3 million and A$3.5 million, respectively, as of June 30, 2024, with A$1.6 million in cash.
• Going concern risk: Auditors from RSM Australia Partners have highlighted a material uncertainty regarding the company’s ability to continue operating. However, Celsius’ directors remain confident in its financial stability, noting recent capital-raising efforts.

Contacted for comment, Rafael Jose Consing Jr., MIC president and CEO told Vantage Point that such negative financial results are typical for pre-operating companies, particularly  “in the copper and gold mining industry, where obtaining Mineral Production Sharing Agreement (MPSA) approval takes years due to the technical studies, permits, environmental clearances, and other necessary approvals”; hence, he noted, “the initial financial burden can be significant.”

He continued: “Note that the bridge financing will be provided directly to the mining project, enabling it to finalize the front-end engineering design (FEED) and other preparatory work. Upon determination of the final capex from the FEED study, we will finalize our targeted equity stake and provide the capital required to construct the mine and the accompanying processing plant.”

Environmental concerns

One of the most vocal pro-environment and anti-mining advocates, Caritas Philippines, opposes MIC’s venture into the mining industry. It says the investment is contradictory to MIC’s purpose of spurring economic growth because it will threaten communities and undermine responsible stewardship.

Caritas president Bishop Jose Colin Bagaforo expressed concern over using public funds to finance an industry that has caused damage to ecosystems. “This move by the Maharlika Fund betrays the Filipino people’s trust. Instead of supporting industries that promote development and sustainability, the government is channeling resources into extractive projects linked to displacement, deforestation, and human rights abuses,” Bishop Bagaforo stated.

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The Catholic Church, he says, has documented cases of indigenous peoples losing ancestral lands, contaminated water sources, and communities suffering from irresponsible mining operations. “How can we claim to work for progress when we fund an industry that destroys the resources God has entrusted to us?” asked Bishop Gerardo Alminaza, vice president of Caritas Philippines.

Truly, the mining sector has had its unfortunate incidents which devastated communities where it operates. But it also cannot be denied that this industry was instrumental in propelling progress throughout the world. 

We don’t just shut down the operations of the tobacco industry just because smoking causes cancer. Similarly, the gas, car, cement, lumber and other industries that are found to contribute to environment degradation must be allowed to thrive for as long as our modern existence relies on them. It’s not an easy job for the government to ensure that no devastation takes place, and that the environment, through sustainable approaches, is cared for and brought back to the pink of health, after it has been mined out.

In other countries, this has been done through hard-nosed regulations and vigilance from governments. It can certainly be done in the Philippines without killing, as the saying goes, the goose that lays the golden egg.  

But let’s take a look at this latest MIC project and see if it’s really worth investing in. 

Understanding the bridge loan facility

A bridge loan is a short-term financing solution designed to provide immediate capital, while a borrower arranges for long-term funding. In this case, MIC’s bridge loan facility will enable MMCI to fund key pre-development activities until more permanent project financing — such as equity investments or long-term debt — can be secured. Typically, bridge loans are repaid through proceeds from future financing rounds, project revenue, or refinancing agreements with larger institutional lenders.

Funding to drive key project milestones

The bridge loan facility will be instrumental in financing crucial stages of the MCB Project, including:

• Updating the Feasibility Study (FS) and Front-End Engineering Design (FEED) to refine project viability and implementation strategy.
• Early development activities, such as constructing the main access road in collaboration with the Kalinga Provincial Government.
• Community engagement initiatives, particularly skill-based training for the Balatoc community, ensuring local participation in the project’s economic benefits.
• Compliance with regulatory requirements, as MMCI must meet the financial capability standards under its Mineral Production Sharing Agreement with the Philippine Government.

Following an extensive due diligence process, MIC’s Board has approved the funding, confirming the project’s strong technical and economic potential. The first tranche of US$10 million will allow immediate commencement of essential preparatory works without requiring direct funding from Celsius Resources Limited.

What the MCB project has to offer

The MCB Project is a key asset in Makilala Mining’s portfolio, located in the Cordillera Administrative Region (CAR), approximately 320 kilometers north of Manila. Experts have assessed the site and found substantial amounts of valuable minerals:

• 2022 Resource Estimates: The site is believed to contain around 1.6 million tons of copper and 1.3 million ounces of gold, mixed within 338 million tons of rock. This means there’s a significant amount of minerals available for extraction, making it a promising mining site.

• Feasibility Study (2021) Key Findings:

• The project could generate about US$464 million in profit over its lifetime after covering costs.

• Investors could see a 31% annual return on their money, making it a financially attractive venture.

• The project could recover its initial investment in approximately 2.7 years after operations begin.
• It will require an initial investment of US$253 million to set up mining operations and processing facilities.

• The mine is expected to operate for 25 years, using an underground mining approach and a processing plant capable of handling 2.28 million tons of rock per year.

Projected earnings for MIC, the Philippine government, and citizens

Based on the feasibility study, the MCB Project is projected to generate significant financial returns. Given the estimated 1.6 million tons of contained copper and 1.3 million ounces of gold, MIC, the Philippine government, and its citizens stand to benefit through direct investments, royalties, and taxes:

• MIC’s potential returns: With its bridge loan investment and potential equity participation, MIC could earn an estimated 31% annual return on investment, aligning with the project’s feasibility study findings. This means potential earnings of US$140-150 million over the project’s lifespan, reinforcing MIC’s role in funding high-return national projects.
  
• Government revenues: The Philippine government will benefit from corporate taxes, royalties, and other levies. Assuming a corporate tax rate of 25% and a royalty rate of 5%, total government earnings could reach US$500-700 million over the 25-year mine life.
  
• Returns on citizens’ capital: Since MIC is a sovereign wealth fund, its earnings are reinvested into national development projects. Given the estimated 31% annual return on MIC’s investment, Filipinos can expect significant reinvestments in infrastructure, social welfare programs, and job-creating industries. If reinvested at similar growth rates, these returns could generate long-term national economic benefits beyond the initial project.
  
• Employment and local economic impact: The project is expected to create thousands of direct and indirect jobs, generating additional income tax revenues and fostering local economic development.

How the bridge loan may be repaid

Repayment of the bridge loan will likely occur through a combination of:

• Securing long-term financing: MMCI is in discussions to raise additional equity funding and debt financing, which can be used to repay the bridge loan.

• Project revenue generation: Once mining operations commence, revenue from copper and gold sales could be allocated for repayment.

• Strategic partnerships or offtake agreements: Mining companies often secure offtake agreements — pre-sold production contracts — that provide upfront capital to fund operations and pay down existing obligations.

• Potential government support: Given the strategic importance of mining to national development, there could be mechanisms to leverage government-backed financial instruments to support repayment.

Consing emphasized that this investment aligns with the Philippine Government’s vision of “beyond responsible mining,” setting a new benchmark for sustainable and inclusive resource development.

Next steps and project execution

The involved parties are finalizing the Omnibus Loan and Security Agreements, after which MIC’s funding will be formally secured. Concurrently, MMCI is selecting an engineering firm to advance the Feasibility Study and Front-End Engineering Design, paving the way for further project de-risking and investor engagement. Onsite drilling and infrastructure works are also set to resume shortly.

While the bridge loan addresses short-term financial requirements, discussions on securing additional equity funding continue, given the estimated total capital expenditure of US$253 million.

MIC’s investment in the MCB Copper-Gold Project marks a significant milestone in the country’s resource sector. By funding feasibility improvements, early infrastructure, and community development, the partnership between MIC and MMCI sets a precedent for strategic, responsible, and economically impactful mining investments in the Philippines. With sustainability and local participation at the forefront, the MCB Project stands poised to contribute to national economic growth, while maintaining stringent environmental and social governance (ESG) standards. – Rappler.com

In this piece, data cultivation and analysis were done in collaboration with Washington-based fund manager Eric Jurado of the Institutional Investor who agreed to team up with Vantage Point from time to time to deliver relevant market and economic valuation for our countless readers. 

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