August 13, 2013 / 6:14 AM / in 4 years

Glencore cuts budget for $5.9 billion Philippine project

The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012. REUTERS/Arnd Wiegmann

MANILA (Reuters) - Glencore Xstrata (GLEN.L) will cut up to 920 jobs and slash spending at its $5.9 billion Tampakan copper-gold project in the Philippines, one of several future mines under review since the company was formed in a record-breaking takeover.

Tampakan, a challenging project in a restive region of the southern Philippines, has not been officially put up for sale.

But, like many of the big-ticket mining projects previously held by Xstrata, it is under review by its new owners and is one of four projects Glencore has said it could sell to appease Chinese regulators’ concerns over its dominance in copper - if it is unable to sell the Las Bambas mine in Peru.

Sagittarius Mines Inc, which is 62.5 percent-owned by Glencore, said on Tuesday it had revised its work plan as the project still faced “substantial development challenges” - including a ban on open-pit mining in South Cotabato province.

That means it is unlikely to hit an already revised 2019 target for first production.

“No investment decision can be made until the current project challenges are resolved and necessary approvals obtained,” Sagittarius spokesman John Arnaldo said.

The fresh delay to what could be the biggest single foreign direct investment in the Philippines also reflects a challenging environment for investors looking to develop untapped mineral wealth in the country worth an estimated $850 billion.

Although the Southeast Asian country has won investment-grade ratings from Fitch Ratings and Standard & Poor‘s, policy uncertainty continues to hound the Tampakan project.

Australian miner Indophil Resources N.L. IRN.AX, which has a 37.5 percent interest in the project, remains optimistic.

Chief Executive Richard Laufmann said Indophil was still in talks with trader and miner Glencore Xstrata over the revised work plan, and ruled out a shutdown of the Tampakan project.

“This modification of activity at what is a world-class minerals deposit is temporary and every effort will be made to restore the work program to its original plan,” he said in a statement.

DOWNSIZING

Glencore has made no secret of its lack of appetite for costly greenfield projects - mines built from scratch - but local difficulties have long held back Tampakan.

A provincial ban on open-pit mining has been in place since 2010, although it runs counter to the national mining policy, compounding the difficulty of getting necessary approvals.

The revised work plan and budget will result in an 85 percent reduction of the workforce, affecting about 920 jobs. Monthly expenditure will be cut to $1 million from $4 million, Arnaldo said. To date, Sagittarius has spent more than $500 million for the initial phase of the project, he said.

Discovered in 1992, the Tampakan mine is predicted to have a 17-year lifespan with estimated deposits of 15 million tons of copper and 18 million ounces of gold.

In December last year, Sagittarius announced it was pushing back the target date to start production at the Tampakan mine by three years to 2019 as it struggled to win regulatory and community approvals.

Three months later, Sagittarius was granted an environmental compliance certificate by the government, removing just one of the hurdles delaying work on the project.

Glencore declined to comment on Tuesday.

Additional reporting by Clara Ferreira-Marques in London; editing by Matt Driskill and Tom Pfeiffer

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