Presidential Decree No. 1677






WHEREAS, there is a need to discourage mining lessees from sitting on their claims to the prejudice of the Government and other qualified parties desirous to undertake the exploitation of the country's mineral resources;

WHEREAS, foreign investments are needed to explore, develop and exploit said mineral resources;

WHEREAS, the Constitution recognizes the validity of service contracts with foreign companies as a means to accelerate the development of our mineral resources;

WHEREAS, there is a need to clarify the rights and obligations of parties to mining service contracts.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and decree that;

Section 1.chanroblesnad The word "Secretary" as found in Presidential Decree Nos. 463 and 1385 is hereby changed to "Minister".

Sec. 2.chanroblesnad Section 16 of Presidential Decree No. 463, amended by Sec. 9 of Presidential Decree No. 1385, is further amended to read, as follows:

"Sec. 16.chanroblesnad Recognition of Declaration of Location. � Upon payment of the prescribed fees and compliance with the requirements under existing rules and regulations on the matter, the declaration of location of a mining claim duly accomplished and notarized shall be registered by the mining recorder concerned."

Sec. 3.chanroblesnad Sec. 24 of Presidential Decree No. 463, as amended by Section 13 of Presidential Decree No. 1385, is further amended to read, as follows:

"Sec. 24.chanroblesnad Expenditure Required. � A claim owner/lessee under this Decree and under the Mining Act (Commonwealth Act No. 137); as amended, shall perform annual work obligations on his mining claim, the value of which shall be that as shall be provided in the Regulations.

"The annual work obligations for each mining claim registered under this Decree shall start from the date of recording thereof.

"Holders of mining claims who have filed lease applications under Presidential Decree No. 1214 shall perform annual work obligations on the mining claims from the date of filing of said applications, the value of which shall be that as shall be provided in the Regulations.

"Such rate of work obligations may be increased at any time by the Government after three (3) months notice."

Sec. 4.chanroblesnad Sec. 25 of Presidential Decree No. 463, as amended by Section 14 of Presidential Decree No. 1385, is further amended to read, as follows:

"Sec. 25.chanroblesnad Group Development. � The claim owner/lessee may concentrate all the annual work obligations on any one or more of several contiguous or geologically related mining claims in one province if it can be shown to the Director that such concentration of work will be most advantageous and beneficial in the development and operation of said mining claims; Provided, That any expenditure in excess of the minimum amount required for work obligations per hectare may be carried forward and credited to the work obligations of the group claims for the succeeding year: Provided, further, That if the expenditure incurred for any claim is less than that required in any year, the difference shall be paid and accrue to the Bureau of Mines and Geo-Sciences to be used exclusively for the purposes mentioned in Sec. 95 of the Decree."

Sec. 5.chanroblesnad Sec. 27 of Presidential Decree No. 463 as amended by Section 15 of Presidential Decree No. 1385, is further amended to read, as follows:

"Sec. 27.chanroblesnad Proof of Annual Work Obligations. � The claim owner/lessee shall submit proof of compliance with the annual work obligations by filing an affidavit therefor and the statement of expenditures and technical report in the prescribed form in support thereof with the Mines Regional Officer concerned within sixty (60) days from the end of the year in which the work obligations is required: Provided, That failure of the claim owner to comply therewith for two (2) consecutive years shall constitute automatic abandonment of the mining claim: Provided, further, That if it is found upon field verification that no such work was actually done on the mining claim, the claim owner/lessee shall likewise automatically lose all his rights thereto notwithstanding submission of the aforesaid documents."

Sec. 6.chanroblesnad Sec. 34 of Presidential Decree No. 463 is hereby amended to read, as follows:

"Sec. 34.chanroblesnad Application for Lease. � Application for lease of mining claims shall be filed with the Director within two (2) years from the date of the recording thereof. Failure to file the said applications within the prescribed period automatically constitutes absolute abandonment of the mining claims, and the land embraced thereby shall be opened to location by qualified persons other than the original locator, his heirs, successors and assigns.

"No application for lease of mining claims shall be accepted for filing unless accompanied by an application fee as provided in the Regulations and by the following supporting papers:

(1)chanroblesnad A report under oath of a licensed mining engineer or licensed geologist to the effect that the mining claim is mineralized;

(2)chanroblesnad Proof of compliance with the required annual work obligations;

(3)chanroblesnad If the application is filed by an agent of the applicant, a certified copy of the registered power of attorney granted by the applicant;

(4)chanroblesnad In case the area applied for is a public land covered by concessions or rights other than mining, written notice to the permittee thereof, or the requirements called for under Presidential Decree No. 512, in case the area is a private land;

(5)chanroblesnad The program of work proposed to be undertaken on the area applied for;

(6)chanroblesnad Proof of availability of technical competence and financial resources sufficient to develop the claim applied for as shall be provided in the Regulations; and

(7)chanroblesnad Such other documents as may be prescribed in the Regulations."

Sec. 7.chanroblesnad Sec. 36 of Presidential Decree No. 463 is hereby amended to read, as follows:

"Sec. 36.chanroblesnad Application Form. � All applications for mining lease shall be in the form prescribed for the purpose, under oath, and shall state, among others, the full name, address, citizenship, civil status of the applicant, his place and date of birth."

Sec. 8.chanroblesnad Sec. 37 of Presidential Decree No. 463 is hereby amended to read, as follows:

"Sec. 37.chanroblesnad Program of Work. � A claim owner shall upon the filing of an application for mining lease, undertake exploration, development and/or mining activities thereon in accordance with the approved five-year program of work: Provided, That within the said period of five years, the mining area shall be placed in actual commercial production: And provided, further, That failure to do so within the period aforestated shall constitute automatic abandonment of the mining claims.

"In pursuance of the aforestated five-year program of work, the claim owner shall, at the start of every calendar year and during the existence of the mining lease, submit to the Bureau of Mines and Geo-Sciences for the approval of the Director an annual work program describing in detail the kind and nature of mining activities to be undertaken thereof for that particular year. Any deviation from the approved work program shall be with the approval of the Director."

"Holders of existing mining leases shall submit a revised or updated work program within six (6) months from the date of approval of this Decree.

"The Regulations shall prescribed in detail the contents of the work program."

Sec. 9.chanroblesnad Sec. 44 of Presidential Decree No. 463, as amended by Sec. 20 of Presidential Decree No. 1385, is further amended to read, as follows:

"Sec. 44. chanroblesnad Mining Lease Rights. � A mining lease contract shall grant to the lessee, his heirs, successors and assigns, the right to extract all mineral deposits found on or underneath the surface of his mining claims covered by the lease, continued vertically downward, to remove, process and otherwise utilize the mineral deposits for his own benefit and to use the lands covered by the lease for the purpose or purposes specified therein: Provided, That the Minister shall reserve the right to grant and use easements in, over, through or upon the said claims as may be needed by other lessees for right-of-way to enable them to have access to and/or facilitate the operation of their mining claims: Provided, further, That in case of conflict of interest between the lessees for this purpose, the Director is hereby authorized to mediate: Provided, furthermore, That in granting any lease under this Decree, the Government reserves the right to lease or otherwise dispose of the surface of the lands embraced within such lease which is not needed by the lessee in extracting and removing the mineral deposits from his mining claims or in the benefication of the ores extracted therefrom: Provided, finally, That a lessee may on his own or through the Government, enter into a service contract with a qualified domestic and/or foreign contractor for the exploration, development and exploitation of his claims and the processing and marketing of the products thereof, subject to such rules and regulations that shall be promulgated by the Director with the approval of the Minister.

"Service contracts entered into pursuant to this Section shall contain among others, the following salient features to wit:

"a)chanroblesnad A stipulation that the foreign service contractor shall not be entitled to any other fee except a service fee which shall in no case exceed forty per cent (40%) of the net proceeds of the operations, before tax, the actual rate to be determined by the economics of each project; and in case the foreign service contractor or another foreign company holds an equity in the local mining corporation involved in a service contract, the equity participation including the service fee shall in no case exceed forty per cent (40%) of the net proceeds of the operations before tax;

"b)chanroblesnad The financing, technical, management and other services committed to be rendered under the service contract, specifying a minimum amount of expenditures, which should be over and above the minimum work organizations of the lease and acceptable to the Minister as recommended by the Director;

"c)chanroblesnad Repayment scheme of operating costs which shall include, among others, all fees and taxes except income tax;

"d)chanroblesnad Scheme for the repayment of service fees and repayment of advances which may include the following:

"i)chanroblesnad Foreign exchange payments duly approved by the Central Bank;

"ii)chanroblesnad Except for repayment of preproduction expenses which shall adhere as closely as possible of international practice, a provision that the interest charged on the fair value of the services rendered and actual funds advanced by the foreign entity shall not be more than the prevailing international interest rates charged for similar types of transaction; and

"iii)chanroblesnad A stipulation allowing payment of service fees in cash or in allotment of production which may be exported subject to domestic requirements of the country, or in equity which shall not exceed the Constitutional limits; Provided, That such stipulation shall not defeat the citizenship requirement of the Constitution in the exploration, development, exploitation, and utilization of the natural resources.

"e)chanroblesnad A stipulation that the foreign entity shall not acquire any title or interest in the leased area;

"f)chanroblesnad A commitment by the service contractor to pay the Government the amount which should have been spent, but was not, in direct prosecution of the approved work program;

"g)chanroblesnad A stipulation that the service contract shall be cancelled for repeated failure to comply with the terms and conditions thereof;

"h)chanroblesnad A preference for Filipinos in employment in all phases of operations for which they are qualified;

"i)chanroblesnad A stipulation that alien employees shall be limited to technologists and executives requiring highly specialized training and long experience, and whose employment shall be subject to the required approval under existing decrees, laws and regulations on the matter; and

"j)chanroblesnad In every case where foreign technologists and executives are employed, an effective program of training of understudies.

"Service contracts shall be approved by the Minister upon recommendation of the Director."

Section 10. chanroblesnad Sec. 69 of Presidential Decree No. 463 is hereby amended to read, as follows:

"Sec. 69. chanroblesnad Maximum Area of Quarry License or Permit. � Notwithstanding the provisions of Section 14 hereof, a quarry license or permit shall cover any area of not more than one hundred (100) hectares in any one province and not more than one thousand (1,000) hectares in the entire Philippines."

Section 11. chanroblesnad Sec. 92 of Presidential Decree No. 463 is hereby deleted.

Section 12. chanroblesnad All laws, decrees, executive orders, rules and regulations which are in conflict or inconsistent with this Decree are hereby amended, modified or repealed accordingly.

Section 13. chanroblesnad This Decree shall take effect immediately.

Done in the City of Manila, this 19th day of February, in the year of Our Lord, nineteen hundred and eighty.

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