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Mining woes fail to dampen DMCI outlook

BusinessWorld logo BusinessWorld 3/19/2017
BusinessWorld Photo: Herbert M. Consunji -- WWW.SEMIRARAMINING.COM© Copyright 2016, BusinessWorld Publishing Corporation Herbert M. Consunji -- WWW.SEMIRARAMINING.COM

DMCI HOLDINGS, Inc. is expecting better financial results this year, although the upside remains limited to single digits while it develops new mining sites and restarts suspended operations, among others.

The listed conglomerate may achieve “a little better” profitability, its Vice-President and Chief Operating Officer Herbert M. Consunji said in a media briefing in Makati City last Thursday, after announcing flattish earnings for 2016.

DMCI Holdings reported a core net income of P12.1 billion for last year, a 1.63% decrease from the P12.3 billion booked for 2015. Taking into account one-time gains, its profit dropped 5% to P12.2 billion from 2015’s P12.8 billion.

Sharp declines in the profitability of DMCI Homes, Maynilad Water Services, Inc. and DMCI Mining Corp. offset the double-digit surge in Semirara Mining and Power Corp.’s net income.

“All the indications are at least positive this year, except for mining,” Mr. Consunji noted, as DMCI Mining Corp. swung to a net loss of P65 million from a net income of P501 million because of stalled operations, falling nickel prices and weakening demand for lower-grade nickel.

The Department of Environment and Natural Resources (DENR) suspended the operations of Berong Nickel Corp. in June 2016 because of the alleged discoloration of the hosting barangay’s river system and tributaries.

In the following month, the Environment department also ordered the suspension of Zambales Diversified Metals Corp. because of “social issues” arising from its operations.

DMCI Mining has filed a motion for reconsideration with the DENR. While waiting for the department’s action on the appeal, it will work on recommencing the operations of Berong Nickel and Zambales Diversified.

“We should still be okay because the suspension orders have yet to take effect until the OP (Office of the President) says they’re upholding the decision,” DMCI Mining President Cesar F. Simbulan, Jr. said during the same briefing.

DMCI Mining intends to rebuild its manpower first at suspended nickel mines in Zambales and Palawan within the month. Its head count has dropped from 800 workers to 58 since the DENR served the suspension orders.

Asked how soon DMCI Mining can resume work in Palawan and Zambales, Mr. Simbulan said: “As soon as we can organize our people. Definitely this month we’ll start testing the waters.”

In early February, the DENR ordered the closure of 23 metal mines and the suspension of five others, following an audit into their environmental management practices starting in July 2016. It, however, gave the concerned companies time to appeal their cases.

“You must remember we are a contractor of the government. The government loses its quasi-judicial function being a party to a contract, so we are contracting parties and you cannot just rescind our contract,” Mr. Simbulan noted.

“There is a provision in our contract on how to settle our dispute. So, we can go to arbitration, for example, but you cannot just say I don’t like it anymore and I am done.”

In the meantime, DMCI Holdings will continue banking on Semirara. The listed subsidiary accounted for 58% of the group’s earnings in 2016 after posting a record P12 billion in net income on higher coal and power sales.

DMCI Holdings has committed P56.98 billion for capital expenditures this year, allocating 42% over the P40 billion programmed for 2016 largely for the development of two mining sites near the Panian mine in Antique and the launch of more residential projects.

Of the total, the conglomerate earmarked P46.5 billion for DMCI Homes, P8.44 billion for Semirara, P1.33 billion for off-grid supplier DMCI Power Corp., P570 million for construction firm D.M. Consunji, Inc. and P100 million for DMCI Mining.

“We will spend more for Semirara because we are building up new areas. But the cost to produce will be much less because we will simply transfer the overburden in the nearby existing pits,” Mr. Consunji noted.

D.M. Consunji also looks to sustaining its contribution to the group, as it expects to recognize about P15 billion in revenues within the year. Maynilad, meanwhile, should turn in 3-4% more income in anticipation of higher billed volume.

“Technically, Maynilad should receive an automatic adjustment for forex (foreign exchange) and CPI (consumer price index) supposedly on April 1st but the MWSS (Metropolitan Waterworks and Sewerage System) asked some time to review the tariff mechanism,” Mr. Consunji said.

DMCI Holdings maintains a 25% stake in Maynilad. Last year, the water business’ contribution to the earnings of the group declined 19% because of the expiration of its income tax holiday.

The listed conglomerate also expects its other businesses -- DMCI Homes and DMCI Power -- to improve their profitability and contribution to the group this year.

DMCI Homes raked in 46% lower in 2016 because of the deferred recognition of revenues from high-rise projects, while DMCI Power steadily grew its profit on higher electricity sales in Masbate and Palawan along with the full-year operations of its 15.6 megawatt bunker-fired plant in Mindoro.

Shares in DMCI Holdings closed 18 centavos or 1.50% lower at P11.86 apiece on the Philippine Stock Exchange on Friday.

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