Mining in the Philippines

Media

Part of The American Chamber of Commerce Journal

Title: Mining in the Philippines
Creator: Haussermann, John W.
Language: English
Source: The American Chamber of Commerce Journal Volume XVIII (No. 11) November 1938
Year: 1938
Rights
Abstract: Speech delivered to the American Mining Congress in Los Angeles on October 25th (Reprinted from the Manila Daily Bulletin)
Fulltext: November, 1938 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 23 Mining in the Philippines (Speech delivered to the American Mining Congress in Los Angeles on October 25th. Reprinted from the Manila Daily Bulletin.) By John W. Haussermann It is a pleasure for me to appear before this body of outstanding mining executives whose operations, generally speaking, are so much larger than our more limited mining operations in the Philippines, and I welcome the opportunity to tell you something of our mining industry and the problems connected with it. I want you to understand from the start that I speak only from my experience as a mining exe cutive. I am not a mining engineer, nor am I familiar with the ordinary operating problems that beset all mines such as, dif ficult ground, heavy water flows, geologi cal problems and so forth. I am assuming that you are interested more in the Phil ippine mining industry insofar as it differs from your own. One of the great differences, I should say, is that the mining industry of the Philippines was started by men who were not miners. The first prospecting was done by venturesome soldiers who, during their service in the Philippines at the time of the Spanish-American War, heard tales of gold mines back in the hills and decided to take their discharge from the army in the Philippines in order that they might be free to go back into those hills in an attempt to make a- fortune for themselves. Darned clever, these Igorotes Their prospecting was done, not as it has been done here in the United States by actually searching for outcrops of goldbearing veins, but by living with the na tives and gaining their confidence to the point where these natives were willing to show the prospector their mines, both ac tive and abandoned. This was entirely in accordance with the philosophy of the hill people whom we know as Igorots. They believe that a mineral deposit is a sort of a community proposition, as far as the individual tribe is concerned, and that anyone may work it who will, provided he belongs to the community. They tolerate no intruders from other tribes. The ac cepted formula for prospecting, therefore, was to first find a grubstaker and then take up residence in an Igorot communicy, preferably one where the natives were wearing gold ornaments, find out the lo cation of the native mine workings and then cover the same by a location under the newly established mining law. It is a fact that with only one or two excpetions, all of the gold deposits now known in the Philippine Islands were already known at the time of the American occu pation and, in the country where the Spa nish had control, were already covered by Spanish “denuncias”. One of these dis tricts was what is now known as the Ba guio district. At that time it was called Antamok, the district in which our mines happen to be located and with which I am consequently most familiar. There, the early American prospectors found the Igorots actively engaged in shallow mining opera tions. They had attained a degree of ex pertness in their mining which was re markable and had a nose for gold which resulted in their discovery of practically everything of any value. In our subse quent mining operations we have connec ted with some of their old stopes and have found modified square sets there probably several generations old which would do credit to any of our American miners. The only difference between these square sets and the usual square set timbering is that they were much lighter and used the mortise and tenon principle. They con ducted their mining according to weird beliefs. One of these was that all of the gold should never be removed from the earth as this would incur the displeasure of the good spirits who would then refuse to place more gold there. Another was that women should never be allowed to en ter the mine, although they could be uti lized in the heavy work of grinding and Hongkong & Shanghai Banking Corporation Authorized Capital ............................... $50,000,000 Issued and fully paid .............................. $20,000,000 Reserve Funds: Sterling .............................................. £ 6,500,000 Silver .................................................. $10,000,000 Reserve Liability of Proprietors .............. $20,000,000 BOARD OF DIRECTORS AND HEAD OFFICE IN HONGKONG Sir VANDELEUR M. GRAYBURN, Chief Manager LONDON OFFICE—9 Gracechurch Street, E. C. 3. MANILA BRANCH ESTABLISHED 1873—Agency in Iloilo Agents at Cebu: Messrs. Ker & Co. The bank buys and sells and receives for collection Bills of Exchange, issues drafts on its branches and correspondents in the United States, Canada, Great Britain, Continent of Europe, Australia and Africa and transacts banking busi ness of every description. Current accounts opened in Philippine currency. Fixed deposits received in Philippine Currency, British or U. S. Currency at rates which may be had on application. C. I. Cookes, Manager. panning the ore on the outside. Another was that mines were revealed by the spirits. In one case, a golden deer was followed which disappeared into the hillside. At the point of his disappearance, a big mine was found. Darned clever, these Prospectors Strangely enough, the Igorots seem to have accepted this virtual usurpation of their mines by American prospectors, al though they did not understand how such mines could be taken away from them by any law and the mere act of placing posts in the ground. The explanation probably is that the mines, having been worked for generations, were already practically ex hausted. Furthermore, the Igorots, being enemies of the low land Filipinos, regarded the Americanos who were fighting the Fili pinos, as their friends. This attitude exists even today. They take the position that they have never fought with the Ame ricans and have never been conquered by them as were the Filipinos, but that they have always been friendly with the Ame ricans and have allowed them to come into their country and stay there because of friendship. The first claims in the Baguio district were staked in 1901 under a temporary IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CH AM HER OP COMMERCE JOURNAL 24 THE AMERICAN CHAMBER OF COMMERCE JOURNAL November. 1938 mining law which permitted the staking of claims 1000 feet square. It is interesting to note that there was a denial of extrala teral rights in the Philippines from the start, probably because no such rights had ever existed under the Spanish rule. Later, when the civil government took over from the military government, the standard size mining claim was changed to 300 meters square. In other respects the mining law adopted by the Americans for the Philip pines has been very similar to the Federal mining law, with the notable exception that an individual was not allowed to hold more than one claim on the same vein. The im practicability of the last named provision was discovered almost immediately and it has never been enforced. For instance, at the time of location, no one can say whe ther discoveries which may be much as 600 meters apart, are on the same vein or not and if it be assumed that they are not on the same vein so that both claims can be legally located, proof that they are ac tually on the same vein may not come about until underground development actually follows the vein from one claim into the other, by which time a great part of the ore in both claims may have oeen extracted and the profits derived therefrom irrevoc ably distributed as dividends. Rather than discourage all prospecting by a strict enforcement of this provision, which could only have been done by prohibiting the lo cation of adjoining claims, prospectors were allowed to locate such adjoining claims in the names of others under a power of attorney and then the registered owner of the second claim was allowed to lease his claim to the prospector or his successor in interest. Such documents were filed with the mining recorder in the knowledge that if the issue were ever raised, the govern ment itself was the only one who could raise it. Going back to the history of the Baguio district which I started to relate to you, the claims located by the early prospectors during the period immediately following the Spanish-American War did not pros per a great deal. At that time, it was a week’s journey from Manila to Baguio; there were no roads over which to trans port machinery and there was very little capital available locally. The only serious effort made was that of the Benguet Con solidated Mining Company, organized in 1903. It so happened that at that time I was a practicing attorney in the City of Manila and Mr. M. A. Clark, the organizer of the Benguet Consolidated Mining Com pany, was one of my clients. It fell to my lot to draw up incorporation papers and I might also add that I had to accept as a fee for that services, shares in the company being organized. A 60-ton mill was erect ed in 1906. Transportation facilities were sadly lacking; this mill had to be lowered down the hillside into the bottom of the canyon by ropes. There were no roads to the mine in those days. In 1910 this mill was partly carried away by record typhoons. The typhoons of 1911 finished the job and carried away not only the mill but the mill site. To give you an idea of the intensity of these typhoons, I might mention that during the typhoon of 1911, an all-time world record for rainfall was, I believe, established in Baguio. We had 88 inches of rain in four days, 47 inches of which fell in 24 hours. Imagine a coun try of very rugged topography with steep gradient canyons 1000 feet deep and then imagine that volume of water falling on such a country with an almost immediate run-off. During a typhoon of this inten sity in such steep country, one literally has the feeling that the entire surface is so thoroughly saturated that it might start to flow at any time. This is one of the problems of mining in the Philippines with which you are not confronted in this coun try. At the same time, unfortunately, Mr. Clark’s other business did not prosper, with the net result that these shares were hypothecated and eventually taken over by the bank. After a dormant period during which the mine was idle, the bank holding the shares, knowing that I had been fami liar with the organization of the company, came to me and asked me whether I could not effect some sort of a reorganization or do something which would revive interest in the mine and consequently give the shares held by them a real value. Tribute to C. M. Eye After this disaster, it was more difficult than ever to obtain money to continue the operations. However, fortunately for us, the mill had operated long enought to prove to the general public that there was gold to be obtained in the Benguet mine, which to them was still an isolated spot up in the Igorot country that might as well have been in Timbuctoo. Mr. C. M. Eye, whom many of you know, pointed this out to us and proved to us that the venture could be made a success. I must admit that Mr. Eye’s faith and con fidence in the property at this time, to gether with his ability, displayed in open ing further ore bodies and later designing and building a ten-stamp mill, was to a large degree responsible for carrying us through these early struggles. Rough going at Balatoc The mill built by Mr. Eye proved to be a turning point in the career of Benguet. By 1916 we were on our feet and paid our first dividend. Since then, Benguet divi dend record has been unbroken. Up to and including the dividend paid in the mid dle of the year, a total of P47,150,000.00 has been paid in dividend against an or iginal capitalization of Pl,000,000.00, which has since been raised to P6,000,000.00 by means of stock dividends. You can easily calculate what Pl.00 invested in Benguet at the time of its organization or even as late as 1915 would be worth today. I should point out, however, that during recent years, since 1929, a part of these dividends has come from profits derived from Bcnguet’s participation in the Bala toc Mining Company. My story would not be complete without a brief recital of the history of Balatoc. These claims were also located in the years immediately following the American occupation by oldtime pros pectors, which claims covered known Igo rot workings. The work was very desul tory, however, and the mine had many set backs in its early days. There was reor ganization after reorganization as stock holders became disgusted and refused to put up any more money. I should mention here that under the Philippine law assess ments may not be levied against capital stock. Consequently when the entire auth orized capital stock of a company has been sold and the proceeds of such sales have been spent, the company which has not been successful by that time must borrow money to continue or alternatively abandon active work if no funds can be obtained in this way. The property was, during vari ous stages of its development, submitted to groups of local capitalists and even to some of your very prominent mining companies in this country. One of the latter went so far as to make examination of the property but turned it down. I must admit that I was one of those who at one time held an (Please turn to page 35) November, 1938 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 35 “In June of this year the Santa Rosa Mining Company petitioned the Securities and Exchange Commissioner to authorize the release of its shares held in “escrow”, after our mining engineers have submit ted a report to the effect that we had ore reserves worth 1*4,800,000. Acting upon this petition, two engineers of the Bureau of Mines were sent to our mines, to make the necessary examination of the property; they inspected all the tunnels for about fifteen days, and have taken samples per sonally of our ore in accordance with the regulations of said Bureau, which samples were assayed afterwards in the Govern ment Laboratory giving an average value of P32.80 per ton, after which the engineers of the Bureau of Mines, in their report submitted to the Securities and Exchange Commissioner regarding this particular, confirmed that on June 30, 1938 we had ore reserves worth P3,631,208. In view of this, the Securities and Exchange Commis sioner authorized us last Saturday to re lease the shares of this Company held in “escrow”. On the 29th of this month, the books of the corporation will be closed for transfer on the so-called “Old Santa Rosa Stock”. It is requested, therefore, that all holders of the same present to the Secretary of our corporation their corres ponding certificates of stock which have not yet been transferred properly in their names in the books of the corporation, so that we may execute the necessary transfer not later than October 29, 1938, and be fore the “escrow” shares are delivered to their owners.” (50,000,000 shares) He’s probably right. Certainly Benguet and Balatoc are managed today in the very best conservative business tradition. But we are curious about one thing: suppose they hadn’t gone 500 yards farther up that creek? Mining in the. . . (Continued from page 24) option on the property and relinquished that option due to the adverse result of de velopment. To make a long story short, in 1927 the Balatoc Mining Company, who at that time was in possession of this area of mining claims, again found itself financial ly unable to carry through the development of the mine. They appealed to the Ben guet Company and an arrangement was finally made under which Benguet would build a 100-ton mill and carry on develop ment of the mine at an estimated expendit ure of P600,000.00. In return for the P600,000.00 so spent, Benguet was to receive 600,000 shares of Balatoc stock, the full amount of stock still available and for any expenditures beyond P600,000.00 Benguet was to be returned such amounts with 6% out of the first profits. We went at this job very energetically and by the end of the following year had completed construeThe Balatoc. . . (Continued from page 22) The arrangement with Benguet was made in 1927—just a year after Hausserman had arived to close Benguet down. Benguet Consolidated agreed to spend P600.000 in putting a 10-ton mil on the Balatoc property, and got 600,000 shares of Balatoc in return--all of the shares which were still available. By 1929, the P600,000 had been repaid, and enough more so that a small dividend was distributed. Benguet Consolidated, the courts have decided, is not a corporation, but a sociedad anonima, which existed under the old Spanish Code of Commerce, and is not bound by the provision of the law prevent ing a mining company from owning stock in another mining company. Paul Gulick, who participated in the long struggle with the Balatoc property from start to finish, and who more than any other one man is responsible for its success, says that his experience has con vinced him that mining is not a matter of luck. “It’s the same as any other busi ness”, he says, “you’ve got to use good horse sense in mining the same as you do in merchandising, shipping, lumbering, or anything else. Luck? Sure there’s luck, but there’s luck in any other game”. Q A vr WITH THE ECONOMY OF D/1 V J2j international power Results are what count! International Tractors are bought in terms of work they can turn out. And it is almost unbelievable the amount of tough work they can do. International Harvester builds a complete line! of Industrial power: trucks, crawler tractors, wheel tractors, and power units. Pick youp equipment from this one broad line and be sure of outstanding performance and stamina. Inter national Harvester will gladly give you evidence of what others are doing in many fields. Per haps the solution of your power problem is here. Write for catalogues and complete informa tion. INTERNATIONAL HARVESTER COMPANY OF PHILIPPINES CEBU MANILA DAVAO ILOILO BAGUIO BACOLOD CAGAYAN, OR. MIS. LEGASPI IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 36 THE AMERICAN CHAMBER OF COMMERCE JOURNAL November, 1938 tion of the mill. The mill started opera tion in January, 1929, and by the end of 1929, Benguet had been repaid its expen ditures over PGOO,000.00, amounting to about P900,000.00 together with interest and a small dividend was distributed. Chromite with gold profits. Since that time, Balatoc has never look ed back. It has distributed, up to and in cluding the June, 1938 dividend, a total of P32,100,000.00, and, at the same time, its original capitalization of Pl,000,000.00 has been increased to P6,000,000.00 by means of stock dividends. At the present time it maintains a regular production of one mil lion pesos ($500,000.00) a month and its mill capacity of 1,200 tons per day is be ing further increased to 2,000 tons per day. While I may be prejudiced of course, I believe that we have at Balatoc, an opera tion which will compare favorably with any in this country or in the world, for that matter, from the standpoint of efficiency and the percentage of the gross production which is eventually paid to the stockholders as dividends. This figure averages about 55% which, I am told, is an exceptionally good performance for a mine handling medium grade ore, that is, ore running $7.00 to $8.00 at the old value. A few years ago, partly because I felt that Benguet, having been successful and OXY-ACETYLENE Welding & Cutting Equipment Philippine Acetylene Co. 281 CALLE CRISTOBAL, PACO MANILA, P. I. occupying first position among the mirjing companies in the Philippines, should take the lead in building up the mining industry of the Philippines, and partly due to a de sire to diversify its interests in interests in order to provide additional protection for its stockholders, a decision was made to extend the scope of Benguet’s operations into other fields. Due to the limitations imposed by the corporation law of the Is lands which provides that a company or an individual owner holding more than 15% of the capital stock of one mining company may not own stock in any other mining company, the development of other proper ties was undertaken under a so-called oper ating contract. The basis of this contract was that Benguet assumed the position of an independent contractor and engaged to complete development, erect a mill and do whatever other work was necessary to bring the mine into production. The compensation for this was a stipulated share of the net profits after Benguet’s investment had been repaid. Under such contracts, several other properties are now being handled. Among these are two chromite proper ties which I believe will interest you. One of these, known as the Florannie Mine, was the first chromite deposit found in the Phil ippines. Some 70,000 tons of ore which will average better than 50% chromic oxi de, has been shipped from this property so far. The other is known as Masinloc and is, I am told, the largest deposit of chro mite in the world. This deposit forms the top of a small hill and has a roughly circu lar outcrop about 1,000 feet in diameter. The deposit has been thoroughly developed by diamond drilling and underground work ings. The exposures thus obtained, toge ther with those of the surface, show a chro mite lens of at least 9,000,000 tons in a single body. In addition to this, there is easily another 1,000,000 tons of talus and float ore around the base of the hill re ferred to. Unfortunately, this ore is not of the same high grade as the Florannie ore; its average chromic oxide content is about 33%. So far its principal use has been for the manufacture of refractories for which the combination of 33% chromic oxide and 30% aluminum oxide which it carries, make it particularly desirable. Lately, however, a method has been devis ed for utilizing this ore in the manufacture of metallurgical products. Hence, we look forward to an expansion of our business into other fields of chromite consumption at an early date. Educating Miners There is an interesting story in connect ion with the discovery of the Florannie de posit. A mining engineer happened one day to notice a native using a black whetstone for sharpening his bolo. He also noticed that the mud resulting from the sharpen ing operation was a chocolate brown color. From this he surmised that the whetstone might be a piece of chromite and had the whetstone tested. It proved to be high grade chromite ore. His next problem was to learn the source of this ore. He went back and spread the word around that he was looking for “taisan,” which in that particular locality is the native word for a sharpening stone. All kinds of sharpening stones were brought to him, black, white and green. Among them there was some chromite. He then asked the man who sub mitted these particular pieces of chromite whetstone to show him where he obtained the same and was taken back some 15 kilo meters into the hills and shown consider able quantities of chromite float. The area was staked as chromite claims and even tually the principal lens, known as Landoc, was found. Since that time, the natives themselves have learned to identify chro mite as such and native prospectors now search for it as they do for gold ore. This story is an excellent illustration of one of our chief problems, that of educa tion of native personnel in mining. Aside from a handful of Igorots in the hill prov inces, the Filipinos knew nothing of min ing. We had no skilled mining labor such as you have in this country and in Mexico. It has, therefore, been necessary for us, each time that a new mine is started, to take raw laborers who have never done anything but fish and grow rice and train them into miners, mill men, electricians, mechanics and all of the many other occu pations that are necessary in a mining operation. Boom Raids Generally speaking, this education is an expensive process. It takes at least a year or two before a man is reasonably fami liar with underground work and much longer than that to develop skilled mecha nics. Eventually, however, we get some very good men. It is a great source of pleasure to me to walk through our exten sive machine shops and see Filipinos turn ing out work on lathes, gear-cutting ma chines, electric welding and so forth, that is just as good as anything we receive from the factory. This situation, I might say, introduced another problem into our operations, pos sibly the most serious one we have had to face. Three years ago there was a mining boom in the Philippines. New companies were coming out daily and each of these new companies had to have immediately a superintendent to sign development reports and a Filipino foreman in the field. Our companies, having developed the expert personnel that I have just described through years of operation, was continuous ly raided for expert personnel both among the American operating staff and among skilled Filipino personnel such as mine foremen, mechanics, electricians and so IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION I'HE AMERICAN CHAMBER OF COMMERCE JOURNAL November, 1938 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 37 forth. In each case there was only a man or two concerned, hence almost any wages could be paid. The public was paying the bill anyway. These raids were so exten sive that in a short time we found that a sufficient number of oui- key men had left to seriously affect our operations. Operat ing costs and accident rates started to go up. Since that time, many of these men have returned and others have been edu cated so that we are now back on a normal operating basis. Cheap labor comes high. Along with the deficiencies of training found in the ordinary Filipino laborer, there are other deficiencies which are in themselves serious problems. For instance, the average Filipino weighs probably not more than 125 pounds so that no matter how willing he may be, in many cases he is simply not physically able to do heavy underground work. Moreover, he has be hind him generations of malnutrition due to a limited rice and fish diet, so that he has little stamina. We have met this pro blem first by issuing a daily rice ration to each of our employees, thus assuring him and his family of food, and secondly, by establishing very complete commissary stores in which our employees are given credit privileges and where they can buy, not only native foods, but all of our stan dard American foods. We have gradually developed in them a liking for the more strengthening foods such as we are accus tomed to and a desire for a more varied and balanced diet. Accurate records of physical examinations made by our medical department show that there is a marked improvement in the general average of our laborers both in physical measurements and in resistance to disease. They will, of course, never be the equal of the American miner physically and it will always take a great many more of them to do a speci fied piece of work than it would here in the States, which nullifies the effect of lower wages. In spite of the much lower wages—we pay an average of about $.95 a day—our labor costs per ton of ore are just as high as they are there. Another problem arising out of the native worker is the psychological one. Not only his mental processes, but his whole outlook on life is entirely different from ours. He has the fatalism of the Orient which makes him mentally lazy and unmindful of danger. This same fa talism makes him an individualist in his work. He will not give a helping hand to a fellow workman in trouble nor does he expect to receive one. A man gets his car off the track for instance. Dozens of other men will walk past him without say ing a word nor will he ask any of them to help him. He sees another man in a dange rous situation, under some bad ground, for instance. He will not warn him of the danger and he will not expect to be warned under similar circumstances. There is no natural cooperation whatever. This attitude led to a great many unne cessary injuries to our workmen. Gra dually, however, we have developed in them an idea of team-work and cooperation and an intense interest in safety first move ment. They like first aid drills and mine rescue drills, and the rivalry between teams and between different levels in the matter of safety records has become so effective that I am glad to say that our mines now show a better record than any underground mine in the United States, according to the records of the National Safety Council. Balatoc has twice passed the 500,000 man hours mark without a single lost time acci dent while Benguet has one such record to its credit. These records are really re markable when you remember the differ ence in the mentality of the average Fili pino workman as compared with the aver age American workman. Another problem which can be traced to the psychology of the oriental is his utter disregard for the future. Usually, he will not save any part of his wages. If, for instance, a man is paid $1.00 a day and it is necessary for him to work six days a week in order to support his family on that wage, a wage increase to $2.00 would usually result not in an increased income to him but he would simply work three days instead of six days. Thus, we have the rather anomalous condi tion that an increase in wages results not in more contented personnel but in a large labor turnover. If left to his own devices, the average workman, rather than have Tel. 2-32-51-------Carmelo & Bauermann, Inc. I--------------------------Lithogra ph ers P r i n t e r s Bookbi nd ers Box Makers 2057 Azcarraga, Manila. any responsibility whatever as to the fu ture, would rather work for a very low cash wage with the employer responsible for the clothing and sustenance of his fa mily. This, no doubt, is an outgrowth of the old patron system followed during the Spanish regime. The “clippers” are a godsend Aside from our native labor problems which, as you can see, contrary to the ge neral belief, tend to increase labor costs ra ther than decrease them, we, of coure, also have to contend with higher cost of mate rials due to the long ocean freight involv ed. Such increase in the cost of supplies, I should say, amounts of 10% of the first cost. This is not all, however. Particu larly in these later years when there has been almost a continual threat of shipping strikes here on the West coast, we have been forced to carry at least a year’s sup plies on hand. Furthermore, due to the time element involved in obtaining spare parts, we are forced to carry spares of large items, such as Diesel engine crank shafts, for instance, a burden which in this country would ordinarily fall on the ma nufacturer. Thus, we have a great deal of money, tied up in inventories. Again because of our isolated position, we cannot obtain the manufacturer’s service that is made available to mine operators here. We have to look out for ourselves and be prepared to make almost anything. In this connection, I should like to pay a word of tribute to Pan-American. Their Clipper service has been a godsend to the mining industry in the Philippines. HeretoIN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL 38 THE AMERICAN CHAMBER OF COMMERCE JOURNAL November, 1938 fore, any drawings showing specifications so detailed that they could not be cabled, took a month to reach here. Allowing a week for reply and another month for the reply to reach the Philippines, over two months was necessary for each exchange of correspondence. Now, in addition to or dinary business correspondence, all such matters can be sent by Clipper. For ins tance, we place an order for a certain piece of machinery. The foundation plans come forward on the next Clipper and within a week after placing the order, we can start work on foundations. Furthermore we can avail ourselves of the Clipper express ser vice and bring out small repair parts, thus in many cases, saving a month’s de lay. Considering the problems that PanAmerican has had to face in establishing this service, I think the results accomplish ed have been wonderful. A uord of warning Speaking of mining supplies, we have another element which you do not have here, namely, competition from European manufacturers. Here, tariffs are so high that generally speaking mining machinery and supplies of European origin are not used. The Philippines, however, has its own tariff laws. American products are admitted duty free. There is rather heavy duty on European products but in spite of this, production costs are evidently so low and the desire for cash so great, that Eu ropean manufacturers often underbid Ame rican manufacturers by a substantial amount. They have their agencies and ser vice facilities established there and get considerable business. Moreover, there is severe Japanese competition. Before this trouble started, they submitted prices on standard mining supplies such as dynamite, cyanide and carbide which are only about half of the American prices on these arti cles. We, ourselves, have never patronized Japan and have only patronized European manufacturers in rare instances. However, I would issue a word of warning to Ame rican manufacturers that they should not overlook these competive elements which exist in the Philippines if they want the Philippine business. Another problem we have to face, which grows out of this same question of increas ed cost of mining supplies, is the abnormal ly high cost of power. A great deal is said about hydro-electric power possibilities but I can tell you that on the Island of Luzon, at least, these do not exist. It is true that there is a much heavier rainfall than here but this rainfall is so seasonal and so destructive, that it cannot be taken advan tage of in the development of hydro-elec tric power. The trouble is that the topo graphy offer no storage areas. The dams built in connection with hydro-electric pro jects now operating, are not storage dams but merely diversion dams which give an increased head. During the dry season, the flow dwindles down to a mere trickle so that auxiliary power plants must of ne cessity be installed, while in the wet season there is so much erosion due to the heavy rainfall that any dam which could be built would be filled with debris in a single sea son. Hence, there is no cheap electric power available. As to steam plants, there are no adequate coal resources in the Phi lippines. The coal now being used is im ported mostly from Japan. “Immediate absolute and Unqualified Independence” The only solution to our power problems, therefore, lay in Diesel engines. We in stalled our first Diesel engines as a dry season standby for our Agno hydro-electric plant of 1,500 kilowatt capacity. Now we have altogether over 10,000 installed horse power in Diesel engines and are at the pre sent time installing an additional 2,500 horse power. All of‘the fuel oil used must be transferred from Manila in tankers about 200 miles and then hauled by tank truck another 40 miles to the mines. Power costs are, therefore, materially higher in the Philippines than they are here. Probably the greatest obstacle that we have had to face has been political uncer tainty. During all of the 40 years that I have been in the Philippines, there has al ways been in the back of the minds of Americans in business there, the idea that every item of capital invested should be predicated on a quick return because there was great possibility of limited life. This constant feeling of uncertainty as to what the future held for us, caused us to lead a hand to mouth existence so far as capi tal investment was concerned. You can readily see the unsettling effect which this would have on a mining venture. An allowance of say two years for the develop ment of the mine and another year for erection of the mill, with possibly the first two or three years of production for return of capital, always carried us so far into the future that there were grave doubts as to whether we would run the mine longenough to get any profit and even as to whether we would be able to get our capital back. As it has turned out, these doubt, were not well-founded but you must re member that the Filipinos themselves have always been clamoring for independence and President McKinley stated at the out set that such independence would be given them when they were ready for it. As the administration gradually passed from the hands of the Americans into the hands of the Filipinos, this uncertainty as to the future became more marked and a more immediate uncertainty arose due to the question of mine taxation. I have already told you of the uncertainty which still exists regarding the status of mining claims located before the inauguration of the Commonwealth Government, many of which contain proven ore bodies and some of which have mills built on them represent ing very large investments. The Philippine Mining Industry is a chip off the old block Once this last uncertainty of the proper ty rights of Americans both during the re mainder of the transition period and after independence is removed, we will have left only the uncertainty as to mine taxation which, of course, is present in every coun try. At the present time mines are taxed on gross output on a sliding scale, in the case of gold mines, ranging from IV2 per cent to 5H per cent. In addition to this, we pay a corporate income tax of 6 per cent on the net profits. So much for our problems. I have tried to include only those points which are pe culiar to our operations in the Philippines. To offset these, we have, of course, many advantages which are peculiar to the Phil ippines, such as the absence of cold wea ther; freedom from wars and insurrections and comparative freedom from social un rest and from the regimentation which are now so seriously affecting industrial operation in this country. I must say that the Philippine Government, al though still the youngest government in the world, has adopted a tolerant and fairminded attitude towards industrial enter prises which might be emulated to advant age in many other countries. In the min ing industry, this is possibly due to the respect for the oldtime Americans connect ed with the mining industry, which has grown out of long association. Both the Filipino people and administrative officials recognize and appreciate the material be nefits growing out of the establishment of this industry. The Americans who have been there since the early days and have watched the present administrative officials grow up from boyhood, have always been fair and aboveboard with them and have tried to advise them in their growing res ponsibilities. I, for my part, am very proud of the part which I have played in this development and am most happy to have lived long enough to have seen the establishment of such a stable industry. The Philippines produced in 1937 more gold than any state in the union including Alas(Contimied on page 42) 42 THE AMERICAN CHAMBER OF COMMERCE JOURNAL November, 1938 it has to date, is the looseness of the so-called boycott. It is still possible to buy plenty of Japanese-made goods in local Chinese stores. As time goes on, and stocks dwindle, this situation may change. But the establishment of more and more Japanese shops, and Indian shops, and Filipino stores, all of them stocking Japanese merchandise, may at the same time tend to take up the slack created by a stringent Chinese boycott, assuming that a really ef fective boycott on the part of the business-minded Chinese is a possi bility. What, then, accounts for the very considerable increase in U. S. export business to the Philippines, which the figures show is not business taken away from the Japanese? We must look to various contribut ing factors for the answer. One of these is the upset situation' in Europe, with principal nations there vieing with each othei* for armaments supremacy, and conse quently sacrificing their export trade to do it. This is largely true of Germany, Italy, England, France, and more lately of the smaller countries, such as Czecho slovakia. The Japanese situation contributes, but only slightly. Another factor is undoubtely an increase in the Philippine trend to ward industrialization, led by va rious projects of the National De velopment Company. Examples of this are textile factories, canning factories, expansion of the cement industry, sugar refining, and so on; with still more development along these lines as a definite governmen tal program for the immediate future. This program leads to in crease in the present demand for machinery, for example; although some observers hold the view that in the long run it must lead to serious curtailment of American exports to the Philippines once the industriali zation program has been substan tially realized. In other words, a sale of textile weaving machines now may mean fewer sales of U. S.-made textiles or machines in the future, when speci fied textiles in sufficient quantities shall be woven here. The United States is now in a position to take advantage, so far as her exports to the Philippines are concerned, of conditions in Europe and Asia, and of increased local con sumption along certain lines, notably machinery. Japan is not in a posi tion to take advantage of these con ditions, but she is holding her own in exports to the Philippines, which in itself is remarkable. Such gains as the United States has made this year, and they are considerable in total, have not, therefore, been made to the cost of Japan. The United States gained a total of P38,180,387 in the first 8 months of 1938, but in that time Japan lost only Pl,045,684 of her 1937 business, and she bids fair to make up this loss by the end of the year. Mining in the. . . (Continued from page 38) ka, with the sole exception of California. It entered the world chrome markets and established itself favorably in spite of the high cost of delivery of chrome ore in this country. It is estimated that during the current year, the Philippines will produce P60,000,000 worth of gold and I believe this record will be easily attained. The Amer ican mining industry may therefbre be proud of its child and certainly, it is a child of the American industry in every sense of the word. The industry was start ed by American capital and American in itiative. Up to four years ago, there was still practically no Philippine capital in vested in mining. The industry has been developed entirely by American engineers and geologists and the products of the in dustry have been sold almost entirely in this country. Let me tell you that you have in the Philippines a very healthy off spring that is a real credit to you. MANDALOYONG ESTATE For Sale The Ideal Home • OBVIOUSLY THE PLACE TO LIVE—SIMPLE, WARM, REAL —AND EXTRA QUIET, TOO’1 LOTS AVAILABLE FROM 700 SQUARE METERS UP WARDS AT PRICES RANGING FROM Pl.00 to P3.00 PER SQ.M. • A STONE’S THROW FROM THE WACK WACK GOLF AND COUNTRY CLUB ORTIGAS, MADRIGAL Y CIA. S. en C. Filipinas Building Manila Telephone 2-17-62 IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE JOURNAL