on the PHILIPPINE MINING DEVELOPMENT CORPORATION (PMDc) · 2017. 7. 13. · Actual vs. Budget Budget Actual under/(over) Projected Receipts Royalty - nickel and chromite 125,000,000

THll[i$8ftlli'x.!il'?"Gomrnonwealth Avenue' Quezon City

ANNUAL AUDIT REPORT

on the

PHILIPPINE MININGDEVELOPMENT CORPORATION

(PMDc)

For the year Ended December 3,| ,2014

Republic of the PhiliPPines

COMMISSION ON AUDITCommonwealth Avenue, Quezon CitY

INDEPENDENT AUDITOR'S REPORT

THE BOARD OF DIRECTORSPhilippine Mining Development Corporation3001-8 West TowerPhilippine Stock Exchange Centreexcninge Road, Ortigas Center, Pasig City

We have audited the accompanying financial statements' of the Philippine Mining

Development dorpomtion (iltlob) ilnicn comprise the balane sheet as of December91, 2014, and the statement of revenues and expendilYreg, statement of

changes in net

worth and statement of cash flows for thb year then ended, and a summary of significant

accounting policies and other explanatory information'

llanagement's Res ponsibility for the Financial statemenb

Management is responsible for the preparation and fair presentation of these financial

statements in accodance with State munting principles, and for such intemal controlas management determines is necessary to enable.. the preparation of financialstatements that are free from material misstatement, whether due to fraud

or eror'

Aud itols ResPonsibilitY

Our rcsponsibility is to express an opinion on these financial statements based on our

audit. We conducted our audit in aciortance with International Standards on Auditing'

Those standards require tn"i*J comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether the financial statements

are free

from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selec{ed depend on- lfeauditor,s juclgment, Inclucling the assessment of the risks of material misstatement

of the

financial statements, whethei due to fraud or error. ln making those risk assessments,

the auditor considers intemal control relevant to the entity's preparation and fairpresentation of the financial statements in order to design audil procedures that are

appropriate in the circumstances, but not for the purposq.gf expressing an opinion on the

effec{iveness of tft" entitt's intemal control. An'audit also includes evaluating theappropriateness of accountlng policies ysed and the reasonableness of accounting

estimates made by manage;;ni, as well as evaluating the overall presentation of the

financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects. thefinancial position of PMDG as at December 31 ,2014, and its financial performance andits cash flows for the year then ended in accordance with State accounting principles.

COMMISSION ON AUDIT

{ih^i rtlf[lai.'tV-'

MERil.E M. VALENTINOIY- Supervising AuditorAudit Group E- Natural Resources and Technology GroupCluster S-Corporate Government Sector '1

June 15.2015

Note 2014 2013

ASSETS

Current assets

Cash 4 105,129,623 106,536,250

Receivables 5 69,017,519 17,026,310

Prepaid expenses 6 4,824,095 4,826,547

178,971,237 128,389,107

Non-current assets

Property, plant and equipment - net 7 24,432,972 19,998,673

Exploration and evaluation assets 8 250,914,002 252,558,302

Deferred charges 9 10,074,385 8,697,324

Other assets 10 2,192,779 2,790,099

287,614,138 284,044,398

TOTAL ASSETS 466,585,375 412,433,505

LIABILITIES AND NET WORTH

Current liabilities

Payables 11 876,914 11,445,321

Due to NGA and GOCCs 12 31,771,263 18,739,998

Other payables - trust liabilities 13 4,199,982 7,167,482

36,848,159 37,352,801

Non-current liabilities

Long-term debt 14 144,431,600 152,768,000

Other deferred credits 15 9,322,550 9,322,550

153,754,150 162,090,550

Total liabilities 190,602,309 199,443,351

Net worth 275,983,066 212,990,154

TOTAL LIABILITIES AND NET WORTH 466,585,375 412,433,505

PHILIPPINE MINING DEVELOPMENT CORPORATION

(FORMERLY NATURAL RESOURCES MINING DEVELOPMENT CORPORATION)

BALANCE SHEET

December 31, 2014

(In Philippine Peso)

The Notes on pages 9 to 30 form part of these financial statements.

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Note 2014 2013

REVENUES 18

Commitment and royalty fees 135,646,778 130,581,531

Interest income - net 424,681 91,798

Other income 4,758,687 1,786

Foreign exchange gain (loss) (97,413) 2,368,606

140,732,733 133,043,721

Expenditures 19 50,592,419 57,285,085

NET REVENUE BEFORE TAX 90,140,314 75,758,636

Provision for income tax 20 27,147,402 21,989,470

NET REVENUE AFTER TAX 62,992,912 53,769,166




STATEMENT OF REVENUES AND EXPENDITURES

For the Year Ended December 31, 2014


5

Note 2014 2013

CAPITAL STOCK 16

Authorized, issued and subscribed

(125,000 shares @ P1,000 par value )

per share 125,000,000 125,000,000

REVALUATION SURPLUS 17

Appraisal increment of exploration and

evaluation assets 144,415,500 144,415,500

DEFICIT

Balance at beginning of year (56,425,346) (110,509,316)

Net revenues 62,992,912 53,769,166

Correction of prior period errors - 314,804

Balance at end of year 6,567,566 (56,425,346)

NET WORTH 275,983,066 212,990,154




STATEMENT OF CHANGES IN NET WORTH



6

Note 2014 2013

Royalty - Dinagat Nickel Chromite Project/Communal Zone 98,013,852 111,524,547Receipt of output value added tax - 8,620,827

magnetite ore dredging project - 5,000,000

Commitment/management fees - mining tenements 1,188,000 4,892,857Bid documents/security and performance bond 56,589 756,500Refund of unused cash advances and security deposit (1,764,679) 289,011Others - net 94,540 163,339Interest from bank deposits 424,681 91,799

Cash paid to suppliers and employees (35,012,668) (53,071,512)Settlement of prior year's payables and tax liabilities-net (31,279,645) (15,015,778)

31,720,670 63,251,590

Cash Flows from Investing Activities

Acquisition of property and equipment (2,250,617) (4,611,870)

Downpayment for contractual obligations - (810,714)

Cost of exploring mining properties (214,341) (567,522)

Cost of incomplete construction (4,453,008) (391,473)

Other charges - net (17,960) (4,513)

(6,935,926) (6,386,092)

Cash Flows from Financing Activities

Payment of NDC loan (26,093,958) -

Payment of interest on long-term Loan - DBP - (8,676,447)

NET CASH USED IN FINANCING ACTIVITIES (26,093,958) (8,676,447)

NET INCREASE (DECREASE) IN CASH (1,309,214) 48,189,051

Effect of exchange rate changes (97,413) 2,368,606

106,536,250 55,978,593

4 105,129,623 106,536,250


Cash Flows from Operating Activities

Deferred credits - receipt of advance royalties from

NET CASH PROVIDED BY OPERATING ACTIVITIES

NET CASH USED IN INVESTING ACTIVITIES

CASH, BEGINNING OF YEAR

CASH, END OF YEAR



STATEMENT OF CASH FLOWS



7

Actual vs. Budget

Budget Actual under/(over)

Projected Receipts

Royalty - nickel and chromite 125,000,000 134,458,778 (9,458,778)

Commitment fees - 1,188,000 (1,188,000)

Interest income - net of withholding taxes - 424,681 (424,681)

Foreign exchange loss - translation adjustment - (97,413) 97,413

Others - net - 4,758,687 (4,758,687)

Output VAT absorbed by PMDC (13,392,857) - (13,392,857)

111,607,143 140,732,733 (29,125,590)

Projected Cash Disbursements

Employee compensation and benefits 24,440,144 21,170,299 3,269,845

Interest charges and surcharge 11,110,489 11,811,763 (701,274)

Rentals, insurance, taxes, licenses 5,421,820 3,547,232 1,874,588

Depreciation 3,756,571 3,756,571 -

Other employee costs 9,101,945 2,363,128 6,738,817

Business expenses 21,509,930 2,732,295 18,777,635

Purchased services and utilities 3,497,268 2,427,241 1,070,027

Materials and supplies 2,440,752 1,278,122 1,162,630

Bank charges and others 8,801 11,417 (2,616)

Maintenance and repairs 226,200 360,012 (133,812)

Miscellaneous expense 15,308,460 1,134,339 14,174,121

96,822,380 50,592,419 46,229,961

Pretax income 14,784,763 90,140,314 (75,355,551)

Provision for income tax 4,311,000 27,147,402 (22,836,402)

NET INCOME 10,473,763 62,992,912 (52,519,149)


PHILIPPINE MINING DEVELOPMENT CORPORATION(FORMERLY NATURAL RESOURCES MINING DEVELOPMENT CORPORATION)

STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS EXPENDED



8

9

PHILIPPINE MINING DEVELOPMENT CORPORATION(FORMERLY NATURAL RESOURCES MINING DEVELOPMENT CORPORATION)

NOTES TO FINANCIAL STATEMENTS(All Amounts in Philippine Peso unless otherwise stated)

1. GENERAL/CORPORATE INFORMATION

The Philippine Mining Development Corporation (PMDC), formerly Natural ResourcesMining Development Corporation (NRMDC), is a 100 per cent wholly owned corporationof the National Government. Its original principal stockholders were the NaturalResources Development Corporation (NRDC), the corporate arm of the Department ofEnvironment and Natural Resources (DENR), which held 55 per cent of the total capitalstock, and the Philippine National Oil Company-Energy Development Corporation(PNOC-EDC), for the remaining 45 per cent. The PMDC was incorporated as anattached agency of DENR and registered with the Securities and Exchange Commission(SEC) on July 4, 2003 with Registration No. CS200314923 based on the authorization ofthe President of the Republic of the Philippines as contained in a Memorandum datedApril 9, 2003. Upon the recommendation of the Secretary of DENR, the PMDC wasauthorized by the President of the Philippines, in a Memorandum dated June 9, 2005, toincrease its capital stock from P100 million to P125 million. This resulted in a revisedequity structure for PMDC where DENR-NRDC holds 44 per cent, PNOC-EDC 36 percent and National Development Company (NDC) 20 per cent. Also, this authorizedPMDC to increase the number of its Board of Directors from 9 to 11.

The PNOC-EDC holdings of 36 per cent (P45 million) was subsequently turned over tothe PNOC, the parent firm of PNOC-EDC sometime in 2006 due to PNOC-EDC’s InitialPublic Offering (IPO). The entry of NDC, the corporate arm of the Department ofTrade and Industry, facilitated the funding of the Corporation’s exploration drillingprogram with cash infusion of P50 million in the early part of 2005, P25 million of whichas equity and the balance as loan. In 2006, NDC further released P25 million in the formof additional loan.

Pursuant to DENR Administrative Order No. 2003-038 and by virtue of a Memorandumof Agreement executed among DENR, PMDC (then NRMDC) and NRDC, PMDC wasdesignated/appointed as the new implementing arm of DENR in undertaking the miningand mineral processing operations in the 8,100 hectares Diwalwal Mineral Reservationarea located in the Municipality of Monkayo, Compostela Valley Province. Based on theAgreement, the Diwalwal Direct State Development Project was turned over from NRDCto then NRMDC, and as such, collection of the 15 per cent government share from theores extracted by the small-scale miners was later managed by the latter. In partialcompliance, NRDC initially transferred P4.289 million to PMDC, with subsequent turn-over of fund balance from the project and the documents related thereto. This collectionfunction, however, was returned to NRDC in February 2005 by the Office of thePresident. Such decision was based on the need for PMDC to focus on exploration andmining rather than the regulatory function of collection of the 15 per cent share from thesmall-scale miners.

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Primarily, PMDC was created to conduct and carry on the business of exploring,developing, mining, concentrating, converting, smelting, treating and otherwisedeveloping, producing and dealing in gold, silver, copper, iron and any and all kinds ofminerals, mineral deposits, substances and mineral resources.

Mining Property

The National Government considered PMDC as a vehicle for re-starting and re-openingof mining projects presently with the Department of Finance – Privatization andManagement Office (DOF-PMO). Of the six projects initially identified to be possiblepoints of cooperation and focus for PMDC’s attention, only the North Davao and BatongBuhay mining projects are slated for commercial development. Consequently, theseprojects were transferred to PMDC.

The mining assets of the North Davao Mining Corporation were transferred to PMDC tofacilitate their promotion as investment target. These assets are the subject of apreliminary evaluation and assessment by the Mines and Geosciences Bureau (MGB)for copper/gold potentials which was covered by a Memorandum of Agreement.

The mining asset of the Batong Buhay Mining Corporation is located at the Municipalityof Pasil, Kalinga, Apayao Province. The transfer price of the mineral claim from theDevelopment Bank of the Philippines (DBP)/Philippine National Bank (PNB) was P4.9billion after shutdown in 1985.

In terms of mining claims, a total of 65 mining property all over the Philippines have beenidentified by the DENR for PMDC’s assessment and marketing efforts. ApplicableDENR Memorandum Order Nos. 2005-03 and 2005-13, dated February 1, 2005 andAugust 5, 2005, respectively, were the basis for the cancellation of the mining tenementsand subsequent transfer to PMDC for the latter’s diligence and marketing efforts.

PMDC does not directly develop and technically evaluate the economic potentials of saidmining claims and property. Rather, PMDC collates and compiles all the technical andrelevant data already in the government databases, offers the areas to investors for theirown evaluation and business assessment, and then conducts public biddings for saidareas in accord with the Procurement Law. The highest responsive offers to the PMDCoffers are then selected for due award, after review by PMDC Management and itsBoard of Directors.

2. STATUS OF OPERATIONS

The Change in Corporate Business Model

PMDC was initially setup by the National Government for instituting a large tonnage,scientifically based gold mining and refining operation in the Mt. Diwalwal Gold Rusharea (located in Monkayo, Compostela Valley, Davao under Region XI). Dovetailing withthis economic goal are the objectives of enabling development of the mining communityand arresting the environmental degradation brought about by illegal mining and goldrecovery operations in said area. However, shortfalls in equity requirements due toinability of PMDC shareholders to increase current equity to level required by DBP

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necessitated the change in business model from the traditional miner-operator, to aroyalty business scheme.

The royalty business model enables PMDC to earn from marketing of mining areas evenas it is still in assessment of whether it should pursue the traditional miner and goldrefiner option. Currently, PMDC is compensated by commitment fees, i.e., upfront feesbased on performance milestones as agreed prior to bidding process. The feesrepresent the payment for privilege to explore/study potentials of the mineral area.Upon commercial operation, PMDC is compensated over the life of the mine by agreedpercentage of gross revenues of the partner from their sales of minerals or end-productsof the minerals/ores extracted/processed. This aspect though is partly covered by theCommission on Audit (COA) audit observation memorandum (AOM) in calendar year(CY) 2014 particularly on the applicability of VAT on PMDC’s royalty revenues fromAAM-PHIL Exploration and Development Natural Resources Corporation (AAM-PHIL).Please refer to Note 21, items j and k for the latest developments on these matters.

Subsequently, PMDC monitors and supervises the conduct of the evaluation and laterdevelopment and operations of the partners by way of required submissions of technicaland financial reports, augmented from time to time by periodic visits by PMDC Officersand staff on said partners’ activities.

Thus, from 2010 onwards, PMDC’s corporate foci were on the continuation of theoffering and awards of the mineral tenements earlier transferred to it by the Mines andGeosciences Bureau (MGB) of the DENR, the refinement of its business model inaccordance with the on-going revisit, and refinement by the Aquino Administration of thePhilippine Minerals Policy guiding the nation’s exploitation of its mineral resources.

Accomplishments for CY 2014

Hereunder are PMDC’s major corporate accomplishments, grouped accordingly, duringthe year. These disclosures are more detailed in accord with the COA’s requirementsfor the current audit.

I. Project monitoring and operations, including disclosures on exports of ores

a. The Corporation had been monitoring all the awarded projects by assignedProject Managers (PMs), including the provision of technical and supportassistance to partners/operators.

Of the 28 awarded projects, two are under operational stage: the Dinagat NickelChromite Parcel 1 (Loreto) and Parcel 2B (Basilisa area). Of the balance, 24projects are in active exploration status while 2 projects are having technical issuesand under litigation.

b. From the Dinagat Nickel-Chromite Projects, particularly in Parcels 1 (Loretoarea) and 2B (Libjo, Basilisa area), a total volume of 800,000 metric tons (MT) oflateritic nickel ore were planned for extraction and shipping in both years of 2013-2014. From Parcel 1, a total of 219,924.447 MT were extracted and shipped,representing 73.3 per cent of the target volume of 300,000 MT. From Parcel 2B, atotal of 576,825.70 MT were likewise extracted and shipped, representing 115.4per cent of the parcel’s target of 500,000 MT. The said total tonnage of 796,750.15

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MT was duly billed for the corresponding royalties due to PMDC for the year. Theoperator of the said project is the AAM-PHIL (assignment from United Philippinesand China Mining Corporation to AAM-PHIL was approved in 2006).

In terms of actual boatloads, the Parcel 1 tonnage of 219,924.447 MT consisted offour shipments during the year, averaging 54,981 MT per shipment. Parcel 2B’stonnage of 576,825.70 MT consisted of ten shipments, averaging 57,682 MT pershipment. These exports of raw nickel ores were valued at a price of US$19/wetMT, in accordance with the May 19, 2014 sales contract between AAM-PHIL andits buyer, Crown Group Universal Limited, a Hong-Kong based entity. The salesagreement covers a period of May 2014 up to the end of the year. It will be notedthat AAM-PHIL’s exports of raw ores are likewise subject to the weather window ofMay to November, as the ocean’s conditions only during this time permit actualloading of barges and the export vessel to Lianyungan Port in China (distance of1,755 nautical miles from the Dinagat, Surigao Port of the Philippines). For theperiod of December to April, weather conditions in the area are not conducive tovessel loading and docking operations.

It will be noted that the raw exports of ores by the partner are covered by variousdocuments, which are listed as follows:

i. From the regional MGB office, the Ore Transport Permits (OTP) andMineral Ore Export Permits (MOEP) which the MGB issues documentingtonnage, source parcel and allows the movement of the ores from the stockpileto the port (for OTP), and from the port to the vessel. These are also usedby the AAM-PHIL in paying related excise taxes to the Bureau of InternalRevenue (BIR);

ii. From the vessel/shipping company, the draft survey reports and shipmatedocuments. These documents are used for comparison purposes of thetonnage as loaded in the vessel and unloaded at the port;

iii. From the laboratory doing the assay/chemical testing of the ores as to thequality, grade and type of the ores shipped which are compared to thespecifications in the MGB documents; and

iv. Finally, in further support of the export shipments, AAM-PHIL has alsosubmitted corresponding commercial invoices (on per shipment basis) showingthe tonnage exported, the price in US$/MT applied (as per the sales agreementmentioned above) and corresponding revenues of the partner (upon which thePMDC royalty rates will be imposed). These individual commercial invoices areduly tied up with PMDC billings.

These documents are all collated/secured at different points by the partner prior totheir being able to bill the buyer of the ores, and are then submitted to PMDC forthe latter’s own review and validation for subsequent preparation of the PMDCbilling statement for royalty purposes.

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Finally, for CY 2014, PMDC noted that AAM-PHIL has completed about sevenshipments of nickel ores of approximately 372,000 MT per the coveringOTP/MOEP forms issued by the MGB. These shipments are not yet accrued in thefinancial statements pending PMDC’s own review and validation of the documents.

c. As earlier disclosed, the North Davao Mining area was publicly bidded out onOctober 19, 2009 but the winning bidder, Asia Alliance, Inc., was unable to pay theoffered commitment fees to the PMDC in the subsequent periods. The said awardis presently stalled as a court case is currently pending. Still, Management isconfident that the resolution of the issues that cloud the project would be resolvedaccordingly. For CY 2014, Management had informed the PMDC board ofdirectors (BOD) of current updates to the project. The PMDC BOD in its December2014 meeting has decided to seek the concurrence/advice of the DOF-PMO for thehandling of the said project.

II. Community-support

PMDC continued to implement its Corporate Social Responsibility (CSR) agendafocusing on providing medical and dental services to the community, provision of schoolsupplies and backpacks to day-care pupils in Diwalwal with the participation of theprivate sector, Local Government Units (LGUs) and the Department of Health (DOH).The Corporation distributed said supporting school supplies for elementary students inNovember 2013 at the Mt. Diwata Elementary School. Said assistance has beencontinued in CY 2014.

For CY 2014, PMDC Management has secured the approval of the PMDC BOD inproviding assistance to the community by construction of 2-storey school houses for theDinagat, Surigao and Mt. Diwata, Compostela Valley areas to serve as the company’slong-term commitment to educational advancement of the students. Likewise, providingpotable water to service water needs of the community in Dinagat, Surigao area wasalso part of the community support efforts of the company. Bids for these projects werereceived in the last quarter of CY 2014 and awards to the most responsive bids weremade by the company in December 2014. The implementation of these communitybeneficial projects is expected to be completed by the 1st half of CY 2015.

Continuing food assistance support to the local community health center, LGUs, and theArmed Forces of the Philippines (AFP)/Philippine National Police (PNP) contingentssecuring the project area had been followed by the Corporation. The services of thelone midwife assisting the Mt. Diwata Health Center continue to-date. Previously,PMDC had also initiated efforts with the Department of Education (DepEd) for thedeployment of day care teachers in the area, with the goal of assuring the basiceducational needs of school-age children of the community. Likewise, periodic provisionof medical supplies to Diwalwal and the Kalinga locations in particular is being observedby the Corporation. PMDC has also initiated the Agro-Reforestation Program in relationto the National Greening Program within the Lake Leonard Watershed, Maco,Compostela Valley as well as the Diwalwal Project. In terms of number of hectaresreforested for CY 2014, about 20 hectares were completed for the Diwalwal Projectaccordingly. Said program is on-going along with the nurturing of seedlings in themodest tree nursery area in the project.

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III. Corporate systems development

PMDC has continued pursuit of its accreditation and implementation of the QualityManagement System (QMS) under the ISO 9001:2008 program. The process involvesthe contract monitoring and project management as the core business processes of theCorporation. A maiden audit of the QMS was initiated during CY 2012 under thesupervision of the Development Academy of the Philippines (DAP) and the results takenup in an end of the year Management Review (MR) session.

Subsequently, quality reviews were conducted on various dates, i.e. mid-May 2013 andJanuary 2015 by third party accredited auditors. The results of said external review andinputs on further refinement of the prototype Quality Manual were provided. Refinementof the reference documents and manual is on-going, along with training of PMDCpersonnel to man the system. These aspects dovetail with on-going plans for thecertification audit.

As of CY 2014, PMDC has selected TUV Rhineland as its accredited auditor for thecertification process. The certification audit, i.e. Stage 2 level, is slated in March 2015.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Exploration and evaluation assets

These are initially carried at acquisition cost subject to revaluation after conducting anassessment for impairment of the assets, which is dependent on the result of exploratorydrilling indicating sufficient data from which technical feasibility and commercial viabilitycan be determined.

The assets are consequently carried at replacement cost retrospective as at November15, 2007 after appraisal made by a reputable independent appraiser using thereplacement cost as basis of valuation.

Lease-to-purchase mining equipment is carried at “exercise price” or future value at theend of the rental period, or two years, net of interest at the rate of 11 per cent, which ischarged to operations.

PMDC also has a Jumbo Drill, a tunnel boring equipment, included in its exploration anddevelopment assets. Said idle and intended for sale equipment has been depreciated inaccordance with International Financial Reporting Standards (IFRS) No. 6. Please referalso to Note 8.

3.2 Property, plant and equipment (PPE)

These assets are carried at cost less accumulated depreciation. The initial cost ofproperty and equipment comprises its purchase price and any directly attributable costsof bringing the asset to its intended use.

The cost of maintenance and repair is charged to expense as incurred while significantbetterments are capitalized.

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Depreciation and amortization are computed on the straight-line method based on thefollowing estimated useful life of the property items net of 10 per cent salvage value:

Exploration, machinery and equipment 2-10 yearsFurniture, fixtures and equipment 3-10 yearsTransportation equipment 5 yearsLaboratory equipment 5-10 years

Incomplete construction is stated at cost and is depreciated only when the assets arealready completed and/or put into operational use.

With regard to PPE – computer peripherals, the preloaded softwares, such as, but notlimited to operating systems which are included in the cost of the computer hardware aretreated as part of the cost of the hardware. Softwares separately purchased arerecorded under Maintenance and Other Operating Expenses (MOOE) as Supplies andMaterials – IT software.

3.3 Prepaid expenses

The cost of purchased supplies and materials for stock is recorded using the PeriodicInventory Method (expense method) where such items are recognized in the expenseaccount (if consumables), or asset account (incomplete construction) as soon asphysically delivered and received. A physical inventory before year–end determines thestill unused items/stocks on hand which are reflected as asset account.

3.4 Liabilities

These are recognized in the period in which the obligation is incurred. Current liabilitiesare expected to be settled in the normal course of the Corporation’s operating cycle orwhen it is due to be settled within twelve months after the balance sheet date.

3.5 Income and expenses

These are recorded using the accrual basis of accounting.

4. CASH

This account is composed of the following:

2014 2013Cash in bank:Land Bank of the Philippines (LBP)

DECS (DepEd) 4,139,419 7,411,143North Avenue Branch (Peso) 1,511,680 11,501,234North Avenue Branch (Dollar) 63,392,581 86,544,459North Avenue Branch (Savings) 7,120,000 -

Special saving accounts:Bajada Branch 115,186 204,714

Development Bank of the Philippines (DBP)Camp Aguinaldo 3,568,546 626,036Camp Aguinaldo (Savings) 25,000,400 -

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2014 2013Special collecting officer:

Head Office - 6,581Davao Field Office 22 4,093

Petty cash fund:Head Office 50,000 -Diwalwal/Davao Field Office 219,914 220,490North Davao 9,500 9,500Dinagat 2,375 8,000

105,129,623 106,536,250

Cash included in the Statement of Cash Flows comprises the following balance sheetamounts:

2014 2013

Cash on hand and in banks 105,227,036 104,167,644Effect of exchange rate changes – (loss)/gain (Note 18) (97,413) 2,368,606

105,129,623 106,536,250

The dollar deposit amounting to US$1,420,817 was translated using bank closing rate asat December 31, 2014 of P44.617 as sourced from the Bangko Sentral ng Pilipinas(BSP) website.

5. RECEIVABLES

For CY 2014, royalty receivables due from AAM-PHIL’s completed ore shipmentsamounted to P64,382,431. This amount was subsequently collected in January 2015from the AAM-PHIL partner. In addition, non-trade receivables amounted to P4,635,088,details as follows:

2014 2013

Local travel 106,673 103,802Other business expense 129,735 31,690Receivable from officers and employees 12,291 56,219Deferred income tax – to be applied to income

tax payments 2,818,476 -Fuel withdrawals (for hauling activities) and othersInput tax – net

86,8041,338,191

99,726352,117

Other receivables 142,918 -4,635,088 643,554

6. PREPAID EXPENSES

This account consists of:

a. Inventory of total supplies and materials amounting to P4,822,433. Theseprimarily consist of the spare parts and consumables stored at the Davao DepotOffice in Diwalwal, Davao. These spare parts were subjected to physical count,reconciliation and visual check of physical conditions of the items during the periodof November 18-23, 2013 by Head Office personnel. From results of physical

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count, ocular inspection and reconciliation, a total of P1,029,088 worth of spareparts has been reclassified to the Other Assets account in CY 2013 in preparationfor Management’s decision on disposal options for said items. These items arenoted as either junk, no longer usable, or relate to equipment which is eitherjunked, for disposal or returned to other government-owned and controlledcorporations (GOCCs).

b. Government Service Insurance System (GSIS) premium for accident insuranceof project engineers who resigned before the maturity of the insurance coverageamounting to P1,662.

7. PROPERTY, PLANT AND EQUIPMENT

This account consists of:

Minedevelop-ment

equipment

Generalplant,medical &safetyequipment

Officeequipmentandfurniture

Transport-ation

equipment

Communi-cation

equipment

MabatasInterimdamfacility

Constructionin progress Total

At Cost:

1/1/2014 12,725,414 3,226,892 2,187,117 5,219,436 6,575,394 8,658,872 565,295 39,158,420

Additions 42,410 1,381,555 691,309 - 674,628 - 5,498,015 8,287,917

Adjustments (3,033,272) (13,000) (57,448) - (744,607) - (1,349,306) (5,197,633)

12/31/2014 9,734,552 4,595,447 2,820,978 5,219,436 6,505,415 8,658,872 4,714,004 42,248,704

Accumulateddepreciation:

1/1/2014 10,463,207 1,221,302 1,712,831 2,569,912 3,192,495 - - 19,159,747

Depreciation for theyear (Note 19) 343,796 321,602 145,863 526,472 774,538 - - 2,112,271

Adjustments (2,729,945) (11,700) (50,297) - (664,344) - - (3,456,286)

12/31/2014 8,077,058 1,531,204 1,808,397 3,096,384 3,302,689 - - 17,815,732Net book value12/31/2014 1,657,494 3,064,243 1,012,581 2,123,052 3,202,726 8,658,872 4,714,004 24,432,972

Net book value12/31/2013 2,262,207 2,005,590 474,286 2,649,524 3,382,899 8,658,872 565,295 19,998,673

Mine development equipment account pertains to equipment used with regard to tunnelactivities. These include:

a. Scientific equipment which refers to technical equipment in the AssayLaboratory used for determining the ore grade of mineral samples provided foranalysis;

b. Drilling equipment which refers to specialized equipment such as handheldpneumatic drills and other earth boring equipment used for boring holes andsupporting drilling operations in the tunnel; and

c. Heavy equipment relates to equipment intended for mine activities such ashauling of ore and raw materials.

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General plant, medical and safety equipment accounts include the following:

a. General plant facilities account relates to structures in support of field activities;

b. Medical and dental equipment pertains to the wheelchair, blood pressuremonitor and minor support equipment for handling emergency medicalaspects; and

c. Safety and fire-fighting equipment relates to fire extinguishers, emergencylights and other minor support equipment to ensure personnel safety andadherence to local regulations, which include general mechanical and electricalequipment intended for tunnel activities and support of lighting, water pumpoperations, etc.

Office equipment and furniture account refers to usual office facilities in support of officeoperations.

Transportation equipment account pertains to motor vehicles assigned at the HeadOffice, Davao Project Office as well as the service motorcycles used in project areasfor monitoring.

Communication equipment refers to telephone and facsimile machines to enablelinkages between the Field and Head offices. This includes computer and peripheralswhich relate to office computers and printers used for enabling staff and technical work.

The construction of the Mabatas Interim Dam Facility was started in 2003 in consonancewith the thrust of DENR to ensure environmental protection and non-recurrence of highmercury levels.

For CY 2014, the Corporation has construction in progress with a total value ofP4,714,004. This consists of fit-out and renovation costs for the 30th floor PhilippineStock Exchange Tektite Office of the Corporation on account of need for more space toaccommodate additional personnel and technical equipment (P3,784,481); installation ofComputerized Accounting System (P687,500) and the North Davao sub-officerenovation work (P242,023). The said work in progress is expected to be completedwithin CY 2015.

8. EXPLORATION AND EVALUATION ASSETS

This consists of:

2014 2013Victory tunnel and mining equipment 225,193,750 225,193,750Quasar jumbo drill 18,270,000 18,270,000Diamond core drilling 19,174,042 19,174,042Metallurgical feasibility study – Diwata Gold Project 1,867,474 1,867,474Underground rehabilitation of Victory tunnel 385,286 385,286

264,890,552 264,890,552

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2014 2013

Less: Accumulated depreciation (quasar jumbo drill),12/31/2013

12,332,250 10,687,950

Depreciation expense 1,644,300 1,644,300

13,976,550 12,332,250

250,914,002 252,558,302

The acquisition of the Victory tunnel and mining equipment for use in conductingand expediting core drilling at the 600-meter-level of the Diwalwal Mineral Reservationarea was covered by a Memorandum of Agreement (MOA) executed on December23, 2003 by and between PMDC (then NRMDC) and JB Management MiningCorporation (JBMMC).

Based on the projected appraisal value of the assets as determined by a reputableindependent appraiser in November 2007, the Victory tunnel and mining equipment, in2006 and 2007, were carried at replacement cost retrospective as at December 23, 2003for P179,012,500 which increased to P224,415,500 on November 15, 2007.Comparative data is consequently updated restating the value of these assets.

The Quasar jumbo drill is a tunnel boring equipment (purchased through the paid upDBP loan) designed to facilitate industrial level drilling of holes and enlarging physicalopenings in support of tunnel construction and accessing underground minerals. Theequipment was only used for less than one year, and since then has been idle due tomanagement policy change from the miner-direct operator model to the royalty businessmodel currently in place (see Note 2 - Status of Operations).

The jumbo drill is depreciated for the reporting period of CYs 2010-2014 in accordancewith the COA’s input on cognizance of equipment decline in value notwithstanding itscurrently idled nature. Thus, total depreciation on said asset amounted to P13,976,550covering the period of CYs 2010-2014. The depreciation charge is reported as part ofthe regular expenditures in the Statement of Revenues and Expenditures.

Said equipment is intended to be sold by Management, following public biddingrequirements, due to lack of plans to utilize such in the near-term. To date, there havebeen at least three attempts to bid out the equipment, but all these exercises have faileddue to limited potential users of said specialized mining equipment (for mining/tunnelingpurposes) as well as perceived lower market value vis-à-vis the COA and third partyaccredited appraisers’ price settings. The company has again requested for the COA’stechnical assistance in determining applicable floor prices as the equipment remainsopen for disposal.

The metallurgical feasibility study pertains to the study undertaken to determine theeconomic viability of separating and recovering gold values from the Diwata gold project.The study provides essential information regarding the most viable technical method/s toseparate and/or extract gold values from the bulk ore.

The capitalized costs for the Victory tunnel and related mining equipment, diamond coredrilling, metallurgical feasibility study and previous underground rehabilitation of theVictory tunnel are intended to be recovered from the potential commitment fees thatcould be realized should the 729 hectares gold rich be allowed by the National

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Government for bidding by qualified third parties. The diamond core drilling resultsdocument the potential gold recoveries (in terms of grams/MT) at the test depths in thearea; and the metallurgical feasibility study formed part of the data inputs in the pre-feasibility study developed and submitted to the Board of Investments (BOI) by thePMDC Management in line with the PMDC’s application for registration as a bulk goldminer on May 30, 2008 as per Certificate of Registration (COR) 2008-111.Unfortunately, said COR and related tax incentives were not availed of as the companywas not able to secure appropriate capital levels to be able to function as a bulk goldminer and refiner.

9. DEFERRED CHARGES

This pertains to costs incurred in connection with the exploration and development ofmineral resources in the North Davao project. The North Davao project area has beenturned over to the PMDC by the DOF–PMO. PMDC was granted on April 7, 2006 theright to develop and manage the property by way of a Trust Agreement with thenexisting Privatization Council (PrC) and a MOA dated July 4, 2006 with the DOF-PMO.

The said mining claim has earlier been bidded out to a total of eight bidders on October19, 2009 for development. The winning bidder, Asia-Alliance Mining ResourcesCorporation (AAMRC) (highest bid of US$28.5 million), however, failed to comply withthe conditions of the Notice of Award dated November 6, 2009 as per PMDC BoardResolution No. BD-34-09. Subsequently, AAMRC filed a civil case against PMDCbefore the Regional Trial Court (RTC) of Pasig City, Branch 167, docketed as Civil CaseNo. 72373, entitled “Asia-Alliance Mining Resources Corp. vs. Philippine MiningDevelopment Corporation for Specific Performance, Injunction and Damages with Prayerfor Temporary Restraining Order,” to prevent the PMDC from proceeding with thebidding process in the North Davao Mining project in accord with Republic Act (RA) No.9184, otherwise known as Government Procurement Reform Act.

In the most recent developments, AAMRC and PMDC have jointly discussed theamicable resolution of the case, with the intent of AAMRC to pay the amount of US$28.5million bid in an escrow account in any Philippine Universal bank in favor of PMDC. Thiswill be subject to certain legal and permit related conditions that must be satisfied byboth parties. On December 4, 2014 PMDC-BOD meeting, it was decided that since theproperty is one of the idled assets under the stewardship of the DOF-PMO, the PMDCwill submit the related documents for the proposed settlement of the case to the DOF-PMO for the latter’s review and due deliberation.

Pending the hoped resolution and approval of DOF-PMO of the joint agreement betweenPMDC and AAMRC for the settlement of the case and subsequent award of the projectto AAMRC, the disposition of the deferred costs in connection with North Davao Miningproject viability assessment could not be resolved yet [between PMDC and AAMRC].

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10. OTHER ASSETS

This account pertains to costs representing down payment for contractual obligations,guarantee deposits for services, account of contract on rental of office spaces/warehouse and deposit on returnable containers. Details of the account are as follows:

2014 2013Items for disposal (refer also to Note 6) 1,509,946 1,117,905Guarantee deposit for leasehold contracts 537,855 1,082,267Down payment for contractual obligations - 444,949Deposit for account of contract 119,478 119,478Deposit on returnable containers 25,500 25,500

2,192,779 2,790,099

The items for disposal mainly consist of deemed non-usable spare parts andconsumable supplies, including some fixed assets as noted during the physical inventoryand review conducted last November 18-23, 2013 at the Davao Admin and DepotOffices. The reclassification to this account is intended to ensure that all fixed assetsand supplies reported in the balance sheet are useful for operations. Lastly, thereclassification will also facilitate the forthcoming Management actions of their disposal.

The items for disposal consist of spares and consumables in the amount of P1,029,088as disclosed in Note 6, as well as the net amount of P480,858 for the retired physicalassets which are transferred from Property, Plant and Equipment account to OtherAssets account amounting to P392,041 and P88,817 in 2014 and 2013, respectively.

The retired assets are mainly composed of non-working office and computer equipmentand a second-hand motor vehicle marked for disposal, as repairing these assets isuneconomical. Similar to the spares that were reclassified following the November2013 physical inventory, these items are similarly segregated.

11. PAYABLES

This consists of:

2014 2013Other fees due to NDC - 4,756,000Accounts payable and accrued liabilities 864,043 6,676,850Due to employees 12,871 12,471

876,914 11,445,321

The interest costs on NDC loans have been consolidated with the principal componentof P50 million on account of the agreement between PMDC and NDC Managements onthe amortization of said loans. The loans and interest are duly consolidated and forsettlement commencing July 2013. Please refer also to Note 14, item b for a fulldiscussion on said NDC loans.

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12. DUE TO NGA AND GOCCs

This includes mandatory obligations to various agencies of the government, itemized asfollows:

2014 2013Bureau of Internal Revenue (BIR) -

Income tax payable (Note 20) 19,352,711 12,180,367Value added tax (VAT) payable (Note 21) 11,340,248 5,788,702Employee income tax payable 653,246 433,620Withholding tax payable – e-VAT/creditable

income tax 250,184 234,025Expanded withholding tax payable 94,809 90,870

Social Security System -Premium contributions payable - employees’ share 16,925 (2,567)Loans payable 18,501 (859)

Pag-IBIG Fund -Contributions payable 5,391 2,291Loans payableCalamity loans payable

15,326868

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PhilHealth -Contributions payable- employees’ share 23,054 12,429

31,771,263 18,739,998

13. OTHER PAYABLES – TRUST LIABILITIES

The composition of the account is detailed below. For the most part, these are related toroutine procurement transactions of the company.

In the case of the royalty allocation, this consists of allocation of one per cent to anyclaimants who may later establish their vested rights out of the 15 per cent governmentshare and service fee of service contractors in connection with the Diwalwal Direct StateDevelopment Project including any incidental production from the Victory tunnel.

2014 2013Performance bonds for awarded contracts 3,627,450 3,627,450Bid surety from qualified bidders 57,000 2,937,000Sale of bid documents and others to fund Bid and Awards

Committee (BAC) honoraria - net 35,000 122,500Royalty allocation for any claimants 480,532 480,532

4,199,982 7,167,482

14. LONG-TERM DEBT

This consists of:

2014 2013JBMMC Victory tunnel 55,000,000 55,000,000National Development Corporation (NDC) 89,431,600 97,768,000

144,431,600 152,768,000

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The nature and details of each loan and current status are as follows:

a. The balance of P55,000,000 represents the remaining amount payable toJBMMC for the Victory tunnel and mining equipment as contained in the MOAdated December 23, 2003. It is payable in 30 equal semi-annual payments for aperiod of 15 years, but shall commence only upon communication in writing byPMDC to JBMMC of its intention to undertake full mining operations by utilizing theVictory tunnel after PMDC’s drilling and exploration. On January 11, 2008, thereformation of the MOA was filed by JBMMC to address the issue on the supposedcorrect quantity of mining and other equipment actually sold to PMDC. To date,the case is still pending in court.

b. The P50,000,000 payable to NDC consisted of two P25,000,000 loans grantedin August 2005 and November 2006. These loans carry two-year terms, andsubject to 12 per cent interest per annum, payable in semi-annual installments. Asat December 31, 2014, interest costs incurred totaled P11,110,487.

The said two NDC loans were initially classified in the current liabilities section inCY 2007 financial reporting, on account of their existing terms of two years.However, PMDC is presently in on-going talks with NDC for the possiblerestructuring of the said loans. Previously, PMDC Management intended to settlethe loans on the presumption of the following steps: i.e., successful bidding out andreceipt of expectedly significant commitment fees from the planned awards of theNorth Davao Mining project; the gold rich 729 hectares portion in Diwalwal area;and royalty shares from the attainment of large tonnage chromite and lateriticnickel ore shipments of the Dinagat Nickel Chromite project. As these revenue-generating efforts were not realized as expected, PMDC was not able to generatethe amount needed for settlement of the loans, thus, the on-going discussions. OnJuly 4, 2012, NDC Management advised PMDC that the NDC Board have not yettaken up the loan restructuring issue and waiver of penalties, pending submissionof PMDC’s 5-year financial projections (this was submitted to NDC on February 21,2013). Subsequently, both PMDC and NDC Managements, on a presentation toNDC Board on May 28, 2013, collectively agreed to revise the said loanagreements to consider the following terms:

b.1 Consolidation of the principal (P50,000,000) and interest (P47,768,000 –composed of interest as of December 31, 2012 and total interest for the period ofJanuary – December 2013) components into a total of P97,768,000, which will bethe basis for settlement;

b.2 Agreement on a 10-year (or 120 months) period to settle the revised loan byfixed monthly payments of P1,402,687 with a 12 per cent annual interest rate, withthe payments commencing in July 2013 up to June 2023; and

b.3 Subsequent to the settlement of said revised loan of P97,768,000, is thesettlement for a period of 39 months (or 3.25 years) of the accrued penalties on theoriginal loans worth P54,611,477. Payments will be made monthly in the amountof P1,400,000 commencing in July 2023 (one month after the completion of therevised loan) up to June 2026.

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The said revised loan agreement was formally signed late January 2014 after duerecycling between PMDC and NDC Managements as well as the receipt of thedesired legal opinion from the Office of the Government Corporate Counsel(OGCC). Accordingly, PMDC commenced a total payment for the 2013 affectedinstallments (July – December 2013 and January - February 2014) of P11,221,494(principal and interest) to NDC, documented by Disbursement Voucher (DV) No.1771 dated February 20, 2014 and Check Voucher No. 189339 dated February 25,2014. Subsequently, for CY 2014, the payments of the NDC monthly installmentswere carried out in accordance with the agreed upon loan repayment schedule.

15. OTHER DEFERRED CREDITS

For CYs 2014 and 2013, the account included a balance of P4,322,550, representingP3,000,000 advances from the Pacific Nickel Corporation (Parcel 2A Dinagat Nickel-Chromite project) and the amount of P1,322,550 from the proceeds of the sale/disposalof unserviceable mining equipment covered by a MOA between PMDC and JBMMC.Pending final decision by the court on the reformation of instrument, which may givePMDC authority to sell in part or whole the equipment contained as part of the Victorytunnel, income to PMDC from such sale is deferred.

The balance of P5,000,000 emanated from the advance royalties paid in CY 2013 by theCagayan based developer’s intent on dredging of a part of the Cagayan coastline. Theproposed project’s contractual arrangements are currently being worked out by theconcerned parties.

16. CAPITAL STOCK

The initial 100,000 shares of stock (par value of P1,000 per share) were fully subscribedby PNOC-EDC and DENR-NRDC. As at December 31, 2003, PNOC-EDC had fully paidits 45,000 shares worth P45,000,000, while DENR-NRDC had fully paid P55,000,000worth of subscribed stocks on April 20, 2007 under Cash Receipt No. 1912. The PNOC-EDC shares were turned-over to PNOC, the parent firm of PNOC-EDC, in 2006.

In 2005, the Corporation’s shares of stock was increased to 125,000 with NDCacquiring the additional 25,000 shares equivalent to P25,000,000 duly subscribed andpaid for. NDC’s subscription, which was approved by its BOD under Resolution Nos. 02-05-19 and 02-05-23, was covered by a Subscription Agreement dated March 22, 2005,while its advance of P25,000,000 against future subscription in the then NRMDC, nowPMDC, was supported by an Agreement dated August 12, 2005.

17. REVALUATION SURPLUS

This account represents the projected appraisal increment in the value of the Victorytunnel and mining equipment in the amount of P144,415,500, between the acquisitioncost of P80,000,000 and the replacement cost of P224,415,500, retrospective as atNovember 15, 2007.

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18. REVENUES

The Corporation mainly derived its revenues from commitment fees from the awardedmining tenements, royalties from the Dinagat Nickel-Chromite project, and other items,as follows:

2014 2013

Commitment and royalty fees:Royalty - Dinagat Nickel and Chromite project 134,458,778 125,688,674Commitment fees – mining tenements 1,188,000 4,892,857

135,646,778 130,581,531Interest income (net of final tax) 424,681 91,798Other income 4,758,687 1,786Foreign exchange gain (loss) due to translation (97,413) 2,368,606

140,732,733 133,043,721

19. EXPENDITURES

This consists of:

2014 2013

Employee compensation and benefits 21,170,299 20,978,029Interest charges/surcharge 11,811,763 15,641,044Depreciation (Notes 7 and 8) 3,756,571 4,171,176Rentals, insurance, taxes and licenses (Note 21, item f) 3,547,232 5,165,656Business expenses 2,732,295 3,041,701Purchased services and utilities 2,427,241 2,857,327Other employee costs 2,363,128 2,484,746Materials and supplies 1,278,122 1,078,908Maintenance and repairs 360,012 212,313Bank charges and others 11,417 50,361Miscellaneous expense 1,134,339 1,603,824

50,592,419 57,285,085

Certain expense items are further amplified in the discussions below. These costs werenot subjected to withholding taxes on account of either being foreign transactions or dueto non-profit organizations.

The business expenses of P2,732,295 include, among others, the following:

a. Costs of local travel on account of project inspection trips and meetings withDENR/MGB regional officials, LGUs, private sectors and general public in thevarious project sites of the company in the amount of P1,046,892.

b. An advertisement of US$20,000 or P908,140 with AMEA Market IntelligenceGroup Limited. The ad, similar to prior years’ availments, focused on promotingthe Philippines as a contender for natural resource and tourism investments bydeveloped countries. This outlay for CY 2014 is part of continuing promotion of thecountry as an investment destination.

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c. The continuation of the reference subscription worth US$2,288 orapproximately P102,960 at forex rate of P45 for one year to the Asian Metalswebsite, which is one of the company’s reference source of market prices forbilaterally traded minerals like chromite, magnetite, lateritic nickel ore as well assource of applicable news and developments in the ASEAN business environment.The bilaterally traded minerals mentioned do not have readily globally sourcedpricing information compared to gold or copper, i.e. available in the BSP, InfoMineand London Metals Exchange websites. Said pricing data is needed by PMDC inperiodic setting of reference prices for the exports of minerals ores that its partnersutilize for their revenue generation.

d. Likewise, the availment of a first time one year subscription worth US$2,030 (orapproximately P91,350 at forex rate of P45) to Ferroalloy.net for similar purposesas that of Asian Metals. This new website contains other more finely focused,granular type of data on raw minerals exported, prices and week by week analysisof the raw ores market as bilaterally traded. The website is considered a usefulcountercheck to information sourced by Asian Metals website.

e. A total of P263,450 in terms of various contributions and dues settled duringthe year. Major components consisted of P224,000 of membership dues andmedia fund contributions billed by the Chamber of Mines of the Philippines in thefurtherance of the mining industry objectives and advocacies. Other costs ofP35,000 are composed of the P15,000 attendance costs by one PMDC director inthe annual Mining Philippines conference wherein the investment opportunities andconstraints affecting the country are tackled with all affected sectors. The balanceconsists of a one-time token sponsorship in the Chamber of Mines of thePhilippines’ golf tournament, as well as other charges. The costs are in support ofthe natural resource sector.

20. PROVISION FOR INCOME TAX AND INCOME TAX PAYABLE

For CY 2014, a total provision for income tax of P27,147,402 is set up in the Statementof Revenues and Expenditures, and a net income tax payable of P19,352,711 isreported in the CY 2014 Balance Sheet as part of current liabilities under Due toNational Government Agency (NGA) and GOCCs account. However, in the filing ofincome tax on or before April 15, 2015, PMDC will only be paying a total ofP16,533,965 (before other possible adjustments) as it will be availing of creditablewithholding taxes of P2,818,746 (supported by AAM-PHIL issued tax withholding - BIRform 2307) for the period.

The computation for the income tax provision, as well as the liability recognized for thegovernment, is shown below:

AmountPre-tax income 90,140,314Add (Less):

Interest income already subjected to final tax (424,681)Foreign exchange loss on realignment of dollar deposit to

year-end exchange rateBIR penalty on prior years’ assessment since abatement request was

denied (Note 21, item i)

97,413

678,294

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AmountTaxable income, BIR basis 90,491,340Tax due using BIR rate of 30 per centLess: Quarterly tax payment made on April 24, 2014, inclusive of creditable

tax withholding of P1,761,610

27,147,402

(7,794,691)

Income tax payable (Note 12) 19,352,711

21. OTHER DISCLOSURES [as required under BIR Revenue Regulation (RR) No.15-2010]

In compliance with the requirements set forth by BIR RR No.15-2010, hereunder are theinformation on taxes, duties, and license fees paid or accrued during the taxable years of2014 and 2013. The company has also included further disclosures on tax relatedmatters arising from the COA’s AOM provided in the course of their review of thefinancial statements of the company. These are included in the appropriate sections.

a. The Corporation is VAT-registered with VAT output tax declarations ofP15,669,998 for 2013 and P11,135,090 for 2014 based on the amount reflected inthe revenues of the Corporation of P130,583,317 for 2013 and P92,792,418 for2014. These were reported to BIR per the Quarterly VAT forms submitted onvarious dates in CYs 2013 and 2014.

PMDC had also settled on schedule or even in advance thereof of thecorresponding VAT liabilities. The intent for compliance is illustrated in CY 2013,when the Corporation paid in advance a total of P5,000,000 to BIR for VAT(Disbursement Voucher No. 1629 dated December 16, 2013) as well as the earlyremittance of 4th quarter 2013 related VAT of P5,441,345 (Disbursement VoucherNo. 1689 dated January 17, 2014).

PMDC has no zero-rated/exempt revenues for the taxable year.

b. The amount of VAT Input taxes claimed are broken down as follows:

2014 2013Current year’s purchases:On purchases of capital goods:

Not exceeding P1 millionExceeding P1 million

250,976-

133,834387,793

Domestic purchases of goods other than capital goods 221,495 303,442Domestic purchases of services 3,070,074 548,907

3,542,545 1,373,976

c. There are no importations made by the Corporation during the taxable year.

d. The Corporation had no excise tax due on sales of minerals for both years as itis not engaged in sales of such minerals. The Corporation, as stated in Note 2 isengaged in promotion and marketing of the government’s idled mining claims tothe private sector for their technical diligence, investment and eventual operations.

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e. There are no documentary stamp taxes paid/accrued by the Corporation duringthe taxable year as PMDC has not secured any indebtedness nor issued anyshares of stock for funding needs.

f. PMDC incurred a total of P3,547,232 and P5,165,656 on rentals, insurance,taxes, fees and licenses for CYs 2014 and 2013, respectively. Separately, theinsurance expense for CY 2014 amounted to P124,799, while for CY 2013 itamounted to P2,657,864. The P2,533,065 variance in insurance expense betweenboth years is primarily due to the provision for Directors, Officers Liability Insurance(DOLI) with the Government Service Insurance System (GSIS) starting CY 2013.For CY 2014, the much lower insurance costs were incurred as the GSIS for thisyear had secured more co-insurers (versus CY 2013) that led to lower premiumsas the GSIS was able to spread the costs of risks accordingly.

Details are summarized below:

2014 2013Rentals, use of power, light and water at PSE Tektite Office;

fees/dues/other charges for parking space, insurancecosts and rentals of motor vehicle and microcomputersand office equipment as well as web hosting costs 2,574,963 4,659,820

Fidelity bonds and premiums 98,651 99,085DBP fees on loan imposition - 11,140

2,673,614 4,770,045Taxes, fees and licenses:

Motor vehicle registration 33,777 35,366Notarial and legal fees 1,605 300Documentary stamp taxesSEC listing and registration/BIR fees

245500

-500

Business taxes, business permits and barangayclearance and other fees 744,419 297,935

Real property taxes 93,072 61,510873,618 395,611

3,547,232 5,165,656

The amount of withholding taxes paid/accrued for the year amounted to:

2014 2013Income taxes withheld on compensation 3,642,357 3,767,138Creditable income taxes withheld (expanded) 684,217 246,049

4,326,574 4,013,187

Items g to k below relate to the effect of the Final Decision on Disputed Assessment(FDDA) of BIR which PMDC had settled in full during CY 2012 accordingly. These arereiterated herein to enable appreciation of said action by the taxing authority.

g. The BIR issued a preliminary assessment notice dated January 6, 2011 to theCorporation for various internal revenue tax liabilities noted from the BIR’s audit ofthe 2007 financial statements of the Corporation. The audit and discussions withPMDC officials were completed sometime in 2010, prior to the issuance of the saidpreliminary assessment notice in January 2011.

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h. The items below apply to prior years and are reiterated in this section forinformative purposes.

Various BIR assessments for CY 2007, inclusive of the penalties and interest as ofJanuary 17, 2012, updated for the mutually accepted FDDA by BIR and PMDC aresummarized below. From the contested amount of P18,011,123, the said amountwas reduced to P11,222,694, inclusive of surcharges and penalties of P566,116.Forthwith, PMDC paid the said FDDA for the principal and interest componentsonly, as PMDC requested for the abatement of the surcharges and penalties ofP566,116 on said items.

CY 2007 Preliminary Tax Assessments, Subsequent Decision and Payment Status

InitialAmount FDDA Status

Minimum Corporate Income Tax for 2007(principal and interest only) – remainingbalance representing additional deficiencyinterest after PMDC payment of P768,849 (April16, 2011 initial computation) 3,841 3,842 Paid

VAT plus penalties 6,470,315 6,565,124 PaidWithholding tax – compensation 2,945,181 499,864 PaidExpanded withholding tax 2,136,306 1,017,420 PaidFinal withholding tax - VAT 3,014,702 2,569,313 PaidExcise Tax - principal and interest – remaining

balance after PMDC payment of P7,276 6,526 52 PaidDocumentary Stamp Tax (DST) – JBMMC share -

PMDC paid the DST of P261,875 for its2005 increase in capital stock 3,434,252 963 Paid

18,011,123 10,656,578

From the said preliminary assessment of P18,011,123, PMDC had paid thereduced total of P10,656,578 in three equal installments of P3,552,193 for the lasthalf of CY 2012. The reduction in amount is due to the detailed reconciliationsdone by both parties as well as resolution of other issues.

With regard to the portion of DST assessment, a portion of such was due to theissuance of a MOA with JBMMC for the 2003 purchase of the Victory tunnel of theDiwalwal Mineral Reservation area, intended for PMDC’s core drilling and goldreserves’ validation efforts. Accordingly, in January 2011, PMDC informed JBMMCof said requirement for the latter to pay DST, it being the selling entity of the facilityto the former.

PMDC, also, in a letter dated January 3, 2011 to BIR Large Taxpayers Service(received by BIR on January 14, 2011), had paid by way of the e-payment modeof the Minimum Corporate Income Tax, Excise Tax, and DST applicable for theincrease in PMDC capital stock in 2005 for a total amount of P1,038,000.

On February 16, 2012, PMDC through its legal counsel, the OGCC, filed an appealfor CY 2007 assessment to the Court of Tax Appeals (CTA) and paid the amountof P155,610 as filing fee. However, as of November 5, 2012, PMDC, with theassistance of OGCC, had filed a motion to withdraw the petition to CTA earlier

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filed. In the motion to withdraw said CTA Case No. 8427, PMDC cited that after duereconciliation of the accounts, the parties have found it mutually acceptable toaccept and pay the reduced tax deficiency that was the subject of the case. FDDAamounted to P10,656,578, composed of the principal component of P5,423,313and interest component of P5,233,265. As cited above, said amount was fully paidby PMDC in three equal installments of P3,552,193.

i. In addition to CY 2007 assessment detailed above, BIR had also filed aWarrant of Distraint and/or Levy (WDL) totaling P11,048,658 for CY 2006applicable to VAT (total inclusive of penalties and interest of P2,871,445) andIncome Tax items (total also inclusive of penalties and interest of P8,177,213). Theassessment pertains to purchases of goods and services in 2006 for which PMDChad not made the applicable withholdings and remittances. From BIR’scomputerized matching (of sales and purchases of vendor/contractor entities andPMDC), these non-withholdings were deduced to have sales equivalent of 50 percent, from which VAT and income tax assessments were based. PMDC contestedthe assessment in its detailed July 7, 2011 explanatory package to the BIR;however, the latter maintained its position and issued on August 1, 2011 (receivedon August 17, 2011 by PMDC) the WDL for P11.048 million. Upon discussionswith BIR officers, PMDC applied for compromise agreement and paid on April 30,2012 the amount of P1,582,686, representing 40 per cent of the Income TaxLiability of P3,956,716 applicable for CY 2006.

In a letter from the BIR dated September 11, 2014, PMDC’s application forabatement of the P678,294 surcharge was denied as the reason cited by theManagement was not meritorious enough pursuant to RR No. 13-2001.Accordingly, the penalty was paid last October 9, 2014 with reference to DV No.02484 dated October 7, 2014.

PMDC’s March 9, 2015 follow-up with the BIR on the said item covered by the 40per cent payment disclosed that the BIR has only forwarded to its TechnicalWorking Group (TWG) late 2014, for the TWG review and resolution. Likewise, noother action has been done yet by the BIR on the other pending VAT related issuesby the PMDC. Thus, to-date the BIR has not yet decided or acted on the pendingmatters accordingly.

j. Further, for CY 2011, BIR in its April 11, 2012 Collection Letter, also assessedPMDC a total of P4,841,392 for VAT. Out of this assessment, PMDC paid inprotest and for tolling future penalty purposes, a total of P3,890,065 (basic taxof P3,705,308 and interest of P184,757), even as its appeal to CTA onapplicability of VAT assessment is on-going. Similar to CY 2007 assessment,PMDC had also filed an application for abatement of surcharges and penalties inthe amount of P951,327.

k. PMDC, for CY 2012, had also settled its VAT liability to BIR totalingP10,967,471 applicable for CY 2010. For the said item, PMDC also paid the tax inthree equal installments (similar payment schedule as that for CY 2007) ofP3,655,824. An application for abatement of penalties and surcharges in theamount of P6,547,580 was also filed on October 12, 2012.

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on the PHILIPPINE MINING DEVELOPMENT CORPORATION (PMDc) · 2017. 7. 13. · Actual vs. Budget Budget Actual under/(over) Projected Receipts Royalty - nickel and chromite 125,000,000