Narra Nickel Mining and Dev. Corp. vs.

Redmont Consolidated
mines

Petitioners: Narra Nickel Mining and Development Corp.,

Facts:

Respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring Palawan. After inquiring with the
DENR, it learned that the areas where it wanted to undertake exploration and mining activities where
already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra,
Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit (EP)

Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the
denial of petitioners’ applications for MPSA.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are
owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont
reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force behind
petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only
participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued
that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified
from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act
No. (RA) 7942 or the Philippine Mining Act of 1995 which provided:

(aq) “Qualified person” means any citizen of the Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or authorized for the purpose of engaging in mining,
with technical and financial capability to undertake mineral resources development and duly registered in
accordance with law at least sixty per cent (60%) of the capital of which is owned by citizens of the
Philippines: Provided, That a legally organized foreign-owned corporation shall be deemed a qualified
person for purposes of granting an exploration permit, financial or technical assistance agreement or
mineral processing permit.

Petitioners claimed that the issue on nationality should not be raised since McArthur, Tesoro and Narra
are in fact Philippine Nationals as 60% of their capital is owned by citizens of the Philippines.

They asserted that though MBMI owns 40% of the shares of PLMC, 40% of the shares of MMC and 40%
of the shares of SLMC, the shares of MBMI will not make it the owner of at least 60% of the capital stock
of each of petitioners. They added that the best tool used in determining the nationality of a corporation is
the “control test,” embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991.

The POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held that respondents are
not qualified applicants to engage in mining activities. On the other hand, [Redmont] having filed its own
applications for an EPA over the areas earlier covered by the MPSA application of respondents may be
considered if and when they are qualified under the law.

The panel of arbitrators finds the respondents disqualified for being considered as foreign corporations.

Issue: Whether or not petitioners Narra, Tesoro, and McArthur are Philippine nationals or not.

Held:

The CA found that there was doubt as to the nationality of petitioners when it realized that petitioners had
a common major investor, MBMI, a corporation composed of 100% Canadians. The CA used the
“grandfather rule” to determine the nationality of petitioners. It provided:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage
shall be counted as of Philippine nationality.

Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the
capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be recorded
as belonging to aliens.

In determining the nationality of petitioners, the CA looked into their corporate structures and their
corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI in effect
owned majority of the common stocks of the petitioners as well as at least 60% equity interest of other
majority shareholders of petitioners through joint venture agreements. The CA found that through a “web
of corporate layering, it is clear that one common controlling investor in all mining corporations involved x
x x is MBMI.” Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with,
or privies-in-interest of, MBMI.

Computation of shares
McArthur acquired its MPSA application from MMC, which acquired its application from SMMI.
McArthur has a capital stock of 10 million pesos, divided into 10,000 common shares at one
thousan pesos per share.

Interestingly, looking at the corporate structure of MMC, we take note that it has similar structure
and composition as McArthur. In fact, it would seem that MBMI is also a major investor and
‘’controls’’ MBMI and also, similar nominal shareholders were present, i.e Fernardo B. Esguerra,
Lauro L. Salazar, and Kennet Cawkell

McArthur acquired its MPSA application from MMC, which acquired its application from SMMI. McArthur has a
capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at one thousand pesos (PhP
1,000) per share, .

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as McArthur. In fact, it would seem that MBMI is also a major investor and “controls” MBMI and
also, similar nominal shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):
McArthur Mining, Inc.

Madridejos Mining Corporation

Tesoro Mining and Development, Inc.

Narra Nickel Mining and Development Corporation

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA application, whose
corporate structure’s arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is
ten million pesos (PhP 10,000,000), which is divided into ten thousand common shares (10,000) at one thousand
pesos (PhP 1,000) per share, shown as follows:
JOINT The Company’s ownership interests in various mining ventures engaged in the
VENTURES acquisition, exploration and development of mineral properties in the Philippines is
described as follows:

(a) Olympic Group

The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as
follows:

Olympic- Philippines (the “Olympic Group”)

Sara Marie Mining Properties Ltd. (“Sara Marie”) 33.3%

Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective
equity interest in the Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, the Company
exercises joint control over the companies in the Olympic Group.

(b) Alpha Group

The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:

Alpha- Philippines (the “Alpha Group”)

Patricia Louise Mining Development Inc. (“Patricia”) 34.0%

Narra Nickel Mining & Development Corporation (Narra) 60.4%

Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in
the Alpha Property of 60.4%. Pursuant to a shareholders’ agreement, the Company exercises joint
control over the companies in the Alpha Group

Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns
60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’
corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMI’s
Summary of Significant Accounting Policies statement––regarding the “joint venture” agreements that it
entered into with the “Olympic” and “Alpha” groups––involves SMMI, Tesoro, PLMDC and Narra.

Noticeably, the ownership of the “layered” corporations boils down to MBMI, Olympic or corporations
under the “Alpha” group wherein MBMI has joint venture agreements with, practically exercising majority
control over the corporations mentioned. In effect, whether looking at the capital structure or the
underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and
must be considered foreign since 60% or more of their capital stocks or equity interests are owned by
MBMI.