By AMADO P. MACASAET

A $2 billion nickel project will make the Philippines contribute more than 5 percent of total world production after about three years.

Sumitomo Metal Mining Co., Ltd. is finalizing a joint venture with two local mining companies, Taganito HPAL Nickel Corp., and Nickel Asia Corp., to produce 30,000 tons of nickel yearly in the first phase and another 15,000 tons after expansion.

Construction of the plant in Surigao del Norte is scheduled to start in April 2009. Mechanical completion is expected in March 2012. Commercial production begins in August 2013.

Earlier, Sumitomo Metal Mining organized Coral Bay Nickel Corp., with Mitsui & Co., Sojitz Corp., and Rio Tuba Nickel Mining Corp., to produce 11,000 tons of nickel a year in Palawan.

After the expansion plan is completed at a cost of $300 million, the capacity of Coral Bay will double at least to 22,000 tons a year. Combined with Taganito’s 30,000 tons a year for the first phase and another 15,000 tons after completion of expansion plans, the Philippines through Sumitomo Metal will be processing roughly 65,000 tons of nickel a year.

By this time, the Philippines would have accounted for 5.2 percent of total nickel production in the world, according to estimates of the project proponents.

The joint venture will employ more than 4,000 workers during the construction period expected to last more than three years. By the time, the project is operating, employment will be reduced to 1,000.

However, by that time, the project is expected to start paying $1 million a year in taxes starting 2012 and hit a high of $9 million by 2016.

Because of higher prices, Rio Tuba HPAL project started paying P55 million in taxes in 2002 when it was exporting nickel ore. By 2008, tax payment went up to P245 million, says one of the officers of the project proponent.

The Taganito HPAL Project is the second and bigger nickel operation in joint venture with Sumitomo. The first started in Palawan with Rio Tuba Nickel Mining Corp. that went on stream in August 2004. In the first year of exporting ore in 2005, the joint venture, located in the town of Bataraza, reported gross revenues of $39 million.

Three years later in 2008, revenues rose to $184 million due to vertical rise in the price of nickel.

The first nickel refinery in the Philippines was set up in Nonoc, Surigao Del Norte, by Marinduque Mining of the late Jesus Cabarrus.

It was in partnership with Le Nickel of France. It attempted commercial production after the proponents were convinced that the project would fly having proven its viability in a pilot plant in Saskatchewan, Canada.

By the time, it was ready for commercial production, the price of fuel rose vertically raising production cost. At that time, the price of nickel was below $2 per pound. Problems became insurmountable because the ore in the area contained more iron than nickel, making production expensive and leaving mountains and mountains of iron ore nobody had any use for.

Eventually, the project was abandoned and taken over by government which was left with huge receivables from Marinduque aside from sovereign guarantees it had to honor. It took more than 20 years after that debacle before Sumitomo Metal Mining was convinced that the grade of nickel ore in Palawan is worth developing.

Initially, the joint venture of Rio Tuba and Sumitomo was for exporting raw ore with 2 percent nickel content. That meant that the company exporting say, 20,000 tons of dried earth and was getting only four tons of nickel ore.