Mr. Francis F. How

March 23, 1993 Mr. Francis F. How Natural Resources Development Corp. 3rd Flr. SRA Annex Building North Ave., Diliman, Quezon City S i r : This refers to your letter of March 3, 1993 inquiring whether or not Mauban Mining and Development Corporation (MMDC) is considered a Filipino corporation qualified to engage in mining activities in the Philippines. As stated, MMDC is a domestic corporation whose outstanding capital stock is owned by Chinese stockholders to the extent of 40% and 60% by Filipinos. However, in late 1992, MMDC was re-structured and reorganized which resulted in the following ownership/sharing: 40% by a Chinese group and 60% by Filipino shareholders including 40% owned by Magellan Exploration, Inc., (MEI), a corporation that is owned by 60% Filipinos and 40% by Insular Ltd., a Canadian company. In determining the nationality of corporations with foreign equity, the Commission En Banc, on the basis of the opinion of the Department of Justice No. 18, s. 1989, dated January 19, 1989, voted and decided to do away with the strict application/computation of the so called "grandfather rule" (Re: Far Southeast Gold Resources, Inc. FSEGRI), and instead applied the so called "control test" method of determining corporate nationality. The method as applied in the said case states as follows: " 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 said shares shall be recorded as owned by Filipinos. But if less than 60%, or say only 50% of the capital stock or capital of the corporation or partnership, respectively belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens". (Emphasis supplied, Justice Opinion, dated January 19, 1989) Applying the above-ruling to the instant case, MEI, which is 60% Filipino owned is considered a Filipino company. Consequently, its investment in MMDC is considered that of a Filipino. Therefore, the 60% Filipino equity requirement for mining companies would still be met by MMDC. Accordingly, MMDC may be qualified to engage in mining activities, provided that the voting and Board membership requirements under Section 3 of R.A. 7042, otherwise known as the Foreign Investments Act of 1991, quoted hereunder, are complied with. (a) the term " Philippine National " shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of the Philippine nationals: Provided , That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise , at least sixty percent (60%) of the capital stocks outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national;" (Emphasis supplied). Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman