Gold Fields Philippines Corporation

May 30, 1990 Gold Fields Philippines Corporation 3rd Floor, Hongkong Bank Centre Tektite Road Cor. San Miguel Ave. Pasig, Metro Manila Attention : Mr . Johnny M . Araneta Gentlemen: This refers to your letter dated March 5, 1990 inquiring whether the following proposed transaction is legally feasible under the present interpretation or computation by the Commission of the so called "Grandfather Rule". 1. Jericho Mining Corporation (Jericho) is presently owned exclusively by Filipinos. 2. Gold Field Asia Limited (GFAL), a wholly foreign-owned Australian sister company of Circular Quay Holdings Pty. Limited under the Renison Goldfields Consolidated Limited Group of Companies has agreed to purchase forty percent (40%) of Jericho's authorized capital stock. 3. Likewise, Gold Field Philippines Corporation (GFPC) desires to buy twenty percent (20%) of the authorized capital stock of Jericho. GFPC is a domestic corporation held by 60% Filipinos and 40% by Circular Quay Holdings, Australian corporation. 4. If allowed, the following shall be Jericho's equity percentage: 40% Filipino (original stockholders) 20% GFPC (60% Filipino-40% Australian) 40% GFAL (a wholly Australian owned corporation) Your query is whether or not the purchase by GFPC of 20% and GFAL of 40% of Jericho's stocks would disqualify Jericho from holding mining claims and mining rights, or entering into Mineral Production Sharing Agreements with the Government by reason of the provisions of the 1987 Constitution limiting such rights or activities to "Filipino citizens, or corporations or associations at least sixty per centum (60%) of whose capital is owned by such citizens". It is worth mentioning that 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: "S hares 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 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, GFPC, which is 60% Filipino owned, is considered a Filipino company. Consequently, its investment in Jericho is considered that of a Filipino. The 60% Filipino equity requirement therefore would still be met by Jericho. Considering that under the proposed set-up Jericho's capital stock will be owned by 60% Filipino, it is still qualified to hold mining claims or rights or enter into mineral production sharing agreements with the Government. prcd Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman