Can Philippines become critical minerals powerhouse with help from US, Japan?

To curb China’s dominance in the sector, Manila has to cut red tape and fight corruption to draw US and Japanese investors.

The US and Japan have an ambition to transform the Philippines into a critical minerals powerhouse and cut their reliance on China as part of a broader economic partnership, but analysts warn that a lack of commitment by Manila to introduce comprehensive reforms and tackle corruption could hamper the goal.

A report by the US-based think tank Centre for a New American Security (CNAS) said cooperation between the three countries was central to leveraging the Philippines’ vast potential as a source of critical minerals and rare earths to strengthen Washington’s regional deterrence.

“The United States and Japan are already among the Philippines’ top trading partners, but there are opportunities to enhance trade and investment ties in energy, infrastructure, telecommunications and critical minerals,” it said.

The report, written by CNAS Indo-Pacific Security Programme executive director Lisa Curtis and research assistant Ryan Claffey, said US Secretary of State Marco Rubio, Philippine Foreign Affairs Secretary Maria Theresa Lazaro and then Japanese foreign minister Iwaya Takeshi highlighted critical minerals as a key area for future cooperation in their meeting in Kuala Lumpur last year.

“The Philippines has substantial critical mineral reserves and could play a role in helping to reduce global dependence on China,” Curtis and Claffey wrote in a report released last month.

It will take time for the Philippines to shift its reliance on PRC supply chains
a Centre for a New American Security report

“However, at present, the PRC dominates the Philippine nickel supply chain. It will take time for the Philippines to shift its reliance on PRC supply chains that access its nickel reserves and for Manila to attract Western private sector investment into extracting and processing its critical minerals.”

The Philippines has the world’s fourth-largest copper reserves, fifth-biggest nickel deposits and about US$1 trillion worth of unexploited gold, zinc and silver, the authors said.

However, Manila lacks a strong framework to protect its resources, ensure a sustainable supply chain, and develop refining and processing capabilities, according to analysts.

“With one country dominating mining and processing, the United States must pool resources with trusted partners to collectively reduce our reliance on China,” Claffey said.

The US depends on China for 21 of its non-fuel mineral commodities, or about half of its demand.

“In this trilateral partnership, everyone brings a piece to the table: the Philippines brings massive mineral deposits, especially in nickel and copper, Japan brings processing know-how, and the United States brings financing, technology, and strategic coordination,” Claffey added.

Copper vs nickel

Alvin Camba, a non-resident fellow at the Atlantic Council’s Indo-Pacific Security Initiative, said the trilateral framework was created before the recent emphasis on critical minerals.

Among the partnership initiatives that the three countries have unveiled in recent years is the Luzon Economic Corridor – announced at their leaders’ summit in 2024 – to build rail and port projects to connect Subic Bay, Clark, Manila and Batangas. Construction of the corridor is expected to start next year. When completed, it is projected to contribute to US$100 billion to the Philippine economy over 10 years.

Whether the corridor could spur new investments depended “more on whether the Philippines can reduce logistics costs, resolve governance bottlenecks, and demonstrate regulatory credibility to investors who have seen similar frameworks stall before”, said Camba, who is also a lead scientist at artificial intelligence firm Lyvi.

The critical minerals agreement signed in Kuala Lumpur was a “new layer” to the trilateral partnership that had been in place for some time, he added.

Eli Hayes, a critical minerals researcher at the Australian National University, was sceptical about whether the US and Japan were committed enough to help the Philippines move up the value chain, particularly in nickel and cobalt, as Indonesia was a major producer of the two metals.

Camba said it would be hard for the Philippines to be a key player in nickel, as China had helped transform Indonesia into a dominant player in the sector, with its pricing powers and large refining capacity.

“The technology the Philippines would need to move up the value chain is dominated by Chinese firms who built it out in Indonesia with a decade’s head start and a willingness to absorb environmental costs.”

However, the Philippines could look to produce more copper as the metal could be used in the US defence sector, ranging from ammunition, radar and naval vessels to military vehicles, according to Camba.

Among the Philippines’ key copper regions are in Isabel on the island of Leyte, where the Philippine Associated Smelting and Refining Corporation runs an inactive copper smelter and the Tampakan mine in Mindanao. Officials said in 2021 that the mine could potentially yield 375,000 tonnes of copper and 360,000 ounces of gold a year over 17 years.

Camba said the two sites could potentially form a fully integrated copper value chain.

For the Philippines to realise its ambition to become a key producer in critical minerals, it has to introduce sweeping measures to cut red tape, boost its infrastructure and combat corruption, according to analysts.

“The Philippines has the resources, by some estimates, the world’s fifth-largest mineral reserves, but it still needs a strategy. Before the Philippines can look to allies to scale up its processing capacity, the focus first needs to be on structural reform, and that comes from Manila,” Claffey said.

Camba said that corruption represented a “direct tax on investment competitiveness”, noting that Manila was determined to tackle the scourge, as shown by the prosecution of officials over the flood control scandal.

“Until the cost of doing business comes down and investors trust that regulatory commitments will be honoured, the Philippines will remain a second-tier mineral economy regardless of how many bilateral agreements it signs.”