COVER SHEET

C S 2 0 0 8 1 1 5 3 0
SEC Registration Number

N I C K E L A S I A C O R P O R A T I O N A N D S U B S I

D I A R I E S
(Company’s Full Name)

2 8 t h F l o o r N A C T o w e r , 3 2 n d S t r e e t

B o n i f a c i o G l o b a l C i t y , T a g u i g

C i t y
(Business Address: No. Street City/Town/Province)

Emmanuel L. Samson (632) 892-6669

(Contact Person) (Company Telephone Number)

st
1 2 3 1 1 7 - A 0 6 1 Friday

Month Day (Form Type) Month Day

(Fiscal Year) (Annual Meeting)

Not Applicable
(Secondary License Type, If Applicable)

CRM N/A
Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

88 P
=2,962.0 million P
=22.4 million

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

STAMPS
Remarks: Please use BLACK ink for scanning purposes.

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 S.E.C. Number CS200811530
File Number______

NICKEL ASIA CORPORATION

(Company’s Full Name)

28th Floor NAC Tower, 32nd Street,

Bonifacio Global City, Taguig City
(Company’s Address)

+63 2 892 6669 / +63 2 798 7622

(Telephone Numbers)

December 31
(Fiscal Year Ending)
(month & day)

SEC FORM 17-A Annual Report

Form Type

_____________________________
Amendment Delegation (If applicable)

December 31, 2017

Period Ended Date

__________________________
(Secondary License Type and File Number)

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NICKEL ASIA CORPORATION
17-A ANNUAL REPORT 2017

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TABLE OF CONTENTS Page No.

PART I – BUSINESS AND GENERAL INFORMATION

Item 1. Business ……………………………………………………………………………………………………………………. 1
A. Overview
B. Corporate Objective
C. Product Mix
D. Subsidiaries
E. Recent Developments
F. Our Strategy
G. Key Strength
H. Percentages of Revenues for 3 Years
I. Sources of Raw Materials and Supplies
J. Government Regulations and Approvals
K. Competition
L. Nickel Ore Trade and Outlook
M. Exploration and Development
N. Environment and Rehabilitation
O. Social Responsibility
P. Employees
Q. Risks Related to Our Business and Industry

Item 2. Properties ………………………………………………………………………………………………………………… 26

A. Mining Properties and Permits
B. Mineral Resources and Reserves
C. Processing Facilities
D. Real Properties
E. Service Contracts
F. Liens and Encumbrances

Item 3. Legal Proceedings ……………………………………………………………………………………………………… 33

Item 4. Submission of Matters to a Vote of Security Holders …………………………………………………. 34

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters ……………………… 34
A. Market Information
B. Holders
C. Dividends
D. Recent Sales of Unregistered or Exempt Securities

Item 6. Management’s Discussion and Analysis of Financial Position and

Results of Operations ………………………...………………………………………………………………………. 36

Item 7. Financial Statements ………………………………………………………………………………………………….. 50

Item 8. Information on Independent Accountants and other Related Matters …..…………………… 50

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer………………………………………………………………. 52
A. List of Directors and Executive Officers of the Issuer
B. Significant Employees/Executive Officers
C. Family Relationship
D. Involvement in Certain Legal Proceedings

TABLE OF CONTENTS Page No.

Item 10. Executive Compensation and Stock Option Plan ………………………………………………………. 58

Item 11. Security Ownership of Certain Beneficial Owners and Management …………............... 60
A. Security Ownership of Certain Record and Beneficial Owners
B. Security Ownership of Management
C. Voting Trust Holders of 5% or More
D. Changes in Control

Item 12. Certain Relationship and Related Transactions ……………………………………………………….. 61

PART IV – EXHIBITS AND SCHEDULES
Item 13. Exhibits and Reports on SEC Form 17-C …………………………………………………………………… 67
1. Exhibits
2. Reports on SEC Form 17-C
SIGNATURES

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

PART I – BUSINESS AND GENERAL INFORMATION

Item 1. BUSINESS

A. OVERVIEW

Nickel Asia Corporation (“the Company, Parent Company, NAC”) was incorporated on July 24,
2008 with the Philippine Securities and Exchange Commission (SEC) and was listed with the
Philippine Stock Exchange on November 22, 2010.

We export saprolite and limonite ore to customers in Japan, China and Australia. Our customers
use our ore for the production of ferronickel and nickel pig iron (NPI), both used to produce
stainless steel, and for the production of pig iron used for carbon steel. We are also the exclusive
supplier of limonite ore from our Rio Tuba mine to the country’s first hydrometallurgical nickel
processing plant owned by Coral Bay Nickel Corporation (CBNC), where we have a 10% equity
interest. CBNC became operational in 2005 and currently operates at a capacity of 24,000 tonnes
of contained nickel and 1,500 tonnes of contained cobalt per year in the form of a mixed nickel-
cobalt sulfide. It has proven to be the world’s most efficient facility using the high-pressure acid
leach (HPAL) process.

In 2010, we made an investment of P =4.4 billion for a 22.5% equity interest in the country’s
second hydrometallurgical nickel processing plant under Taganito HPAL Nickel Corporation
(THNC). The plant started its commercial operation in October 2013, and currently operates at a
capacity of 30,000 tonnes of contained nickel and 1,500 tonnes of contained cobalt per year in
the form of a mixed nickel-cobalt sulfide. Our Taganito mine supplies all of the limonite ore for
the plant. At a total project cost of US$1.7 billion, the plant represents the single largest
investment in the Philippine minerals sector.

In 2016, the Parent Company made a strategic decision to reduce our ownership in the Taganito
plant from 22.5% to 10.0%, the same equity level that we have in the Coral Bay plant. While the
Taganito and Coral Bay plants are globally recognized to be of the highest quality and operating
efficiency, as with most other nickel processing plants worldwide, profitable operations cannot
be achieved at current low nickel prices, while the Taganito plant in particular requires further
shareholder funding in order to complete a number of capital expenditure projects in the
pipeline.

The reduction in our equity was achieved by a sale of shares to the majority owner of the plant
and one of our major shareholders, Sumitomo Metal Mining Co., Ltd. (SMM). The sale, concluded
on October 17, 2016, resulted in an inflow of P
=2,037.2 billion and a gain of P
=239.6 million.

Apart from our four operating mines, we have other properties in various stages of exploration
for nickel, while continuing to seek opportunities in copper and gold. In November 2010, we
concluded the purchase of Cordillera Exploration Co., Inc. (CExCI) from Anglo American
Exploration (Philippines), Inc. (Anglo American), with four properties in the Central Cordillera of
northern Luzon that are prospective for gold and copper. The purchase marks our first step in our
vision to become a diversified mineral resource company. In November 2011, SMM acquired 25%
equity in CExCI with an option to purchase additional shares to increase its total equity to 40%.

In 2015, CExCI identified a new property in the province of Zambales for exploration and
development under Newminco Pacific Mining Corporation (Newminco), which is also prospective
for gold and copper. In relation to this, SMM put an additional investment of US$2.8 million to
increase its ownership in CExCI from 25% to 40%. Newminco is the holder of exploration permit
(EP) of areas located in Zambales.

In August 2015, we also concluded the purchase of 100% equity interest in Geogen Corporation
(Geogen), which is the claim owner of the Isabela Nickel Project in Dinapigue, Isabela.

We also moved into the area of renewable energy and power generation. We are completing the
construction of a 10 megawatts (MW) diesel power plant at a cost close to P =900.0 million. Power
will be sold to the Surigao del Norte Electric Cooperative, Inc. under a Power Supply Agreement.
The plant is designed to alleviate the shortage of power particularly in Surigao City, and expected
to be operational in 2018.

Our entry into the renewable power business was formalized in 2015 with the conversion of a
=P446.0 million loan to equity and an additional equity infusion of P =474.0 million, which
correspond to an equity ownership in Emerging Power, Inc. (EPI) of 66%. In 2016, the Parent
Company subscribed to additional common shares of EPI for P =660.0 million and this increased the
Parent Company’s equity interest in EPI to 70.92%. As at December 31, 2017, the Parent
Company’s equity interest in EPI stood at 86.29% as a result of fresh equity infusion of P
=1.5 billion
in September 2017.

EPI’s mission is to engage in power generation exclusively from renewable sources. EPI has a
number of Renewable Energy Service Contracts, principally a 100 MW solar and 50 MW wind
service contract under Jobin-SQM, Inc. (Jobin), located in the Subic Bay Freeport Zone; two
geothermal service contracts under Biliran Geothermal, Inc. (BGI), in the province of Biliran,
Leyte; and a geothermal service contract under Mindoro Geothermal Power Corp. (MGPC) in
Naujan, Oriental Mindoro.

Jobin completed 32 MW of solar power early in 2017. In the absence of a new feed-in-tariff by
government, a decision has been made to suspend any further development work until power
sales contracts are obtained.

With respect to Biliran geothermal project, where five (5) wells have been drilled by EPI’s 40%
partner, Biliran Geothermal Holdings, Inc., fluid management studies have been completed on
one particular well, with positive results with respect to acid control. Given this outcome, a
decision has been made to proceed with the first 5 MW plant once Power Sales Agreements have
been obtained. It is expected that this first plant will be operational in 2018.

In the Montelago project, the two (2) geothermal wells drilled in 2016 have not reached
sufficiently high temperatures to warrant moving ahead to development. Various options are
currently being considered in order to drill the northern portion of the geothermal field.

In 2017, we saw continued developments in the following areas:

Jobin has fine-tuned its Operations & Maintenance, keeping a lean team that is performing at and
above solar energy industry standards. With its existing 32 MW solar energy facility running
smoothly for over a year, and its infrastructure (i.e. transmission, substations, roads, warehouse,
site office, etc) is in place. Jobin has no interconnection congestion issues, as it is the only
renewable energy facility that is connected to the main Philippine Grid via a 230 kV transmission
line. Jobin has been selling its electricity output via the Wholesale Electricity Spot Market (WESM)
since its commercial operations date, and the actual average for 2017 was higher than solar off-
take agreements being closed at this same time period. Once higher than spot market off-take
agreements are in place, Jobin is primed to continue solar/wind equipment installation and scale
up fast

MGPC’s northern portion of its exclusive service contract area has undergone a more detailed
assessment in 2017 by GeothermEx – a leading American geothermal advisory firm. They have
also confirmed that the existing wells in the southern portion can net out at least 3.5 MW of
power. Combined with their assessment for the northern portion of net capacity of at least 18
MW, MGPC may be commercially operational within 3 years’ time. EPI has been in discussions
with a few rare groups familiar with geothermal investments to strategize how to further
minimize drilling risk. Once firm, this wholly owned EPI subsidiary is poised to deliver much
needed power to the island grid of Mindoro.

BGI successfully split its existing Geothermal Renewable Energy Service Contract (GRESC) into two
in 2017. Where GRESC previously almost covered the entire island province of Biliran, the new
setup delineates the southern portion as Biliran 1 and the northern portion as Biliran 2. Biliran 1
covers the existing developed infrastructure (i.e., 4 well pads, 8 standard deep wells, roads, etc)
and has a Probability-90 Assessment that confirms a 100 MW capacity. Biliran 2 is the yet-to-be-
developed area save for surface studies and a Probability-50 Assessment of some 170 MW
capacity. This delineation allows BGI to focus on the more immediately executable Biliran 1 and
gives BGI more time to develop Biliran 2. For the rest of 2017, Biliran 1 continued its facility
maintenance and Biliran 2 has begun its Information Education and Communication Campaign
with its local communities and the local government unit (LGU), reconnaissance surveys, and
acquisition of permits.

With our foray into the area of renewable energy, we are slowly becoming a group more focused
on harnessing the potential of our natural resources to benefit our communities and the country
in general.

Fundamental to the way we do business as a responsible corporate citizen is our commitment to

operate in a sustainable manner, protecting the environment, nurturing active communities and
ensuring the safety and well-being of everyone involved in our operations. For this we have been
recognized time and again, by the Government, the industry and by other award-giving bodies.

As an evolving natural resources company, we are committed to responsible mining and to the
highest standards in everything that we do.

B. CORPORATE OBJECTIVE

We are focused on growth. At the same time, we take our responsibilities toward safety,
environmental protection, community relations and development seriously. We believe that
sustainable development is the only way forward for any mining operation and we exert great
effort to achieve its principles. We are committed to responsible mining and to running every
facet of our operations in a world-class manner.

We are also committed to provide the present and future generations a better life with clean and
renewable energy which is cost effective, reliable, sustainable, and environmentally friendly.

C. PRODUCT MIX

We produce two types of nickel ore, namely saprolite and limonite. We define saprolite as nickel
ore with iron content of less than 20% and limonite as nickel ore with iron content of 20% or
higher.

We ship out two types of saprolite ore: high-grade and midgrade. High-grade saprolite has a
nickel content of about 1.8% and above while mid-grade saprolite ore has a nickel content of
between 1.3% to 1.6%.

Most of our high-grade saprolite ore were sold to Pacific Metals Co., Ltd. (PAMCO), who use the
material as feed for its ferronickel smelters. Our mid-grade saprolite ore were sold to Japanese
and Chinese clients. Our Chinese clients use the material as feed for electric furnaces for the
production of high and medium-grade NPI.

We sell three types of limonite: mid-grade, high-iron, and low-grade. Mid-grade limonite ore has
a nickel content of between 1.2% to 1.25% and an iron content of 37% to 40%. High iron limonite
ore has a nickel content of less than 1% and an iron content of 48% to 50%. Low-grade limonite
ore has a nickel content of 1.0% to 1.2% and an iron content of at least 30%.

Our mid-grade limonite ore were sold to Chinese customers who use the material as feed for
blast furnaces for the production of medium-grade NPI. We also sold this material to an
Australian customer, Queensland Nickel Pty. Ltd., which uses the material as feed for its nickel
and cobalt refinery. Our high-iron limonite ore was sold to Chinese customers who use the
material as feed for blast furnaces for the production of low-grade NPI. Finally, low-grade
limonite ore from Taganito and Rio Tuba were utilized as feed for the Taganito and Coral Bay
HPAL plants, respectively.

D. SUBSIDIARIES

The Parent Company and its subsidiaries were separately incorporated and registered with the
SEC. Below are the Parent Company’s ownership interests in its subsidiaries:

Effective Ownership
2017 2016
Subsidiaries
Hinatuan Mining Corporation 100.00% 100.00%
Cagdianao Mining Corporation 100.00% 100.00%
Samar Nickel Mining Resources Corporation 100.00% 100.00%
(a)
La Costa Shipping and Lighterage Corporation 100.00% 100.00%

(Forward)
Geogen Corporation 100.00% 100.00%
(b)
Falck Exp Inc. 88.00% 88.00%
Cordillera Exploration Co., Inc. 71.25% 71.25%
(c)
Newminco Pacific Mining Corporation 71.25% 71.25%
Taganito Mining Corporation 65.00% 65.00%
Rio Tuba Nickel Mining Corporation 60.00% 60.00%
Emerging Power Inc. 86.29% 70.92%
(d)
Mindoro Geothermal Power Corporation 86.29% 70.92%
(d)
Manta Energy, Inc. 86.29% 70.92%
(d)
Biliran Holdings Inc. 86.29% 70.92%
(d)
Jobin-SQM, Inc. 86.29% 70.92%
(d)
Biliran Geothermal Inc. 51.77% 42.55%
(d)
Mantex Services, Inc. 43.15% 35.46%

(a ) Indirect ownership through HMC

(b ) Indirect ownership through HMC, CMC and TMC
(c ) Indirect ownership through CExCI
(d ) Indirect ownership through EPI

Hinatuan Mining Corporation

HMC was incorporated on October 9, 1979 and was granted rights over the Taganaan property in
1980. Development of the property commenced in 1981 and the first commercial shipment from
the Taganaan mine was made in 1982. The size of the property was expanded in 1983 with the
acquisition of additional claims on adjacent properties.

Cagdianao Mining Corporation

CMC was incorporated on July 25, 1997 and acquired the right to operate the Cagdianao mine in
1998.

Samar Nickel Mining Resources Corporation (SNMRC)

SNMRC was incorporated on March 11, 2010, and is primarily engaged in the exploration, mining
and exporting of mineral ores. SNMRC has not yet started commercial operations.

La Costa Shipping and Lighterage Corporation (LCSLC)

LCSLC was incorporated on October 23, 1992, and is primarily engaged in the chartering out of
Landing Craft Transport (LCT) and providing complete marine services. LCSLC was acquired by
HMC in April 2010. In May 2014, LCSLC sold all of its LCTs to HMC for a consideration.

Geogen Corporation
Geogen was incorporated on October 9, 1998, and is primarily engaged in the exploration,
exploitation and mining of metallic and non-metallic minerals, including, but not limited to,
nickel, iron, cobalt, chromite and other associated mineral deposits. Geogen was acquired by the
Parent Company in August 2015. Geogen has not yet started commercial operations.

On March 5, 2018, the SEC approved Geogen’s application to change its corporate name to
Dinapigue Mining Corporation.

Falck Exp Inc. (FEI)

FEI was incorporated on November 22, 2005, and is primarily engaged in the business of
exploring, prospecting and operating mines and quarries of all kinds of ores and minerals,
metallic and non-metallic. FEI is currently on a dissolution phase.

Cordillera Exploration Co., Inc.

CExCI was incorporated on October 19, 1994 primarily to engage in the business of large-scale
exploration, development and utilization of mineral resources. CExCI has a number of mining
properties at various stages of exploration. It is currently not engaged in any development or
commercial production activities.

Newminco Pacific Mining Corporation

Newminco was incorporated on October 9, 2006 and is primarily engaged in the exploration,
mining, development, utilization, extraction, beneficiation and marketing of minerals and mineral
resources. Newminco was acquired by CExCI in December 2015.

Taganito Mining Corporation

TMC was incorporated on March 4, 1987, and is primarily engaged in the mining and exporting of
nickel saprolite and limonite ore, and exploration activities. The first commercial shipment from
the Taganito mine was made in 1989. TMC also provides services to THNC which involves the
handling, hauling and transportation of materials required in the processing operations of THNC.

Rio Tuba Nickel Mining Corporation

RTN was incorporated on July 15, 1969 to develop the nickel ore deposits discovered at the Rio
Tuba mine site in 1967. It was granted rights over the Rio Tuba property in 1970 and commenced
mining in 1975. RTN made its first commercial shipment in 1977. RTN also provides non-mining
services required in the processing operations of CBNC.

Emerging Power Inc.

EPI was incorporated on October 16, 2007, and is primarily engaged in the renewable energy
business. EPI was acquired by the Parent Company by way of loan conversion into equity in July
2015. EPI is the holder of GRESC No. 2014-02-054. On February 16, 2016, the Department of
Energy (DOE) approved EPI’s application to assign its rights and obligations under the GRESC to
MGPC under Certificate of Registration No. 2016-02-060.

Mindoro Geothermal Power Corporation

MGPC was incorporated on May 7, 2014, and is primarily engaged in the renewable energy
business. MGPC project is estimated to supply 40 MW of power over twenty five (25) years.

Manta Energy Inc. (MEI)

MEI was incorporated on May 21, 2007, and is primarily engaged in power business, including but
not limited to power generation, power trading and supply to retail customers and end users. On
July 5, 2016, the Energy Regulatory Commission (ERC) approved MEI’s registration as Registered
Electric Supplier for a period of five (5) years, and renewable thereafter.

Biliran Holdings Inc. (BHI)

BHI was incorporated on July 31, 2015, and is primarily engaged in investing in and holding of
assets of every kind and description, as and to the extent permitted by law. It is also registered,
within the limits prescribed by law, to engage in the business of infrastructure, power generation,
real estate, manufacturing, trading and agribusiness and to pay other evidences of indebtedness
or securities of this or any other corporation.

Jobin-SQM, Inc.
Jobin was incorporated on January 6, 2010, and is primarily engaged in power business, including
but not limited to power generation, power trading and supply to retail customers and end users.
Jobin is the holder of Solar Energy Service Contract (SESC) No. 2013-10-039 and Wind Energy
Service Contract (WESC) No. 2013-10-062 which both covers an area in the municipalities of
Morong and Hermosa, Bataan. Jobin was acquired by EPI in July 2015.

Biliran Geothermal Inc.

BGI was incorporated on October 31, 2007. The principal activities of BGI are to explore, exploit,
discover, develop, extract, dig and drill for, produce, utilize, refine, treat, process, transport,
store, market, sell, use, supply, experiment with, distribute, manufacture, or otherwise deal in,
any substance, minerals or otherwise, which by itself or in contribution with other substances
generate or emanate heat or power and to enter into and perform service contracts including
geothermal services. BGI’s project, the Biliran Geothermal twenty-five (25) year concession, was
estimated to supply 50 MW of power to the grid but according to research conducted by BGI, it
can further produce up to 60 MW. BGI was acquired by BHI in December 2015. In 2014, BGI
received the Confirmation of Commerciality for the Biliran Geothermal Project from the
Philippine Government through the DOE.

Mantex Services Inc. (Mantex)

Mantex was incorporated on March 26, 2012. Mantex is established primarily to provide
technical, financial and public relations advisory, management and investments services for
infrastructure projects.

E. RECENT DEVELOPMENTS

Additional Investment in EPI and Conversion of Loan into Equity

On August 4, 2017, the Board of Directors (BOD) of the Parent Company approved the following:
a. Subscription to EPI’s 1,190,476,190 shares at P1.26/share or a total of P1,500.0 million. The
additional subscription increased the Parent Company’s equity ownership in EPI from 70.92%
to 86.29%.

b. Conversion into equity of the existing loan granted by the Parent Company to EPI amounting
to P1,500.0 million, subject to the SEC’s approval of the increase in authorized capital stock
of EPI.
c. Grant of new loan facilities to EPI amounting to a total of P450.0 million.

Commercial Operations of Jobin’s Sta. Rita Solar Power Project

Jobin completed an additional 25.19 MW last March 8, 2017. This was done using a more
efficient mono crystalline solar module and at a lower cost per kilowatt hour. For the rest of the
year, Jobin continuously fine-tuned its operations, security, and infrastructure. With this, the
total installed capacity of Jobin’s Sta Rita Solar Power Project stands at 32.33 MW.

F. OUR STRATEGY

Our strategy is designed to maximize the profitability of our existing base of operations while
driving growth through our continuing involvement in downstream processing, exploration of our
portfolio of properties, acquiring new properties and grow our renewable business. The key
elements of our strategy are to:

1) Pursue our brownfield and greenfield exploration programs to upgrade our existing
resources, and develop new reserves and resources - We have an extensive exploration
program involving both brownfield exploration, which consists of work at our existing
operations to extend resources and to upgrade resources to reserves; and greenfield
exploration, which involves exploring and delineating nickel lateritic deposits in our existing
exploration properties. We own approximately 100 man-portable drilling rigs that are
suitable for drilling lateritic deposits in an economic manner.

2) Acquire new properties or enter into operating agreements or joint ventures - We believe
that there is significant exploration potential in the Philippines for lateritic nickel deposits
and we intend to seek opportunities to increase our reserves of saprolite and limonite ore.
Most prospective areas in the country are already subject to registered mineral claims, so we
intend to access new exploration properties by acquiring rights from, or entering into joint
ventures with, the applicable claim owners. In doing so, we will carefully evaluate such
properties to ensure that the terms we enter into will commensurate with the potential of
the properties we seek to acquire. In 2015, the Parent Company acquired the 100% equity
interest of Geogen, the claimowner of Isabela Nickel Project.

3) Continue with gold and copper prospects - The Philippines is well-endowed not only with
lateritic nickel but also with gold and copper. World-class deposits have been discovered and
substantial quantities of these metals have been mined in the past. We believe that the
exploration potential nevertheless remains significant. In order to take advantage of this
potential, we entered into an agreement to purchase CExCI from a subsidiary of Anglo
American. CExCI has four groups of mineral claim in northern Luzon that are prospective for
gold and copper mineralization. Two of these four claims are located at Mankayan and the
remaining two claims are located at Manmanok property and Kutop. CExCI remains active in
evaluating properties for possible acquisition. We believe that our extensive local
knowledge, the experience of a number of our managers and technical staff in these metals
and the quality of these properties make this acquisition an important step in our strategy to
evolve into a diversified mining group. In 2015, the Parent Company acquired Newminco,
which is also prospective for gold and copper, through CExCI. Newminco is the holder of an
EP in the municipalities of Cabangan, San Felipe, and San Marcelino, Zambales.

4) Grow our renewable business - Our goal is to develop, own, and manage a portfolio of
renewable power assets in the Philippines that is diversified as to market, technology and
location. We believe that our entry into the power business through EPI, which will
concentrate exclusively on renewable energy sources, will provide significant opportunities

to grow our revenues and sustain financial returns. At the same time, this activity will help
alleviate the shortage of power in the country and contribute to economic growth in an
environmentally friendly manner.

G. KEY STRENGTH

Our company believes in its key strength, which is:

Profitability underpinned by low cost production.

The foundation of our business is our ability to operate profitably through the commodity price
cycle because of our low costs. We rank favorably in terms of mining costs when compared to
other nickel mining companies. There are a number of factors that account for our low cost
position:

x We benefit from favorable geologic conditions at all of our four mines. Our lateritic nickel
deposits are near-surface, blanket-like layered deposits with minimal overburden and
generally five (5) to thirty (30) meters thick, enabling us to conduct simple contour mining
using trucks and loaders without blasting, the use of chemicals or complex waste handling.

x Historically, there was generally no market for our limonite ore, which needs to first be
extracted in order to mine the more valuable saprolite ore. There was also no market for
lower grades of saprolite ore. Limonite ore was then regarded as overburden and placed in
stockpiles, while we undertook selective mining of high-grade saprolite ore, leading to
relatively high mining costs. Since 2005, we have found customers for our limonite ore with
the development of the China NPI market and the commissioning of the Coral Bay HPAL
facility. In 2008, we have also experienced increasing demand from our customers for our
low-grade saprolite ore and in 2010, we saw an emerging demand for the use of low-nickel,
high iron limonite ore for blending with iron ore in the production of carbon steel. Our ability
to sell limonite ore rather than place it in stockpiles as waste, and our ability to sell lower
grades of saprolite ore allows us to mine in a more efficient manner and reduces the unit
cost per wet metric tonnes (WMT) of nickel ore that we mine, thus improving our
profitability. The commencement of commercial operations of the Taganito HPAL facility in
2013 adds an additional outlet for our limonite ore.

x On average, the nickel deposits at our four operating mines are located within three (3) to
seven (7) kilometers from the applicable tidewater loading area, enabling easy hauling and
transportation by barges and LCTs to our customers’ ships. We own nine (9) LCTs and eleven
(11) barges and lease additional barges and LCTs as needed. The short hauling distance from
our mining operations to our loading facilities substantially contributes to our favorable cost
position.

x Because our lateritic nickel deposits are near surface and relatively shallow, the
rehabilitation of our mining areas is a straightforward process. The process generally involves
re-contouring of the mined areas, replacing the overburden and planting foliage. We
undertake progressive rehabilitation of our mined areas in order to spread costs, and the
nature of our deposits results in a relatively manageable level of rehabilitation costs.

H. PERCENTAGES OF REVENUES FOR 3 YEARS

The following table summarizes percentages of our revenues by year and region for the past
three fiscal years:

Philippines (CBNC and

Japan C hi na THNC) Australia Total
Sapro- Limo- Sapro- Limo- Sapro- Limo- Sapro- Limo- Sapro- Limo-
Year lite nite Total lite nite Total lite nite Total lite nite Total lite nite Total
2017 17% - 17% 62% 3% 65% - 18% 18% - - - 79% 21% 100%
2016 18% - 18% 50% 18% 68% - 13% 13% - 1% 1% 68% 32% 100%
2015 23% - 23% 39% 21% 60% - 15% 15% 1% 1% 2% 63% 37% 100%

I. SOURCES OF RAW MATERIALS AND SUPPLIES

The main supplies that we require to operate our business include diesel fuel, tires and spare
parts for our mining equipment. We buy diesel and aviation fuel and lubricants from Petron
Corporation (Petron) and/or Phoenix Petroleum Philippines, Inc. (Phoenix) and heavy mining
equipment, such as trucks and excavators, from four manufacturers, Volvo, Isuzu, Caterpillar and
Komatsu, through their Philippine distributors. In addition, we lease LCTs for use at our mine sites
during the shipping season. We believe that there are a number of alternative suppliers for all of
our requirements.

Our existing supply contract with Petron and/or Phoenix provides that they will supply the entire
actual requirement of the operating companies of the group for diesel and lubricants of highest
quality and based on the typical properties agreed in the contract.

Jobin has also entered into Engineering, Procurement, and Construction Management (EPC)
contract with SunSource Energy Private Limited (SSEPL) for the implementation of the entire
92.86 MW phase of the Sta. Rita Solar Power Project. The scope of the service agreement
between Jobin and SSEPL covers the designing, planning, engineering, procurement
(manufacturing/supply), construction/erection management, testing and commissioning of the
utility scale solar photovoltaic plant under Phase II.

J. GOVERNMENT REGULATIONS AND APPROVALS

In our mining operations, we are guided by clear and stringent parameters set forth by the
country’s national and local laws accordingly implemented by national, regional and local
agencies, namely: the DENR, the Mines and Geosciences Bureau (MGB), the Environment
Management Bureau (EMB), the Protected Areas and Wildlife Bureau, and the LGU. The more
significant regulations affecting our operations include the following:

Republic Act (RA) No. 7942 (Philippine Mining Act of 1995)

x Section 69 - requires an annual Environmental Protection and Enhancement Plan (EPEP) for
the rehabilitation, regeneration, revegetation, and reforestation of mineralized areas, slope
stabilization of mined-out areas, aquaculture, watershed development and water
conservation, and socioeconomic development
x Section 71 - requires mine rehabilitation for mined-out areas to the condition of
environmental safety, and the creation of a Mine Rehabilitation Fund

Consolidated DENR Administrative Order (CDAO) 2010-21 (CDAO for Implementing Rules and
Regulation of RA No. 7942)
x Section 171 - requires an Annual EPEP (based on the approved EPEP)
x Section 173 - requires the organization of a Mine Environmental Protection and
Enhancement Officer to be incorporated into the organization structure
x Section 185 - deputizes the Multipartite Monitoring Team to serve as monitoring arm, with
the team composed of representatives from DENR Regional Office, Department Regional

Office, EMB Regional Office, Contractor/Permit Holder, affected community/ies, affected

Indigenous Cultural Community/ies and environmental non-governmental organization
(NGO)
x Section 187 - requires a Final Mine Rehabilitation/Decommissioning Plan, including financial
requirements up to post-decommissioning

Executive Order (EO) No. 26 (National Greening Program) - mandatory reforestation activities
outside of mining contract/permit/lease/tenement areas

RA 9003 (Ecological Solid Waste Management Program) - requires waste segregation, promotes
recycling and sets guidelines for Materials Recovery Facility

RA 6969 and DAO 2013-22 - guidelines on proper handling and monitoring of toxic and hazardous
waste material

RA 8749 (Philippine Clean Air Act of 1999) - framework for air quality management program

RA 9275 (Philippine Clean Water Act of 2004) - framework for comprehensive water quality
management

RA 9371 (Indigenous Peoples’ Rights Act) - recognition, protection and promotion of the rights of
the Indigenous Cultural Communities/Indigenous Peoples

RA 9729 (Climate Change Act of 2009) - comprehensive framework for systematically integrating
the concept of climate change, in synergy with disaster risk reduction, in various phases of policy
formulation, development plans, poverty reduction strategies and other development tools and
techniques

DAO 2004-52 - Tree cutting permit

DAO 2015-07 - mandating Mining Contractors to Secure ISO 14001 Certification

Pursuant to the Administrative Order, NAC’s operating subsidiaries, TMC, RTN, CMC, and HMC,
underwent a yearlong process to identify all environmental impacts, address such impacts,
document an EMS that complies with the standards, and cascade down the EMS to all employees
for their full appreciation and compliance. Following two (2) audits conducted by the certifying
body, TÜV Rheinland, the operating subsidiaries all received their ISO 14001 Certification in 2016.

DAO 2016-1 - prescribing for an audit of metallic mining companies by the DENR
All our mining companies also abide by commitments stipulated in their Environmental
Compliance Certificate (ECC) and specified in their approved Contractor’s Plan of Mining
Operation.

Electric Power Industry Reform Act (EPIRA)

This EPIRA of 2001 brought about the “Unbundling of the System”. Whereas previously, all
aspects of the power industry were owned by the Philippine government under the National
Power Corporation (NPC), the EPIRA brought about privatization of the generation, transmission,
and distribution of electricity. NPC’s mandate was significantly reduced to providing electricity to
more difficult to reach and off-grid areas of the country.
x The EPIRA sought to bring about:
o Competitive Generation
o Regulated Transmission and Distribution
o Competitive Retail Electricity Providers
x The EPIRA established the WESM, unbundled the electricity tariff for greater transparency,
and seeks to provide open access to transmission and distribution lines for all industry
players.

10


x The EPIRA created the ERC as a purely independent regulatory body performing the
combined quasi-judicial, quasi-legislative and administrative functions in the power industry.
ERC is tasked to promote competition, encourage market development, ensure customer
choice and penalize abuse of market power in the power industry. In addition to its
traditional rate and service regulation functions, ERC focuses on consumer education and
protection, and promotion of the competitive operations in the power market.

Renewable Energy (RE) Law

The RE Act of 2008 encompass policies that relate to renewable energy and legislative
instruments that further encourage its growth - i.e. economic incentives.
x Section 13 states the government share in all renewable energy revenues: 1.5% for
geothermal energy and 1% for the rest.
x Section 15 outlines the general incentives: Income Tax Holiday (7 years), Duty-free
importation, Special Realty Tax Rates (1.5%), Corporate Tax Rate (10%), Accelerated
Depreciation, Zero Percent VAT Rate, Additional Cash Incentive for Off-grid Generation
Facilities, etc.

Pending Approval
TMC’s application for Mineral Production Sharing Agreements (MPSA) denominated as APSA No.
73-XIII for its La Salle Exploration project is pending reconsideration.

RTN’s applications for MPSA denominated as AMA IVB-144A and AMA IVB-144B for its Bulanjao
project are still pending approval before the DENR-EMB.

HMC’s application for renewal of MPSA No. 012-92-VIII for its Manicani Nickel Project in Guiuan,
Eastern Samar is pending approval before the DENR.

K. COMPETITION

We compete with both domestic Philippine nickel ore suppliers and foreign nickel ore suppliers
(primarily from Indonesia) in world nickel ore markets. Domestic competitors are CTP
Construction & Mining, Toledo Mining, and Platinum Group Metals Corp (PGMC), while foreign
competitors mainly include PT Aneka Tambang.

On our power business, the implementation of the EPIRA has paved the way for a more
independent and market-driven Philippine power industry. This has allowed for competition, not
limited by location, and driven by market forces. The sale of power and the dispatch of power
plants depend on the ability to offer competitively priced power supply to the market. The
Group’s power projects which are still either in the exploration or development stage will face
competition in the development of new power generation facilities as well as in the financing for
these activities.

L. NICKEL ORE TRADE AND OUTLOOK

Nickel Ore Trade

Nickel ore in the country is mainly exported to China and Japan. Primary nickel consumption in
China was estimated at 1,143 thousand tonnes in 2017, which accounted for 53% of global nickel
consumption, while 7% of the global nickel consumption can be attributed to Japan.

Chinese nickel production in 2017 was estimated at 588 thousand tonnes, of which 390 thousand
tonnes came from NPI. As per our research, nickel ore exported to China is estimated at 42
million WMT in 2017, which is almost same volume in 2016.

The nickel ore market recovered slowly as London Metal Exchange (LME) nickel price picked up
from the second half of 2017. Chinese demand for nickel ore became strong due to the strong
growth in Chinese stainless steel production.

11


Outlook for Nickel

Global nickel supply in 2017 was estimated at 2.040 million tonnes, while consumption was at
2.139 million tonnes, resulting to 99 thousand tonnes of shortage. The shortage continued since
2016, however, it is hard to offset 530 tonnes of oversupply from 2012 to 2015, resulting to low
level of LME nickel price in 2017.

The global nickel consumption increased by 5.9% on a year-on-year basis driven by the strong
growth in the Chinese stainless steel industry.

Around 60% of nickel supply is used for stainless steel production. Therefore, the growth in
stainless steel production is a key factor in the outlook for nickel. Global stainless steel
production in 2017 was estimated at 48 million tonnes, increased by 5.8% from the previous year,
of which, Chinese stainless steel production accounted for 25.7 million tonnes, which is 6.1%
increase on a year-on-year basis.

The strong demand for nickel following the strong growth in the stainless steel production in
2017 contributed to the nickel supply shortage, thus the decrease in global nickel inventory.
However, a new decision by the Indonesian government, issued in January 2017, relaxing their
ban on the export of nickel ore, provides the basis for uncertainty in the nickel market. As of
February 2018, Indonesian government issued nickel ore export quota amounting to 28.5 million
WMT.

M. EXPLORATION AND DEVELOPMENT

Nickel Resources
NAC covers a wide area of exploration properties and an exploration program encompassing:
1. Brownfield exploration - consisting of work at our existing operations to extend resources and
to
upgrade resources to reserves; and
2. Greenfield exploration - which involves exploring and delineating nickel lateritic deposits in our
existing properties.

We own more than one hundred (100) drilling units that have been designed specifically for
drilling near surface lateritic deposits in a quick and economical manner. We also have a pool of
experienced geologists and laboratories at each of our mine site to assess samples as required.

Summary of our exploration and development properties:

Bulanjao: Location:
• Total area of 3,604.5 hectares Palawan Island
• Conducted step-out drilling throughout the length of the Central
Bulanjao deposit Ownership:
RTN

Manicani: Location:
• MPSA covers 1,165 hectares and expires in 2017. Approval for the Island of
renewal of the MPSA is pending before the DENR. Manicani

Ownership:
HMC

12


Kepha Mining Exploration Corp. (Kepha): Location:

• Operating Agreement covers 6,980.75 hectares and expires in Surigao del Norte
2032
• Rights to the property are governed by an Operating Agreement Operating Rights:
entered into in February 2007 with Kepha TMC
• Application for renewal of the EP for the Kepha Property is
ongoing
• Follow-up exploration work and drilling was conducted in early
2013

La Salle Mining Exploration Company (La Salle): Location:

• Operating Agreement covers 6,824 hectares and expires in 2034. Surigao del Norte
However, the MPSA area applied for has been reduced to
2,234.958 hectares Operating Rights:
• Rights to the property are governed by an Operating Agreement TMC
entered into with La Salle in December 2006
• Found a nickel lateritic deposit on the southwestern portion of
the property and intend to conduct further exploration work on
this deposit

Dinapigue: Location:
• Covered by MPSA No. 258-2007-II Dinapigue,
Isabela

Ownership:
Geogen

Description of our Exploration and Development Projects

Bulanjao - The Bulanjao property is held by RTN. It has a total area of 3,604.5 hectares and is
situated immediately west of RTN’s mining operations. Our rights to the property are governed
by a mining lease contract.

RTN is in the process of converting its mining lease contracts on the Bulanjao Range, which is
adjacent to the current existing mining claim, into a MPSA with application code AMA-IVB-144A.
The Strategic Environmental Plan (SEP) clearance was issued by the Palawan Council for
Sustainable Development (PCSD) on September 1, 2015. An Environmental Impact Assessment
was already submitted to the EMB in order to secure the ECC. It is expected to undergo the
second round of technical screening in the near future. Partial drilling conducted in the past has
resulted in measured and indicated mineral resources of 24 million WMT of limonite ore with
average grades of 1.20% Ni and 34% Fe and 10 million WMT of saprolite ore with an average
grade of 1.81% Ni. Further drilling will be undertaken upon the conversion of the mining lease
contracts.

Manicani - The Manicani property is held by our subsidiary HMC. It has a total area of 1,165
hectares and is situated in Eastern Samar. Our rights to the property are governed by a MPSA
that was entered into by HMC in 1992 and which was subsequently assigned to SNMRC. The
application for the Deed of Assignment from HMC to SNMRC was endorsed to the MGB Central
Office for further evaluation and final approval. However, on June 1, 2014, a mutual rescission of
the said Deed of Assignment was executed by and between HMC and SNMRC and a copy of the
said rescission was received by the MGB on July 14, 2014.

13


We conducted mining at the Manicani site between 1992 and 1994 and extracted and sold a total
of 63,176 WMT of saprolite ore with an average grade of 2.45% nickel from the site. We
suspended mining at the site in December 1994 because low prevailing nickel prices made mining
the site uneconomical. We made shipments from stockpiles in 2001 and 2004. In 2004, a regional
Panel of Arbitrators rendered a decision recommending the cancellation of the MPSA on the
grounds that we had violated certain applicable environmental regulations. We disputed such
allegations and our MPSA was upheld by the Mines Adjudication Board of the DENR in September
2009.

To date, there is work to be done before mining operations can be resumed. Currently, we have
applied the renewal of the MPSA. In support of our application, we have received the necessary
endorsements from the host communities in the form of resolutions issued by the four (4)
barangays comprising Manicani Island, the Municipality of Guiuan, and the Province of Eastern
Samar. These endorsements, along with various presentations to be made to the MGB of Region
VIII and to the community, shall be part of our compliance with the government regulations
pertinent to the MPSA renewal.

Once the MPSA renewal is granted and the exploration period has been extended, we shall begin
our confirmatory drilling activities subsequently. We will commence mining once the suspension
order is lifted. Incidentally, a Letter of Authority to Dispose Nickel Stockpile was issued by MGB
on July 1, 2014. From May to August of 2016, five (5) shipments were realized for the disposal of
said stockpiles, afterwhich, shipments were suspended by MGB. This left behind almost 900,000
WMT of stockpiles which were already approved for disposal.

Kepha - The property has a total area of 6,980.75 hectares and is situated in the province of
Surigao del Norte, immediately southwest of our Taganito mine’s northern boundary. Our rights
to the property are governed by an Operating Agreement that we entered into in February 2007
with Kepha. Kepha entered into a MPSA in June 2009, giving it the right to explore, develop and
mine the property for an initial period of twenty-five (25) years.

Under the terms of our Operating Agreement, TMC has the right to explore, develop and operate
the property during the period of the MPSA in return for the payment of a royalty of 5% of gross
revenues from all metallic minerals sold from the property.

Exploration activities at the Kepha exploration project are still under negotiations with the
Mamanwa indigenous people group. The claim owner of the Kepha mining claim is also helping in
the negotiations with the Mamanwa indigenous people group. Exploration activities in the said
area can only resume after the favorable outcome of the said negotiations.

Despite the problem with the indigenous people’s community of barangay Camam-onan, TMC
continued to bring development projects to the barangay. Most notably is the renovation of the
barangay Camam-onan gymnasium to a suitable evacuation center. This move by TMC was
warmly welcomed by the LGU and constituents of Camam-onan.

Other activities are the proposal to donate one (1) fire truck to the LGU of Gigaquit. The proposal
is to condition the old fire truck of TMC and donate it to the LGU of Gigaquit. This is also
supported by a resolution from the LGU. The fire truck was donated to the LGU in the second
quarter of 2016.

On February 13, 2017, the DENR issued a show cause order directing Kepha to explain why its
MPSA should not be cancelled for being allegedly within a watershed, which is protected under
the Philippine Mining Act of 1995 and other existing applicable laws, rules and regulations. On
February 24, 2017, Kepha replied to the letter stating that based on the MGB Region XIII’s
downloadable tenement map, the MPSA area is outside of any existing legally proclaimed
watershed.

14


La Salle - The La Salle property is held by TMC. The property previously had a total area of 6,824
hectares but the application had been reduced to 2,234 hectares and further reduced to 972
hectares and is situated in the province of Surigao del Norte. It shares a common boundary with
the Kepha property on the southwest side of the property. Our rights to the property are
governed by an Operating Agreement that we entered into with La Salle in December 2006. La
Salle’s application for a MPSA is pending and TMC is responsible for completing the requirements
for approval of the MPSA.

Under the terms of the Operating Agreement, TMC will have the right to explore, develop and
operate the property once the MPSA is approved, in return for the payment of a royalty of 5% on
gross revenues from all metallic minerals sold from the property.

We have identified a nickel lateritic deposit on the southwestern portion of the property near the
boundary with the Kepha property and intend to conduct further exploration work on this
deposit.

Dinapigue - In 2015, the Parent Company acquired Geogen which holds the mineral property
within the area subject of MPSA No. 258-2007-II on August 4, 2015. The property is located in the
northeastern portion of Luzon, at the eastern foothills of the Sierra Madre mountains near the
coast in Brgy. Dimaluade, municipality of Dinapigue, province of Isabela. The project is known as
the Isabela Nickel Project which covers an area of 2,392 hectares. It is approximately 425
kilometers from Manila and accessible through 10 hours land travel.

While the construction of a permanent causeway was deferred pending the necessary permits
and additional engineering and design considerations, other development works within the
tenement was undertaken. These include repair & maintenance of access roads, construction of
offices and staff accommodation, topographic surveys of priority areas for development, and
establishment of environmental control measures and nursery facilities.

Gold and Copper Resources

The Philippines is located in a very complex tectonic and geological terrain. It is bounded on the
west by the east-dipping Manila Trench and on the east by the west-dipping Philippine Trench.
Because of the interaction of both these geological features, a resulting northwest-trending
Philippine fault, with its numerous major and associated branches, has rendered a distinct
archipelagic character to the ground. On a more global scale, the Philippines lie within the
"Pacific Rim of Fire", also known as the circum-Pacific belt, an area with a nearly continuous
series of oceanic trenches, volcanic arcs and/or plate movements.

But while the Philippine inhabitants have to suffer the devastating effects of earthquakes and
volcanic eruptions, these same geological processes have provided the favorable geological
settings for the deposition and/or emplacement of rich gold, copper, chromite, nickel and other
mineral deposits. The Philippines has long been acknowledged as one of the most richly
endowed in mineral resources. This claim is validated by the country’s long mining history which
can be traced back to the 15th century. In the 50’s to 70’s, particularly, the Philippines
maintained its position as one of the world’s top ten producers in gold, copper, chromite and
nickel.

Given this potential, our local knowledge, and the experience of a number of our engineers and
managers previously employed in gold and copper mining firms, a strategic decision was made to
diversify into these metals as the opportunities arise. Based on this strategy, we entered into an
agreement in August 2010 to purchase 100% of the outstanding shares of CExCI from Anglo
American, a subsidiary of Anglo American Plc. The sale pushed through on November 15, 2010.

15


In May 2011, we entered into a Participation and Shareholders' Agreement with SMM outlining
the terms of SMM’s equity participation in CExCI. In November 2011, based on the terms of the
said Agreement, SMM invested $1.5 million in CExCI in return for a 25% equity interest. In 2015,
SMM exercised its option to invest $2.8 million for an additional 15% equity, which, after the
approval of the increase in the authorized capital stock of CExCI would bring SMM’s total equity
in CExCI to 40%.

Zambales
In December 2015, CExCI acquired the 100% equity interest of Newminco, which holds an EP for
copper, gold, and related base and precious metals over an area located in Cabangan, San Felipe,
and San Marcelino in the province of Zambales. The decision to acquire Newminco was made
following the discovery of outcropping gold veins, the sampling of which in part returned good
assays for gold.

Exploration activities being conducted in the properties area include geologic mapping, sampling
and trenching. In 2016, Newminco proceeded to implement its exploration program in the
tenement designated as EP-001-2015-III which is located in the Municipalities of Cabangan, San
Felipe and San Marcelino in the Province of Zambales. Roughly twenty-five (25) kilometers of old
farm to market and logging roads were rehabilitated and maintained to gain access to the
property. Six hundred and sixty meters (660m) of exploratory trenches were dug, logged,
sampled and rehabilitated. Diamond core drilling was conducted with a total meterage of 3,799.5
meters. A total of 401 samples were sent to the laboratory for multi-element geochemical
analysis.

Results of the 2016 exploration campaign verified gold mineralization in a portion of the area
drilled. However, the work so far conducted precludes Newminco from defining any commercial
viability to the project. Rehabilitation works on disturbed areas were completed in early 2017.

In 2017, a tenement wide ridge and spur soil sampling program was implemented in order to
define targets for more detailed work. However, due to the expiration of the EP in July 2017, the
sampling was not completed. This program will resume once the first renewal of the EP is
granted.

Mankayan
The original Mankayan property is designated as AFTA-008, and is located within two regions, the
Cordillera Administrative Region (CAR) and Region I. The original area applied for within CAR is
57,559.5121 hectares while the original area applied for within Region 1 is 19,989.4879 hectares.
In early 2013, following exclusions/excisions from the application because of conflicts with
national park (Bessang Pass Buffer Zone) and a strong opposition from a municipality in Ilocos
Sur, the total area cleared by the MGB is approximately 54,940 hectares.

In July 2013, a board decision was made to partially convert the AFTA to an application for EP.
Since the area to be converted to EP straddles two regions and involves ancestral lands belonging
to separate tribes, two applications for EP were filed, namely: ExPA 116-Mankayan, covering an
area of approximately 5,157 hectares; and ExPA 116-Cervantes, covering an area of
approximately 6,012 hectares.

Following the conversion, AFTA-008, now consists of approximately 43,320 hectares and covers
portions of the provinces of Benguet and Mt. Province. The future plan for this remaining portion
is to further convert other parts into EP, hence eventually dropping the remaining AFTA
altogether.

All documents pertinent to the retained AFTA-008 have been submitted to the office of the
Regional Director MGB-CAR as of July 11, 2016. The application (AFTA-008) is now favorably
pending with the said office.

16


Mankayan/Cervantes
An application to convert a portion of AFTA-008 into an EP was filed with MGB-CAR in November
2013. Since the area to be converted straddles two regions and involves ancestral lands
belonging to separate tribes, the original application was split in two applications, namely ExPA
116 Mankayan, covering an area of approximately 5,157 hectares, and ExPA 116 Cervantes,
covering an area of approximately 6,012 hectares. The split has been necessary in order to
facilitate and simplify the required “Free and Prior Informed Consent” (FPIC) process for each
region covered. The process of the application for conversion took from November 2013 up to
December 2015.

The FPIC over the Mankayan area was immediately started in December 2015, and had
progressed to “Field-based Investigation” stage up to May 2016 when the process was suspended
to give way to the general elections. The FPIC process over Mankayan remained suspended
throughout the rest of 2016 and the whole year of 2017. This was done in order for CExCI to be
able to concentrate in advancing the FPIC process over Cervantes.

The 3rd General Assembly of the FPIC process is the final assembly to officially proclaim the
acceptance of the exploration work of CExCI by the Indigenous Cultural Communities. This was
conducted on March 13, 2017 and the results were 6 out of the 9 barangays voting for the
approval of the exploration of CExCI within their ancestral domain. Following this, some protests
and petitions to discredit the results of the general assembly were filed by some anti-mining
group and locals.

A validation exercise to investigate the protests was called by the National Commission on
Indigenous People (NCIP) Region 1 Director. The validation exercise was completed by end
November 2017, with the results and consequent report being very favorable to CExCI. What
remains to be done is for NCIP Regional Office to execute an order for the continuance of the
FPIC process. When the process is resumed, CExCI will proceed with the discussion and
negotiations for the "Memorandum of Agreement" (MOA) with the communities, plan out the
Community Development Programs, hence signing of the MOA, and eventually issuance of the
exploration permit by the MGB.

The Mankayan-Cervantes area is underlain by the same lithological units, and subjected to the
same tectonic regimes that have rendered the district highly faulted and fractured. Three
mineralization types can be found in the Mankayan sector: a) gold-rich porphyry copper
mineralization, with the Far South East and Guinaoang deposits as examples; b) high-sulphidation
copper and gold mineralization, as typified by the Lepanto Consolidated enargite ore body; and
c) intermediate-sulphidation gold and base metals mineralization, examples of which are the
Victoria and Suyoc ore bodies of Lepanto. Because of the similarities in lithological and structural
controls, it could reasonably be expected that the same controls and styles of mineralization in
the Mankayan sector are also present in the Cervantes sector.

Manmanok
The Manmanok property is located within the Municipality of Conner, Apayao Province. The
property is covered by EP-004-2006-CAR, which was first granted in October 2006 and
subsequently renewed twice with the corresponding reduction in area coverage. The final area
covered by the permit is approximately 4,996 hectares.

Following geophysical and geochemical work in an area that was deemed prospective for gold
mineralization, drilling activities were conducted from June 2012 to March 2013, with poor
results. Given this outcome and the difficulties experienced in operating in such a remote area, a
decision was made to terminate all work and relinquish the EP.

17


K uto p
The Kutop property is located within the municipalities of Malibcong and Daguioman in the
Province of Abra, and the municipality of Balbalan in the Province of Kalinga. The property, with a
total area of 13,268 hectares, is covered by an application for EP designated as EXPA-014-CAR.

As the area is ancestral land, CExCI is required to obtain a FPIC from the tribal group prior to the
grant of the EP. Considerable delays have been experienced with the NCIP in moving this process
forward. In the meantime, a deadline imposed by the MGB to complete this process has not been
met. A letter requesting for the extension of the deadline remains pending.

N. ENVIRONMENT AND REHABILITATION

Environmental Responsibility
We adhere to the principles and practices of sustainable development. We are committed to
complying and following environmental regulations by implementing best practices in managing
environmental impacts of our operations. Mining is a temporary land use and once mining
operations in our sites have ended, we plan to restore these properties to at least as close as
possible to their pre-mining condition or to develop alternative productive land uses for the
benefit of the surrounding communities. We are also committed to investing in programs and
technologies to mitigate the anticipated impacts of mining activities.

To manage environmental impacts, NAC's subsidiaries have an EPEP. This refers to the
comprehensive and strategic environmental management plan for the life of mining projects to
achieve the environmental management objectives, criteria and commitments including
protection and rehabilitation of the affected environment.

It is the operational link between the environmental protection and enhancement commitments
under CDAO 2010-21, consolidated implementing rules and regulations of RA No. 7942, as well as
those stipulated in the ECC under Presidential Decree 1586 and the Contractor’s plan of mining
operation.

Activities undertaken through our Annual EPEP include, among others:

x Rehabilitation of mine disturbed areas
x Reforestation
x Construction and/or maintenance of environmental facilities
x Solid waste management
x Hazardous waste management
x Air quality monitoring and water quality monitoring
x Preservation of downstream water quality

NAC also complies with the ECC conditions and the performance of commitments through our
Annual EPEP. This program is monitored and evaluated by the Multipartite Monitoring Team - a
multi-sector group headed by a representative from the Regional MGB and representatives of
LGUs, other government agencies, NGO, people’s organization, the church sector and the Group.
In 2017, we spent approximately P
=463.2 million on our EPEP.

Rehabilitation
In line with our commitment to maintain a sustainable environment in our areas of operation and
abide by the Philippine Mining Act of 1995, NAC regularly conducts onsite environmental
assessment to ensure that all its subsidiaries are strictly implementing progressive rehabilitation
within standard set by regulatory agencies.

The process begins with re-contouring, backfilling and leveling the land. After this, the area is
covered with top soil and other soil amelioration strategies to provide fertile ground for planting.
We follow the “Sequential Planting Method”, wherein we first plant fast growing species, then

18


they are provided with a vegetative cover within twelve (12) to eighteen (18) months to enable
planting of other species. Another successful method used is by utilizing large planting materials
which resulted to more than 90% survival and high growth rate.

Creating a biodiversity area with varied species of vegetation including native fruit bearings trees
will eventually be a source of food for a variety of wildlife species that will aid in rehabilitating
mine affected areas by way of succession and regeneration. The rehabilitation effort is managed
by our expert foresters with the help from indigenous peoples from the locality, and we have
demonstrated that a totally mined out area can be significantly re-vegetated in just twelve (12) to
eighteen (18) months.

The end result is a sustainably managed forest far better than the stunted vegetation before,
because of the mineralized nature of the soil.

As a means of restoring the disturbed areas from mining operations, NAC requires each mine site
to create a decommissioning/closure plan. The closure plan includes the process in which mined-
out areas will be rehabilitated and monitored, until the rehabilitation criteria set by MGB are
successfully satisfied. The program for final rehabilitation and decommissioning includes social
package which include livelihood components for the host communities and the affected
employees of our companies. The four operating subsidiaries have already developed their
respective plans for review and approval of the MGB.

Mine Rehabilitation is contained in the Philippine Mining Act of 1995. It’s part of a Sustainable
Development. It’s part of our best practice at our subsidiary, RTN. Following the “Sequential
Planting Method”, we first plant fast growing species called Pioneer Species such as Batino,
Acacia mangium, Acacia auriculiformis and others – all grown and nurtured in our nursery. These
species provide vegetative cover within three (3) years to enable the planting of “Climax Species”
like Apitong, Ipil, Narra, Almaciga, Agoho, Kamagong and others which we need tree shade to
grow. They form the core of the new forest stands. Native fruit-bearing trees are also planted to
provide a source of food for wild animals that will eventually populate the forest. To ensure the
survival of all these trees we have a forestry team. Composed mostly of indigenous people from
the surrounding areas, the team conducts a maintenance program like watering during summer,
ringweeding cultivation around seedlings, application of compost and other related activities. The
work of the team has achieved a survival rate of 80%-90% for the trees.

As of December 31, 2017, the Group recognized a provision for mine rehabilitation and
decommissioning of P=388.8 million. Funds for mine rehabilitation and other environmental
guarantee funds are established and deposited in trust funds, as required by the Philippine
Mining Act. We have P=392.4 million maintained in such funds as of December 31, 2017. This
amount complies with the minimum requirement under the law.

In 2017 and 2016, the Group has rehabilitated and reforested a total of 217 hectares and 219
hectares, respectively, with corresponding number of trees planted of about 429,360 and
452,412, respectively.

O. SOCIAL RESPONSIBILITY

Mining
We endeavor to be a valuable partner for economic and social progress. As a corporate citizen,
we recognize the great privilege of sharing the opportunities and the responsibilities afforded by
doing business in the country. The principles of sustainable development clearly identify for us
our obligation to make every effort and ensure that the benefits of development reach every
stakeholder.

19


Social development programs are created and implemented in all the mines. The focus areas of
these programs are designed to address needs of communities around the mine sites. These
programs are carried out through the Social Development Management Plans (SDMPs) and
Corporate Social Responsibility (CSR) activities of the Group. The main difference between the
two programs is that the SDMP is required by the government, while CSR is voluntary on the part
of the Group.

We engage with residents, LGUs, government agencies, local NGOs, international agencies and
other interested groups to understand concerns, identify needs and design projects that will
facilitate long-term and beneficial resource development. Each of our operating mines manages
their social expenditures through its respective SDMPs. These are five (5) year programs that
contain a list of priority projects identified and approved for implementation, in consultation with
the host communities. Each mine site has a community relations team that is in charge of
identifying and implementing SDMPs, and maintaining strong relationships with communities.
Annually, the Group sets aside a budget for SDMP projects that focus on health, education,
livelihood, public utilities and socio-cultural preservation. The implementation of the programs
are monitored, audited and evaluated by the MGB.

We also recognize the rights of the indigenous peoples and Indigenous Cultural Communities and
in compliance with the Indigenous Peoples Rights Act, we entered into agreements for royalty
payments and other assistance for their socio-economic well-being.

We respect and value each of our employees and observe the fundamental tenets of human
rights, occupational safety and non-discrimination in the work place. We implement a Safety and
Health Program in all our operating mines and we provide the equipment, training and resources
necessary to enable our employees to perform their work safely and without risk to their health.
We have committees and labor management groups that monitor our health and safety
programs. We believe that security, goes hand in hand with safety in the workplace and we have
security policies and systems founded on the protection of basic human rights and respect for
people.

Beyond the mandatory SDMP programs, we carry out our own CSR programs. The NAC’s CSR
Program is anchored on 2 central elements:

1. Community Partnership and Relationship Building

a) Establishing and maintaining positive relationships with communities by having them as
partners for community development and nation building
b) Partnership building with communities (both social and environmental) - community as
essential partners and not as mere beneficiaries
c) Community serving as the primary protector of the Company through strong partnership
and relationship

2. Leadership
a) Top management strongly supports the Group’s CSR initiatives
b) Social Investment - going beyond compliance and considering CSR not as an additional
cost but as an investment

Power
EPI and its subsidiaries are strongly committed to uplifting the lives of our host communities
through programs and activities that build lasting relationships and long-term opportunities.

Each of our project companies’ Community Relations team implements plans and strategies that
are distinctive to the host community but ultimately support the overarching theme of
sustainability. We engage through continuing dialogues to better understand and appreciate
collective concerns and apprehensions and create programs based on this. As such, the
campaigns are unique and dynamic that include stakeholder engagement, community services
and environmental activities.

20


Our initiatives have led to the establishment of the 3M Women’s Organization (3MWO) which
has empowered the housewives from our project company MGPC to start their own business to
augment their respective household incomes. 3MWO has participated in trade fairs, the most
recent of which was the Agri-Trade and Tourism Fair 2017. Likewise, Jobin, our project company
for the Subic solar farm facility, was recognized for its CSR undertakings for 2017 by the Subic Bay
Metropolitan Authority in the prestigious annual Mabuhay Awards. This was primarily to
acknowledge Jobin’s enduring efforts with the Indigenous People from the Aeta community.

We take pride in upholding exemplary safety practices and security management in the power
industry with the use of leading global technologies and strict implementation and compliance to
procedures in RE development. We emphasize the safety and well-being of everyone onsite. We
strive to maintain no lost time accidents in all of our active RE development locations. This
commitment is manifested with the DOE and the Safety and Health Association of the Philippines
Energy Sector, Inc.’s recognition of our project companies, BGI and Jobin, for the second
consecutive year in 2017 for Corporate Safety and Health Excellence.

We believe in partnerships that provide opportunities for the Filipino. We create value by
keeping families together through jobs generation or entrepreneurial initiatives that we
spearhead, always mindful of our commitment to improving and uplifting the lives of the people
in our host communities.

P. EMPLOYEES

As at December 31, 2017, we had 1,929 employees. Of these, 792 are employed in mining
operations.

The tables below show the distribution of our workforce (full time regular employees only):

Head Office
NAC CMC H MC TMC RTN C E XC I Geogen E PI JSI B GI M GP C ME I Total
Senior Management 17 1 1 2 1 - - 3 - - - - 25
Managers 12 1 1 3 2 2 - 9 - - - - 30
Supervisors 14 7 5 5 6 3 1 0 - - - - 41
Rank & File 20 3 6 8 11 1 2 10 3 2 6 4 76
Total 63 12 13 18 20 6 3 22 3 2 6 4 172

Minesite/Project Field Office

NAC CMC H MC TMC RTN C E XC I Geogen E PI JSI B GI M GP C ME I Total
Senior Management 1 1 1 1 1 - - - - - - - 5
Managers 1 9 14 38 36 - 6 - 1 - - - 105
Supervisors 4 81 55 196 125 - 7 - 2 - - - 470
Rank & File 8 134 91 425 484 - 1 - 30 3 1 - 1,177
Total 14 225 161 660 646 - 14 - 33 3 1 - 1,757

Each mine site and project field office also provides work opportunities for the communities. The
tables below show a breakdown of the workforce (full time, contractual, probationary and casual)
hired from the local communities in each area of operation:

Manpower from local

Minesite Indigenous People
community
Regular 1,165 78
Probationary 43 -
Seasonal 509 11
Total 1,717 89

Manpower from local

Plantsite Indigenous People
community
Regular 27 3
Probationary 2 -
Total 29 3

21


NAC complies with the government standards on the wages and labor practices in the Philippine
mining and renewable energy industries. Labor conditions, including wages and benefits, are
governed by Collective Bargaining Agreements (CBA) negotiated at the mine level. Rank and file
employees in each mine site are represented by their respective labor unions. Generally, CBAs
have terms of 5 years (with a provision for wage renegotiation after 3 years).

HMC’s CBA has been negotiated for a five (5) year period and subject for renegotiation in 2018.
The five (5) year CBA of RTN took effect in January 2016. CMC’s three (3) year CBA has been
agreed upon in 2016 and subject for renegotiation in 2019 while TMC’s five (5) year CBA has been
negotiated and agreed upon in 2015, with a wage renegotiation after 3 years. We believe that
our wages and conditions are among the best in the Philippine mining industry. We believe that
our relations with employees and their unions are generally good. The last strike at any of our
mines occurred in 1981.

Pension Costs
The Company provides its regular employees with a retirement benefit as part of its employment
benefits. The cost of providing benefits under the defined benefit plans is actuarially determined
using the projected unit credit method. This method reflects service rendered by employees to
the date of valuation and incorporates assumptions concerning the employees’ projected
salaries. The assumptions include among others, discount rates and future salary increase rates.

Defined benefit costs comprise the following:

x Service cost
x Net interest on the net defined benefit liability or asset
x Re-measurements of net defined benefit liability or asset

These amounts are calculated periodically by independent qualified actuaries.

Q. RISKS RELATED TO OUR BUSINESS AND INDUSTRY

Changes in, or more aggressive enforcement of, laws and regulations could adversely impact
our business - Mining operations and exploration activities are subject to extensive laws and
regulations. These relate to production, development, exploration, exports, imports, taxes and
royalties, labor standards, occupational health, waste disposal, protection and remediation of the
environment, mine decommissioning and rehabilitation, mine safety, toxic substances,
transportation safety and emergency response and other matters. In 2016, we saw a regulatory
environment that decidedly turned hostile against our industry. During the second half of 2016,
our four mines underwent an audit by personnel of the DENR. This was mandated by the DENR,
although in early 2016 all of our mines received their ISO 14001 Certification for Environmental
Management Systems, which process already involves audits by accredited third parties. The
audit team included representatives of civil society organizations, some of who do not look
favorably on our industry, and covered a review of permitting requirements and all aspects of the
mining operations with emphasis on environmental compliance and social acceptability.

Of a total of about 43 operating mines in the country, reportedly 13 passed the audit, including 3
of our mines - RTN, TMC and CMC. With respect to our Hinatuan mine, certain violations were
noted, which we contested. A DENR Technical Committee tasked to review the audits
recommended certain penalties. Regrettably, the Secretary ignored such recommendation and
Hinatuan received a closure order. We have appealed this to the Office of the President, which
stays the order.

Currently, the MICC is reviewing the results of the mine audits. It is our objective to vigorously
contest the adverse findings and the closure order.

22


Continued moratorium and delay in getting permits - The issuance of EO No. 79 put a
moratorium on the issuance of new permits pending legislation rationalizing the existing revenue
sharing schemes and mechanism have taken effect. We rely on permits, licenses, including MPSA,
operating agreements with third-party claim owners and land access agreements to conduct our
mining operations. The MPSAs and Operating Agreement with respect to our five operating
mines expire at different times between 2017 and 2047 and require renewal upon expiration. We
believe that we currently hold or have applied for all necessary licenses, permits, operating
agreements and land access agreements to carry on the activities that we are currently
conducting under applicable laws and regulations, licenses, permits, operating agreements and
land access agreements. We may be required to prepare and present to government authorities
data pertaining to the impact that any proposed exploration or production of ore may have on
the environment, as well as efficient resource utilization and other factors our operations may
influence. The process of obtaining environmental approvals, including the completion of any
necessary environmental impact assessments, can be lengthy, subject to public input and
expensive. Regulatory authorities can exercise considerable discretion in the terms and the
timing of permit issuance or whether a permit may be issued at all. Accordingly, the approvals we
need for our mining operations may not be issued or renewed or, if issued or renewed, may not
be issued in a timely fashion, or may involve requirements that may be changed or interpreted in
a manner which restricts our ability to conduct our mining operations profitably.

Furthermore, new laws or regulations, or changes in the enforcement or interpretation of

existing laws or regulations, may require substantial increases in our equipment and operating
costs in order to obtain approvals required by, or to otherwise comply with the conditions
imposed by, such new or revised laws and regulations. The need to obtain such new or revised
approvals or to comply with additional conditions may also cause material delays or interruptions
of one or more of our current or planned operations or developments or, to the extent such
approvals or conditions cannot be obtained or met on an economical basis, the curtailment or
termination of such operations or developments.

In addition, the local governments where our mines or exploration properties are located may
impose additional restrictions on our operations. For instance, the conversion of a mining lease
to a MPSA for our Mt. Bulanjao exploration property has been pending for several years due to
restrictions on mining above a certain elevation imposed by the PCSD. Recently, the Municipality
of Bataraza where the property is located, reclassified the Bulanjao area as open to mineral
development. A final endorsement from the PCSD is necessary before RTN can receive the MPSA
on the property.

Mine security - Our operations are prone to terrorist attacks and other insurgent atrocities due to
the location of mine sites. NAC ensures the safety of its communities and employees by working
with the government and tapping all available resources that may help prevent, or at the very
least, reduce terror-related incidents.

Each mining operation also employs a safety team under an accredited safety officer to
promulgate safety measures and procedures and to ensure that these are followed. Training
programs are also being conducted regularly.

On October 3, 2011, around 200 armed men occupied the TMC mine site and destroyed, among
others, equipment, building structures, materials and supplies by setting them on fire.
Accounting, personnel, laboratory and administrative records were destroyed. Approximately
=239.5 million worth of damages were sustained. Fortunately, no life or limb was lost. In
P
response to the incident, security was increased, not just in TMC, but all our mine sites. This was
done in close coordination with the Armed Forces of the Philippines tapping the services of the
Special Citizen Armed Forces Geographical Unit Active Auxiliary Companies.

23


NAC expends significant financial and managerial resources to comply with a complex set of
environmental, health and safety laws, regulations, guidelines and laws drawn from a number of
different jurisdictions. Our facilities operate under various operating and environmental permits,
licenses and approvals to satisfy these conditions. Failure to meet these conditions could result
in interruption or closure of exploration, development or mining operations or material fines or
penalties.

Aside from the above, we face a number of risks and the occurrence of any of these risks could
have an adverse impact on our business, results of operations and financial condition.

Volatility of LME nickel prices - Our revenue is largely dependent on the world market price of
nickel. The sales price of nickel ore is correlated with the world market price of nickel. The nickel
price is subject to volatile price movements over time and is affected by numerous factors that
are beyond our control. These factors include global supply and demand; expectations for the
future rate of inflation; the level of interest rates; the strength of, and confidence in, the U.S.
dollar; market speculative activities; and global or regional political and economic events,
including changes in the global economy. A growing world nickel market and increased demand
for nickel worldwide have attracted new entrants to the nickel industry, spurred the
development of new mines and expansion of existing mines in various regions, including
Australia, Indonesia and New Caledonia, and resulted in added production capacity throughout
the industry worldwide. An increasing trend in nickel prices since early 2003 have encouraged
new or existing international nickel producers to expand their production capacity. An increased
rate of expansion and an oversupply of nickel in world nickel markets in the future could reduce
future nickel prices and the prices we receive under our nickel ore supply agreements. If the sales
price of our nickel ore falls below our production costs, we will sustain losses and, if those losses
continue, we may curtail or suspend some or all of our mining and exploration activities. We
would also have to assess the economic impact of any sustained lower nickel prices on
recoverability and, therefore, the cut-off grade and level of our nickel reserves and resources.

Nickel mining is subject to a number of inherent risks that are beyond our control - Our mining
operations are influenced by changing conditions that can affect production levels and costs for
varying periods and as a result can diminish our revenues and profitability. Inclement or
hazardous weather conditions, the inability to obtain equipment necessary to conduct our
operations, increases in replacement or repair costs, prices for fuel and other supplies,
unexpected geological conditions and prolonged disruption of production at our mines or
transportation of our nickel ore to customers could have a significant impact on the productivity
of our mines and our operating results.

Other factors affecting the production and sale of our nickel ore that could result in increases in
our costs and decreases in our revenues and profitability include:
x equipment failures and unexpected maintenance problems;
x interruption of critical supplies, including spare parts and fuel;
x earthquakes or landslides;
x environmental hazards;
x industrial accidents;
x increased or unexpected rehabilitation costs;
x work stoppages or other labor difficulties; and
x changes in laws or regulations, including permitting requirements, the imposition of
additional taxes and fees and changes in the manner of enforcement of existing laws and
regulations.

The realization of any of these risks could result in damage to our mining properties, nickel ore
production or transportation facilities, personal injury or death, environmental damage to our
properties, the properties of others or the land or marine environments, delays in mining ore or
in the transportation of ore, monetary losses and potential legal liability.

24


Changes in Chinese demand may negatively impact world nickel demand and prices -
Approximately, 60% of our revenue in 2017 was derived from sale of nickel ore into China. The
Chinese market has become a significant source of global demand for commodities.

China’s consumption of primary nickel has increased by more than 30% over the past years,
according to CRU Strategies. While this increase represents a significant business opportunity,
our exposure to China’s economy and economic policies has increased. Our exposure to the
Chinese market and our short-term supply agreements with Chinese customers have resulted in
increased volatility in our business. In addition, increased Chinese demand for commodities has
led to high volatility in the freight rates for shipping our nickel ore. High freight rates can
discourage customers outside the Philippines from entering into long term supply agreements
with us due to the unpredictability of future shipping costs and can also affect the price Chinese
customers are willing to pay for our nickel ore.

China, in response to its increased demand for commodities, is increasingly seeking self-
sufficiency in key commodities, including nickel, through investments in nickel mining operations
in other countries. In addition, nickel ore is used in the production of stainless steel and a
slowdown in the stainless steel industry in China, or China’s economic growth in general, could
result in lower Chinese demand for our products and therefore reduce our revenue.

A prolonged decrease in production by the Coral Bay HPAL facility or the Taganito HPAL facility
- Approximately, 18% of our revenue from sale of nickel ore in 2017 was derived from sale of
limonite ore to the Coral Bay HPAL facility and Taganito HPAL facility. CBNC, the owner of the
Coral Bay HPAL facility, is only required to pay for limonite ore that is actually delivered to the
plant and there are no minimum take-or-pay provisions in the ore supply agreement governing
our sales of ore to the facility. The ore supply agreement with Taganito HPAL facility is also
subject to similar terms. In the event that the Coral Bay HPAL facility or the Taganito HPAL
facility, decreases production or experiences an unexpected prolonged shutdown, we would
reduce the volume of limonite ore that we deliver to the applicable facility or cease such
deliveries altogether.

Our reserves may not be replaced, and failure to identify, acquire and develop additional
reserves could have an adverse impact on our business, results of operations and financial
condition - Our sources of nickel ore are currently limited to the Rio Tuba, Taganito, Cagdianao
and Taganaan mines. Our profitability depends substantially on our ability to mine, in a cost-
effective manner, nickel ore that possesses the quality characteristics desired by our customers.
Because our reserves decline as we mine our nickel ore, our future success and growth depend
upon our ability to identify and acquire additional nickel ore resources that are economically
recoverable. We currently have seven (7) mining exploration properties in the Philippines and if
we fail to define additional reserves on any of our existing or future properties, our existing
reserves will eventually be depleted. The acquisition of Geogen in 2015 will increase the current
sources of nickel ore of the Group.

We face competition in selling nickel ore - We compete with both domestic Philippine nickel ore
suppliers and foreign nickel ore suppliers in world nickel ore markets. We compete with other
nickel ore suppliers primarily on the basis of ore quality, price, transportation cost and reliability
of supply.

Continued compliance with safety, health and environmental laws and regulations - We expend
significant financial and managerial resources to comply with a complex set of environmental,
health and safety laws, regulations, guidelines and permitting requirements (for the purpose of
this paragraph, collectively referred to as “laws”) drawn from a number of different jurisdictions.
We anticipate that we will be required to continue to do so in the future as the recent trend
towards stricter environmental laws is likely to continue. The possibility of more stringent laws or
more rigorous enforcement or new judicial interpretation of existing laws exists in the areas of
worker health and safety, the disposition of waste, the decommissioning and rehabilitation of

25


mining sites and other environmental matters, each of which could have a material adverse
effect on our exploration, operations or the cost or the viability of a particular project. Our
facilities operate under various operating and environmental permits, licenses and approvals that
contain conditions that must be met and our right to continue operating our facilities is, in a
number of instances, dependent upon compliance with these conditions. Failure to meet certain
of these conditions could result in interruption or closure of exploration, development or mining
operations or material fines or penalties.

Exposure to exchange rate fluctuations - Our nickel ore sales are denominated in U.S. dollars
while most of our costs are incurred in peso. The appreciation of the peso against the United
States dollar reduces our revenue in peso terms. Accordingly, fluctuation in exchange rates can
have an impact on our financial results. Additionally, in the past we have invested in derivative
instruments that increased in value as the peso appreciated relative to the U.S. dollar, and vice
versa. While our current policy is not to hedge our exposure to foreign currency exchange risk or
invest in this type of derivative instrument, we do, and may continue to, invest in U.S. dollar
denominated portfolio investments. Appreciation of the peso relative to the U.S. dollar could
result in a translation loss on our U.S. dollar-denominated assets.

Item 2. PROPERTIES

A. MINING PROPERTIES AND PERMITS

Below is a summary of the Group’s mineral agreements and permits, mineral resources and
reserves and processing facilities with respect to its mining operations.

RIO TUBA NICKEL MINING CORPORATION

A. Rio Tuba mine

MPSA No. 114-98-IV covering beneficiated nickel mine - On June 4, 1998, RTN was issued a
MPSA by the DENR covering an area of 990 hectares, situated at Barangay Rio Tuba, Bataraza,
Palawan, valid for twenty-five (25) years, renewable for another twenty-five (25) years subject
to mutually agreed upon terms and conditions. However, under the SEP for Palawan Act (RA
No. 7611), operations are currently prohibited within an area of 144 hectares classified as “core
zone” which are required to be fully and strictly protected and maintained free of human
disruption. Included in the “core zone” are all types of natural forest, areas above 1,000 meters
elevation, peaks of mountains or other areas with very steep gradients, and endangered
habitats and habitats of endangered and rare species.

MPSA No. 213-2005-IVB for Rio Tuba Nickel’s Limestone Quarry - On April 28, 2005, RTN was
issued another MPSA for a total area of 84.5364 hectares in Bataraza, Palawan. This MPSA was
also given a validity of twenty-five (25) years renewable for another twenty-five (25) years
subject to mutually agreed upon terms and conditions. This MPSA covers the Sitio Gotok
limestone pit, whereby limestones are being sold to CBNC and Unichamp Mineral Philippines,
Inc. (UMPI). The terms and conditions of this MPSA mirror the terms of MPSA No. 114-98-IV
granted to RTN, albeit covering mining of limestone rather than nickel products.

B. Bulanjao exploration
MPSA Application for expiring mining lease contracts - On June 17, 2003, RTN filed an
application to renew and to convert into MPSAs 14 existing mining lease contracts which were
due to expire from June 2003 to August 2004. The application included six small mining blocks of
new areas located within the said existing mining lease contracts.

No operations are currently being conducted in these areas. The application remains pending.

26


HINATUAN MINING CORPORATION

A. Taganaan mine
MPSA 246-2007-XIII - On July 25, 2007, HMC was granted a MPSA covering 773.77 hectares of
mineral land in Talavera, Taganaan, Surigao del Norte within Parcel II of the Surigao Mineral
Reservation for a period of twenty-five (25) years renewable for another twenty-five (25) years
subject to mutually agreed upon terms and conditions.

As discussed in the preceding section, we are contesting adverse findings and a closure order on
our Taganaan mine as we believe there is no basis for such actions.

B. Manicani mine
MPSA No. 012-92-VIII - The Manicani mine is subject to MPSA No. 012-92-VIII granted on
August 13, 1992 for 1,165 hectares. It has a term of twenty-five (25) years and is renewable for
another term not exceeding twenty-five (25) years subject to mutually agreed upon terms and
conditions. An application for the renewal of MPSA No. 012-92-VIII is pending approval before
the DENR.

On May 1, 2002, the DENR ordered the suspension of mining operations in Manicani pending a
conduct of investigation in view of the complaints of the Roman Catholic Bishop. In a decision
dated August 2, 2004, an arbitral panel of the Mines Adjudication Board, MGB, Region 8, the
MPSA was ordered cancelled. The basis for the decision of the Board was a violation of the ECC
with respect to dust pollution, reforestation and wastewater discharge. As a result of the
decision, mining operations in Manicani remain suspended. The mining operations were found
by the Board to be causing pollution of the seawater of Manicani Island. A Memorandum of
Appeal dated December 23, 2004 was filed by HMC and our MPSA was upheld by the Mines
Adjudication Board on September 4, 2009. Incidentally, a Letter of Authority to Dispose Nickel
Stockpile was issued by MGB on July 1, 2014. From May to August of 2016, five (5) shipments
were realized for the disposal of said stockpiles, afterwhich, shipments were suspended by
MGB. This left behind almost 900,000 WMT of stockpiles which were already approved for
disposal.

TAGANITO MINING CORPORATION

A. Taganito Mine
MPSA No. 266-2008-XIII - TMC was granted a MPSA on June 18, 2009 for a period of twenty-five
(25) years subject to renewal as may be mutually agreed upon. The MPSA covers an area of
4,862.7116 hectares located at the Barangays of Hayanggabon, Urbiztondo, Taganito and
Cagdianao, Municipality of Claver, Province of Surigao del Norte.

B. Kepha Exploration
MPSA No. 284-2009-XIII - On June 19, 2009, Kepha was issued a MPSA covering 6,980.75
hectares of mineral land situated in the Municipality of Claver, Province of Surigao del Norte
within Parcel I of the Surigao Mineral Reservation. The MPSA is for a period of twenty-five (25)
years and renewable for another twenty-five (25) years as may be mutually agreed upon by the
parties.

The terms and conditions of this MPSA mirror the terms of MPSA No. 266-2008-XIII granted to
TMC.

An Operating Agreement dated February 14, 2007 was executed by and between TMC and
Kepha for a term of twenty-five (25) years from February 14, 2007, whereby TMC shall maintain
the mining rights covering the mineral property in good standing for and on behalf of Kepha.

27


C. La Salle Exploration
La Salle filed an application for MPSA denominated as APSA No. 000073-XIII covering 6,824
hectares of mineral land situated at Brgy. Sicosico, Municipality of Gigaquit, Surigao del Norte,
Mindanao for the development of limestone deposits as mine.

On December 18, 2006, La Salle entered into an Operating agreement with TMC for a term of
twenty-five (25) years whereby TMC shall maintain the mining rights of La Salle covering the
aforesaid properties and to keep the rights in current and good standing for and on behalf of La
Salle. On August 12, 2010, La Salle submitted to the MGB an amended MPSA plan, reducing the
area from 6,824 hectares to 2,234.96 hectares.

On January 11, 2016, TMC issued a Notice of Exclusion of the limestone deposit from the
Operating Agreement to La Salle as TMC is no longer interested in the exploration and/or
development of the limestone deposit inside the property.

CAGDIANAO MINING CORPORATION

Cagdianao Mine
MPSA No. 078- 97- XIII - On November 19, 1997, East Coast Mineral Resources Co., Inc. (East
Coast) was granted a MPSA for a period of twenty-five (25) years and renewable upon such
terms and conditions as may be mutually agreed upon. The MPSA covers an area of 697.0481
hectares situated at Barangay Valencia, Municipality of Cagdianao, Province of Dinagat Islands,
Surigao del Norte.

On the same date, a MOA was executed between CMC, as Operator, and East Coast for a period
of ten (10) years from the effectivity of the MOA whereby East Coast grants CMC the exclusive
right to explore, develop and utilize the mineral property covered by the MPSA. On November
19, 2007, the MOA was renewed for a period of fifteen (15) years, covering the remaining term
of the MPSA. On December 18, 2015, a Supplemental Agreement was executed by CMC and East
Coast, providing for, among others, an automatic renewal of the MOA for another twenty-five
(25) years, or from 2022 to 2047.

GEOGEN CORPORATION

On July 30, 2007, the PGMC and the Government entered into a MPSA, which allows PGMC to
explore, develop and mine nickel ore within the contract area covering 2,392 hectares in the
Municipality of Dinapigue, Province of Isabela.

On January 6, 2009, PGMC and Geogen executed a Deed of Assignment transferring to Geogen
all the rights, title and interest in and into the MPSA over the contract area.

Under the MPSA, Geogen shall pay the Government a 2% excise tax. The MPSA is valid for
twenty-five (25) years from issuance and renewable at the option of Geogen, with approval
from the Government.

CORDILLERA EXPLORATION CO., INC.

CExCI has an EP over the Manmanok Property in Apayao Province, an application for EP over the
Kutop Property in the province of Abra, and an application for Financial or Technical Assistance
Agreement over the Mankayan Property, within the adjoining provinces of Benguet, Ilocos Sur
and Mountain Province. A portion of the AFTA, covering the grounds in Mankayan, Benguet and
Cervantes, Ilocos Sur, were converted to applications for EP.

28


NEWMINCO PACIFIC MINING CORPORATION

Newminco, which was acquired by CExCI in December 2015, holds an EP for copper, gold, and
related base and precious metals over an area located in Cabangan, San Felipe, and San
Marcelino in the province of Zambales. The decision to acquire Newminco was made following
the discovery of outcropping quartz veins, the sampling of which in part returned good assays
for gold. The EP 001-2015-III expired in July 2017 and is currently under the first renewal
process.

B. MINERAL RESOURCES AND RESERVES

As of December 31, 2017, the Company’s Total Mineral Resources and Ore Reserves in
accordance with Philippine Mineral Reporting Code (PMRC) are as follows:

Tonnes Tonnes Contained

Ore Class (kWMT) (kDMT) % Ni % Fe Ni (kt)
Ore Reserves*
Saprolite Proved and Probable 105,409 71,836 1.50 12.89 1,078
Limonite Proved and Probable 254,637 170,947 1.13 40.69 1,927
Mineral Resources**
Saprolite Measured & Indicated 159,292 105,700 1.46 12.15 1,547
Limonite Measured & Indicated 264,829 177,045 1.12 42.10 1,979
Saprolite Inferred 61,300 39,597 1.33 13.14 525
Limonite Inferred 16,642 10,830 1.09 37.59 118

* This ore reserves estimate was prepared by Engr. Rolando R. Cruz. (BSEM), Vice President for Project Development and
Research of Nickel Asia Corporation. Engr. Cruz is a Competent Person under the definition of the PMRC and has
sufficient experience as to the type of deposit and mineralization. He is a licensed mining engineer with PRC registration
number 1803. He has given his consent to the attachment of this statement to the 17-A 2017 Annual Report concerning
Ore Reserve Estimation.
** This mineral resources estimate was prepared by Mr. Ramon Nieto Santos, Consultant of Nickel Asia Corporation.
Mr. Santos is a Competent Person under the definition of the PMRC and has sufficient experience as to the type of deposit
and mineralization. He is a licensed geologist with License number 0834. He has given his consent to the attachment of
this statement to the 17-A 2017 Annual Report concerning Mineral Resources Estimation.

C. PROCESSING FACILITIES

CBNC
Facility . . . . . . . . . . . . . . . . . . . . . . Coral Bay HPAL nickel processing plant
Location . . . . . . . . . . . . . . . . . . . . . . In a Special Economic Zone adjacent to Rio Tuba mine
Ownership . . . . . . . . . . . . . . . . . . . . . . NAC (10%)
Mitsui and Co., Ltd. (Mitsui; 18%)
Sojitz Corporation (18%)
SMM (54%)
Operations . . . . . . . . . . . . . . . . . . . . . . Commissioned in 2005 with design capacity of 10,000
tonnes per year of contained nickel. Capacity doubled to
20,000 tonnes per year of contained nickel in June 2009
and attained annual capacity of 24,000 tonnes in 2010
due to facility expansion.
Technology . . . . . . . . . . . . . . . . . . . . . . HPAL process
Source of ore . . . . . . . . . . . . . . . . . . . . . Rio Tuba mine
Product . . . . . . . . . . . . . . . . . . . . . . . . Nickel-cobalt sulfide sold exclusively to SMM

29


The Company acquired its 10% equity interest in CBNC, the Philippine’s first HPAL nickel
processing plant, by way of property dividend distributed by RTN in March 2014. A consortium
of Japanese companies led by SMM holds the remaining 90% equity interest. The plant was
constructed adjacent to the Rio Tuba mine in an area designated as a Special Economic Zone by
the Philippine Export Zone Authority (PEZA). As such, CBNC enjoys tax incentives, including a tax
holiday. All of the limonite ore required for the plant is supplied by RTN from its extensive
stockpile and from newly mined ore. RTN also supplies limestone and undertakes certain
materials handling and transportation services. The plant produces a nickel sulfide precipitate
containing approximately 57% nickel and 4% cobalt, which is sold exclusively to SMM for
refining at its Nihama refinery. The facility uses proprietary SMM technology under a non-
exclusive license.

THNC
Facility . . . . . . . . . . . . . . . . . . . . . . . . . . Taganito HPAL nickel processing plant
Location . . . . . . . . . . . . . . . . . . . . . . . . . In a Special Economic Zone adjacent to the Taganito mine
Ownership. . . . . . . . . . . . . . . . . . . . . . . NAC (10.0%)
SMM (75.0%)
Mitsui (15.0%)
Operations. . . . . . . . . . . . . . . . . . . . . . Commenced commercial operations at full capacity in
October 2013 and expected to produce approximately
51,000 tonnes of mixed nickel-cobalt sulfide in 2014, the
first full year of commercial operations at full capacity
Technology . . . . . . . . . . . . . . . . . . . . . HPAL process
Investment cost/financing . . . . . . . . . US$1,420 million, which further increased to US$1,590.0
million, to be majority debt-financed, with remaining
balance to be equity-financed based on ownership
Source of ore . . . . . . . . . . . . . . . . . . . . Taganito Mine
Product . . . . . . . . . . . . . . . . . . . . . . . . . Nickel-cobalt sulfide to be sold exclusively to SMM

Following the success of the Coral Bay HPAL facility and taking into account the stockpile and
reserves of limonite ore owned by our subsidiary, TMC, SMM conducted a feasibility study in
September 2009 on a 30,000 tonnes-per-year HPAL plant to be located adjacent to our TMC
mine site. The completion of the study led to the signing of a Memorandum of Understanding
(MOU) in September 2009 between us, TMC, and SMM to proceed with the project. We expect
that the plant will use technology similar to that used at the Coral Bay HPAL facility but will be
triple the original size of the Coral Bay plant. TMC is expected to supply all the limonite ore
required for the plant and the nickel-cobalt sulfide product will be sold exclusively to SMM for
refining in Japan.

Pursuant to the Taganito HPAL Stockholders Agreement that we entered into on September 15,
2010, the project will be undertaken by THNC, a company that will be jointly owned by us (as to
22.5%), SMM (as to 62.5%) and Mitsui (as to 15.0%). The agreement contains a term sheet with
principal terms of an offtake agreement to be entered into between THNC and TMC for the
supply of limonite ore. Similar to the Coral Bay HPAL facility, the plant is located in a Special
Economic Zone approved by the PEZA and should enjoy tax incentives. The operation of the
facility provides an additional dedicated customer for limonite ore from our Taganito mine
which allows us to benefit from the higher percentage of payable nickel available further
downstream in the nickel value chain.

The estimated total cost is US$1.7 billion, which includes capital expenditures of US$1.6 billion
for the plant, working capital and US$100.0 million of interest accrued during the construction
phase. An estimated of US$1.1 billion of the project costs will be financed with debt financing
that will be incurred by THNC. Under the terms of the Stockholders Agreement, we will be
required to guarantee a portion of such debt financing equal to our 22.5% equity interest in
THNC. On September 15, 2010, we entered into an agreement with SMM whereby SMM will

30


guarantee our pro-rata portion of THNC’s loan obligation in exchange for the payment of an
annual guarantee service fee to SMM of 1% of our pro-rata share of the outstanding loan
obligation.

In 2016, we made a strategic decision to reduce our ownership in the Taganito plant from 22.5%
to 10.0%, the same equity level that we have in the Coral Bay plant. The reduction in our equity
was achieved by a sale of shares to the majority owner of the plant and one of our major
shareholders, SMM.

In the absence of cost overuns or major expansion plan, THNC is expected to distribute all of its
available cash as dividends to shareholders in any financial year, after payments have been
made for operating expenses, applicable taxes, capital expenditure, working capital, scheduled
loan principal and interest repayments, and after making provisions for upcoming installments
of the loans and required working capital.

D. REAL PROPERTIES

TMC owns the following parcels of land located in Surigao City:

1) land with a total area of 43,237 square meters in Barangay Rizal and with Transfer
Certificate of Title (TCT) No. 162-2011000392; and
2) another parcel of land with a total area of 88,640 square meters in Barangay Ipil and with
TCT No. 162-2012000481, which is intended for leasing to THNC in the future

Likewise, HMC owns a land with a total area of 3,500 square meters located in Barangay Luna,
Surigao del Norte under TCT No. 162-2013000096. HMC constructed a building on the said land
which is currently being used as a liaison office of NAC’s mining companies in Surigao.

RTN has parcels of land located in Manggahan, Pasig and Cainta, Rizal covering a total area of
3,324 square meters. These parcels of land are held for future use.

NAC owned a land with a total area of more or less 20,000 square meters which is located in
Barangay Quezon, Surigao del Norte. NAC constructed its diesel power plant on the said land.

MGPC has purchased some 48 hectares of its geothermal project site in Naujan, Oriental
Mindoro.

E. SERVICE CONTRACTS

Our power companies hold the following service contracts:

Solar Energy Service Contract No. 2015-01-099

On January 20, 2015, EPI entered into a SESC No. 2015-01-099 with the DOE which grant EPI the
right to explore, develop and utilize the solar energy resources within the contract area of 324
hectares in the province of Pili, Camarines Sur.

Under the SESC, EPI assumes all the technical and financial risks without any guarantee from the
Philippine Government and shall not be entitled to reimbursement for any expense incurred in
connection with the SESC.

The SESC carries a non-extendible two (2) year period of pre-development stage, which involves
the preliminary assessment and feasibility study. The SESC shall remain in force for the
remainder of twenty-five (25) years from date of effectivity if the solar energy resources are
discovered to be in commercial quantities. If EPI has not been in default of any material
obligations under the SESC, the DOE may grant EPI an extension of the SESC for another twenty-
five (25) years. The full recovery of the project development costs incurred in connection with

31


the SESC is dependent upon the discovery of solar energy resources in commercial quantities
from the contract area and the success of future development thereof. EPI has not yet started
the exploration and pre-development activities.

Solar Energy Service Contract No. 2013-10-039

On October 31, 2013, Jobin entered into a SESC with the DOE. The SESC covers an area of
approximately 2,997 hectares in the municipalities of Morong and Hermosa, in the province of
Bataan. The SESC is for a period of twenty-five (25) years, inclusive of a two (2) year pre-
development stage, and renewable for another twenty-five (25) years. The government share
under the SESC shall be 1% of the gross income from the sale of electricity generated from the
solar energy operations.

On August 28, 2015, Jobin was granted a Certificate of Confirmation of Commerciality by the
DOE for its 100.44 MW Sta. Rita Solar Power Project located in Mt. Sta Rita, Subic Bay Freeport
Zone. The certificate converts the project’s SESC from exploration/pre-development stage to
thedevelopment/commercial stage.

On March 11, 2016, Jobin’s Certificate of Confirmation of Commerciality originally rated for the
100.44 MW was amended by DOE to 7.14 MW and 92.86 MW Sta. Rita Solar Power Project
Phase I and II, respectively.

Wind Energy Service Contract No. 2013-10-062

On October 31, 2013, Jobin entered into a WESC with the DOE. The WESC covers an area of
approximately 2,997 hectares in the municipalities of Morong and Hermosa, in the province of
Bataan. The WESC is for a period of twenty-five (25) years, inclusive of a three (3) year pre-
development stage, and renewable for another twenty-five (25) years. The government share
under the WESC shall be 1% of the gross income from the sale of electricity in the wind project.

Geothermal Renewable Energy Service Contract No. 2014-02-054

GRESC No. 2010-02-013, which covers an approximate area of 3,914 hectares in the three
barangays of Montelago, Montemayor and Melgar-B in Oriental Mindoro, involves the
development of geothermal well clusters and a power plant. The steam extracted from the
geothermal wells will power a geothermal power station with an output capacity of at least 20
MW. Once completed, the addition of geothermal power into the present mix of Mindoro’s
electricity sources will have a stabilizing effect on the grid where the entire island is located.

The Project is in the exploration stage as at December 31, 2017.

As RE Developer, EPI undertakes to provide financial, technical, or other forms of assistance with
the DOE, and agrees to furnish the necessary services, technology, and financing for the
geothermal operations. EPI shall assume all financial risks such that if no geothermal resources
in commercial quantity is discovered and produced, EPI shall not be entitled to reimbursement
for any expenses incurred in connection with the GRESC.

Certificate of Registration No. 2014-02-054 shall remain in force for the remainder of twenty-
five (25) years from date of effectivity if geothermal resources in commercial quantity are
discovered during the pre-development stage, or any extension thereof. Moreover, if EPI has
not been in default in its obligations under the GRESC, the DOE may grant an additional
extension of twenty-five (25) years, provided that the total term is not to exceed fifty (50) years
from the date of effectivity.

On November 24, 2014, EPI and MGPC entered into a Deed of Assignment for the assignment of
EPI’s rights and obligations under the GRESC to MGPC. On December 5, 2014, EPI applied with
the DOE to transfer the GRESC to MGPC. The DOE approved EPI’s application on February 16,
2016 under Certificate of Registration No. 2016-02-060.

32


Geothermal Renewable Energy Service Contract No. 2010-02-010

By virtue of RA 9513 known as the RE Act of 2008, on February 1, 2010, the DOE issued to BGI
GRESC No. 2010-02-010, converting its Geothermal Services Contract (GSC-09) issued on July 10,
2008 for the exploration, development and exploitation of geothermal resources covering the
geothermal field in Biliran Province (previously a municipality of Leyte). By virtue of such
agreement, BGI is entitled to enjoy an income tax holiday for a period of seven (7) years from
the start of its commercial operation, duty free importation of machinery for ten (10) years, and
0% VAT, among others.

Geothermal Renewable Energy Service Contract No. 2017-03-056

This GRESC is a spin-off of the above BGI GRESC, issued by the DOE, and delineates the northern
area of the island province of Biliran as a separate BGI exclusive development zone with a
greenfield status.

F. LIENS AND ENCUMBRANCES

a. SMM’s mortgage over RTN’s pier facilities

b. Chattel mortgage over Jobin’s solar assets in favor of the Land Bank of the Philippines

Item 3. LEGAL PROCEEDINGS

In the ordinary course of our business, we are a party to various legal actions that are mainly
labor cases and that we believe are routine and incidental to the operation of our business. We
do not believe that we are subject to any ongoing, pending or threatened legal proceeding that
is likely to have a material effect on our business, financial condition or results of operations.
However, there are a few cases that are now pending with the Courts.

Asiacrest Marketing Corporation (ASC) - First Integrated Bonding and Insurance Co. (FIBIC) Case
On May 30, 2016, Jobin filed a complaint against Asiacrest and FIBIC before the Construction
Industry Arbitration Commission (CIAC), docketed as CIAC Case No. 23-2016, for Asiacrest’s
breach of its EPC Contract for the 100MW solar power plant in Subic. Jobin sought to hold
Asiacrest liable for amounts not to exceed P1,458.0 million. Jobin sought to hold FIBIC, being the
surety which secured Asiacrest’s performance of its obligation, jointly and severally liable to the
extent of the value of the performance bond of P727.5 million. On March 10, 2017, the Arbitral
Tribunal rendered a final award in Jobin’s favor. On March 29, 2017, Jobin moved for the
issuance of a writ of execution with the CIAC.

On March 23, 2017, FIBIC filed a Petition for Review with application for the issuance of a
Temporary Restraining Order (TRO) with the Court of Appeals which was granted on April 10,
2017 conditioned upon FIBIC posting a bond equivalent to the award adjudged against it in the
Final Award of CIAC. On April 18, 2017 FIBIC moved to reduce the injunction bond to 1% of the
amounts adjudged against it under the Final Award, which was opposed by Jobin on May 2,
2017.

In the meantime, the CIAC ordered the issuance of a writ of execution against Asiacrest on May
8, 2017 and against FIBIC on June 13, 2017. On July 10, 2017 the Court of Appeals granted the
Motion of FIBIC to reduce the bond and thereafter, August 10, 2017, issued a TRO to enjoin the
execution of the Final Award. The TRO expired on October 9, 2017. On November 29, 2017, the
Court of Appeals denied FIBIC’s application for a writ of preliminary injunction.

On December 29, 2017, Jobin received FIBIC’s petition for certiorari with the Supreme Court.
FIBIC contests the resolution of the Court of Appeals denying its application for a writ of
preliminary injunction. To date, there is no TRO or writ of preliminary injunction which would
serve to enjoin the execution of the Final Award, whether against Asiacrest or against FIBIC.

33


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters covered under this item submitted in 2017 to the security holders for a
vote.

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

A. MARKET INFORMATION

The stock prices for the Parent Company’s common equity for the last three (3) years, after the
effect of stock dividends, are as follows:

High Lo w
2015
st
1 Quarter P16.15 P12.00
nd
2 Quarter P14.00 P9.50
rd
3 Quarter P11.50 P6.40
th
4 Quarter P8.80 P6.16
2016
st
1 Quarter P5.92 P3.40
nd
2 Quarter P4.20 P5.80
rd
3 Quarter P5.03 P7.43
th
4 Quarter P6.77 P8.75
2017
st
1 Quarter P6.08 P8.49
nd
2 Quarter P6.00 P6.71
rd
3 Quarter P5.60 P7.99
th
4 Quarter P5.98 P7.40
2018
st
1 Quarter P5.89 P6.89

The Parent Company’s stocks share price was at P

=6.11 per share as of April 2, 2018.

B. HOLDERS

The Company has 88 shareholders as of the end of 2017, with 7,602,928,954 common shares
issued and outstanding. The top 20 stockholders of the Company as at December 31, 2017 are as
follows:

Name Citizenship Shares % of Ownership

PCD Nominee Corporation (Filipino) Filipino 4,680,302,918 61.56%
Sumitomo Metal Mining Philippine Japanese 1,444,657,926 19.00%
Holdings Corporation
Nonillion Holding Corp. Filipino 720,000,00 09.47%
PCD Nominee Corporation (Non-Filipino) Foreign 507,688,030 06.68%
Pacific Metals Co., Ltd. Japanese 210,726,340 02.77%
Gerard H. Brimo Filipino 14,800,747 00.19%
Manuel B. Zamora, Jr. Filipino 5,982,236 00.08%
William T. Enrile &/or William R. Enrile II Filipino 4,800,000 00.06%
&/or Nelly R. Enrile
Ricardo Sy Po or Angelita Tan Po or Filipino 4,726,876 00.06%
Leonardo Arthur Tan Po

34


Name Citizenship Shares % of Ownership

Philip T. Ang Filipino 1,616,724 00.02%
Ronaldo B. Zamora Filipino 1,300,224 00.02%
Megastar Real Estate Corporation Filipino 1,300,000 00.02%
Koh Teng Ong Chong Filipino 1,092,800 00.01%
Rolando R. Cruz Filipino 614,952 00.01%
Eva Policar-Bautista Filipino 365,624 00.00%
Jose B. Anievas Filipino 318,750 00.00%
Berck Y. Cheng Filipino 300,000 00.00%
Steven Ivan Lim Yu Filipino 290,850 00.00%
Josephine Chua Lim Filipino 254,000 00.00%
RMJ Development Corporation Filipino 225,000 00.00%

C. DIVIDENDS

The following tables show the dividends declared and paid to common shareholders for the years
ended December 31, 2017, 2016 and 2015:

Cash Dividends

Date Amount
Per Share
Earnings (after the Total Declared
Declared Record Payable
Stock (in millions)
Dividends)
2017 March 15, 2017 March 29, 2017 April 11, 2017 P0.08 P608.2
2016 March 15, 2016 March 31, 2016 April 12, 2016 0.08 607.8
2015 March 27, 2015 April 15, 2015 April 27, 2015 0.70 2,657.1
2015 March 27, 2015 April 15, 2015 April 27, 2015 0.30 1,138.8

Stock Dividends

Date Total
No. of
Declared
Earnings % Shares (in
Approved Record Issued (in
millions)
millions)
2015 June 5, 2015 July 16, 2015 August 11, 2015 100 3,798.5 P1,899.2

We declare dividends to shareholders of record, which are paid from our unrestricted retained
earnings. Our dividend policy entitles holders of shares to receive annual cash dividends of up to
30% of the prior year's recurring attributable net income based on the recommendation of our
BOD. Such recommendation will take into consideration factors such as dividend income from
subsidiaries, debt service requirements, the implementation of business plans, operating
expenses, budgets, funding for new investments and acquisitions, appropriate reserves and
working capital, among others. Although the cash dividend policy may be changed by our BOD at
any time, our current intention is to pay holders of our shares annual cash dividends at this ratio.
Additionally, in the event that new investments, acquisitions or other capital expenditure plans
do not materialize, our BOD plans to review the dividend policy and consider increasing the
dividend ratio above 30% of the prior year's recurring net income.

Our subsidiaries pay dividends subject to the requirements of applicable laws and regulations and
availability of unrestricted retained earnings, without any restriction imposed by the terms of
contractual agreements. Notwithstanding the foregoing, the declaration and payment of such
dividends depends upon the respective subsidiary’s results of operations and future projects,
earnings, cash flow and financial condition, capital investment requirements and other factors.

35


Cash dividends are paid to all shareholders at the same time and within thirty (30) calendar days
from declaration date. Stock dividends are also issued to all shareholders at the same time but
subject to shareholder’s approval.

D. RECENT SALES OF UNREGISTERED OR EXEMPT SECURITIES

No unregistered securities were sold in 2017.

Item 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND

RESULTS OF OPERATIONS

The following discussion and analysis is based on the audited consolidated financial statements as at
December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, prepared
in conformity with Philippine Financial Reporting Standards and accompanying Notes to the
Consolidated Financial Statements and should be read in conjunction with the audited consolidated
financial statements.

The Group has not, in the past five years and since its incorporation, revised its financial statements
for reasons other than changes in accounting policies.

Summary Financial Information

The Consolidated Financial Statements as at December 31, 2017 and 2016 and for the years ended
December 31, 2017, 2016 and 2015 are hereto attached.

The following tables set forth the summary financial information for the three years ended December 31,
2017, 2016 and 2015 and as at December 31, 2017, 2016 and 2015:

Summary Consolidated Statements of Income

For the Years Ended Horizontal Analysis
De c 3 1 Increase (Decrease) Increase (Decrease)
2017 2016 2015 2017 vs. 2016 % 2016 vs. 2015 %
(In thousand pesos)
Revenues 15,739,296 14,122,667 15,431,646 1,616,629 11% (1,308,979) -8%
Costs (6,641,856) (6,274,001) (6,637,165) 367,855 -6% (363,164) 5%
Operating expenses (3,689,713) (3,776,381) (3,890,566) (86,668) -2% (114,185) -3%
Finance income 316,303 228,430 305,112 87,873 38% (76,682) -25%
Finance expenses (246,615) (219,933) (179,125) 26,682 12% 40,808 23%
Equity in net income (losses) of
associates 197,972 (413,702) (811,369) 611,674 148% (397,667) -49%
Other income (charges) - net (84,387) 493,540 493,544 (577,927) -117% (4) 0%
Provision for income tax (1,736,856) (1,449,478) (1,667,286) 287,378 20% (217,808) -13%
Net income 3,854,144 2,711,142 3,044,791 1,143,002 42% (333,649) 11%

Net income attributable to:

Equity holders of the parent 2,770,768 1,966,107 2,035,143 804,661 41% (69,036) -3%
Non-controlling interests 1,083,376 745,035 1,009,648 338,341 45% (264,613) -26%
3,854,144 2,711,142 3,044,791 1,143,002 42% (333,649) -11%

36


Summary Consolidated Statements of Financial Position

Horizontal Analysis
2017 2016 2015 Increase (Decrease) Increase (Decrease)
(In Thousand Pesos) 2017 vs. 2016 % 2016 vs. 2015 %
Current assets 20,898,438 20,522,768 16,677,942 375,670 2% 3,844,826 23%
Noncurrent assets 24,838,661 24,828,748 25,052,413 9,913 0% (223,665) -1%
Total assets 45,737,099 45,351,516 41,730,355 385,583 1% 3,621,161 9%

Current liabilities 9,614,431 7,945,838 7,713,231 1,668,593 21% 232,607 3%

Noncurrent liabilities 2,904,480 6,206,025 4,603,936 (3,301,545) -53% 1,602,089 35%
Non-controlling interests 3,761,207 4,179,162 3,901,315 (417,955) -10% 277,847 7%
Equity attributable to
equity holders of the Parent 29,456,981 27,020,491 25,511,873 2,436,490 9% 1,508,618 6%
Total liabilities and equity 45,737,099 45,351,516 41,730,355 385,583 1% 3,621,161 9%

Summary Consolidated Statements of Cash Flows

For the Years Ended December 31

2017 2016 2015
(In Thousand Pesos)
Net cash flows from (used in):
Operating activities 5,296,256 4,513,391 4,858,196
Investing activities (1,468,106) (1,840,227) (9,285,465)
Financing activities (3,807,731) (346,594) (2,195,157)
Net increase (decrease) in cash
and cash equivalents 20,419 2,326,570 (6,622,426)

Cash and cash equivalents, beginning 9,647,943 7,073,171 13,561,803

Effect of exchange rate changes in
cash and cash equivalents (22,430) 248,202 133,794
Cash and cash equivalents, end 9,645,932 9,647,943 7,073,171

RESULTS OF OPERATIONS

Calendar year ended December 31, 2017 compared with calendar year ended December 31, 2016

Revenues
Our total revenues were P15,739.3 million in 2017 compared to P14,122.7 million in 2016, an increase
of P1,616.6 million, or 11%.

Sale of ore
The Group’s value of shipments in 2017 rose by 9% to P =14,434.8 million from P =13,233.5 million in
2016. Although shipment volumes were lower compared to the prior year, the increase in revenues
was due to higher average prices, in part the result of a change in the ore mix to higher value ore, and
a more favorable Peso to US dollar exchange rate.

The realized price on 9,640.2 thousand WMT of ore sales to Japanese and Chinese customers in 2017
averaged $24.46 per WMT compared to an average of $20.77 per WMT on 11,691.7 thousand WMT
of ore sales realized in 2016.

With respect to low-grade limonite ore sold to both the Coral Bay and Taganito processing plants,
which are linked to LME prices, the Company realized an average of $4.67 per pound of payable nickel
on 8,062.4 thousand WMT sold in 2017. This compares to an average price of $4.39 per pound of
payable nickel on 7,562.4 thousand WMT sold in the prior year.

37


On a per mine basis, the Group’s Taganito mine accounted for 43% of total shipments during the year.
The mine shipped 3,054.8 thousand WMT of saprolite ore and delivered 4,590.0 thousand WMT of
limonite ore to the Taganito HPAL plant, or a total combined shipment of 7,644.8 thousand WMT. The
comparable figures for last year were 2,337.7 thousand WMT of saprolite ore and 5,659.0 thousand
WMT of limonite ore, including 4,113.2 thousand WMT delivered to the Taganito HPAL plant, or a
combined shipment of 7,996.7 thousand WMT.

The Rio Tuba mine accounted for 33% of total shipments, which consisted of 2,113.1 thousand WMT
of saprolite ore and 3,643.5 thousand WMT of limonite ore, including 3,472.4 thousand WMT of ore
delivered to the Coral Bay HPAL plant or a total of 5,756.6 thousand WMT. The comparable figures for
last year were 2,273.5 thousand WMT, 3,884.0 thousand WMT and 3,449.2 thousand WMT,
respectively, or a total of 6,157.5 thousand WMT.

Shipments from the Group’s Hinatuan and Cagdianao mines were likewise lower during the year due
to a late start of shipments as a result of prolonged heavy rains. Total shipments from Hinatuan
consist of 2,450.7 thousand WMT compared to 3,034.3 thousand WMT in 2016, while the Cagdianao
mine shipped 1,850.4 thousand WMT versus 2,065.6 thousand WMT in the prior year.

On an aggregate basis, the Group sold 17,702.5 thousand WMT of nickel ore from its four operating
mines in 2017 at an average price of $16.19 per WMT compared to 19,254.1 thousand WMT at an
average price of $14.51 per WMT in 2016.

The realized Peso / U.S. dollar exchange rate for ore sales was P
=50.42 in 2017 compared to P
=47.38 in
2016.

RTN’s revenue from sale of limestone was P =462.3 million in 2017 compared to P=340.9 million in 2016,
an increase of P
=121.4 million or 36%. The increase was attributable to the 46.6 thousand WMT or 10%
increase in limestone sales in the current year compared to last year.

Services and Others

Our revenue from services and others was P=630.1 million in 2017 compared to P=530.3 million in 2016,
an increase of P=99.8 million, or 19%. Services revenue largely consists of payments made to us in
consideration for hauling, manpower and other ancillary services that RTN and TMC provides to CBNC
and THNC, respectively, and usage fee charged by TMC to THNC for the use of its pier facility. The
increase in revenue from services and others was mainly attributable to the 18% increase in volume
handled by TMC.

Sale of Power
In 2017, the Group generated revenue from its power generation activities, primarily from solar
power, amounting to P212.2 million whereas there was only P18.0 million in last year since the
operations started only in May 2016.

Costs
Our costs amounted to P6,641.9 million in 2017 compared to P6,274.0 million in 2016, an increase of
P367.9 million, or 6%.

Cost of Sale of Ore

Our cost of sale of ore was P6,033.2 million in 2017 compared to P5,907.2 million in 2016, an increase
of P126.0 million, or 2%. Personnel cost was higher by P143.5 million due to annual salary adjustment
and new regularized employees; production overhead was higher by P330.2 million due to increase in
fuel cost and equipment rental; and outside services was higher by P81.4 million due to higher
materials handled by the contractors. However, the increase was partially offset by the decrease in
depreciation, amortization and depletion and long-term stockpile inventory sold by P159.5 million
and P38.2 million, respectively.

38


Cost of Services
Cost of services was P351.3 million in 2017 compared to P328.5 million in 2016, an increase of
P22.8 million, or 7%. Costs of services largely consist of the cost of hauling, providing manpower and
other ancillary services to CBNC and THNC, plus the costs of maintaining the pier facility used by
THNC. The increase in cost of services was attributable mainly to the 18% increase in volume handled
by TMC. Moreover, the fuel cost per liter was higher than last year by around 27%.

Cost of Power Generation

Cost of power generation amounted to P257.3 million in 2017 versus P38.3 million in 2016 since the
power generation activities of the Group started only in May 2016.

Operating Expenses
Our operating expenses amounted to P3,689.7 million in 2017 compared to P3,776.4 million in 2016,
a decrease of P86.7 million, or 2%.

Shipping and Loading

Shipping and loading costs were P
=1,626.4 million for the year 2017 compared to P =1,823.5 million for
the year 2016, a decrease of P
=197.1 million due to the 18% decline in the volume of direct ore export.
There was also a decrease in contract fees by P =254.5 million since most of the shipments were
handled in-house and long-term LCT charter contracts expired at the end of the first quarter of 2016.
The Group has since entered into short-term LCT charters on a per need basis.

Excise Taxes and Royalties

Our excise taxes and royalties were P=1,103.7 million in 2017 compared to P =1,006.7 million in 2016, an
increase of P
=97.0 million, or 10%. The increase in excise taxes and royalties was attributable to higher
revenue from sale of nickel ore and limestone during the year.

General and Administrative

General and administrative expenses were P =863.2 million for the year 2017 compared to P =850.3
million for the year 2016, an increase of P
=12.9 million, or 2%. The increase in personnel costs by P
=45.8
million, depreciation by P =5.1 million, publicity and promotions by P =5.0 and other general and
administrative expenses, which are composed of numerous transactions with minimal amounts, by
=19.4 million are the main factors for the increase in the account. However, this was partially offset
P
by the decrease in taxes and licenses by P=25.3 million, rentals, which is mostly equipment rental, by
=24.9 million and donations by P
P =15.7 million.

Marketing
Marketing costs were P =96.5 million and P=95.9 million in 2017 and 2016, respectively. The slight
increase in marketing cost was also brought by the increase in our sales revenue in 2017 compared
with 2016 since the commission paid by CMC to its claimowner and the marketing fees paid to
Mitsubishi Corporation are based on certain percentage of sales revenue.

Finance Income
Our finance income was P316.3 million in 2017 compared to P228.4 million in 2016, an increase of
P87.9 million, or 38%. The increase in finance income was attributable mainly to the increase in
interest income from cash and cash equivalents by P61.6 million or 81%; and from AFS debt
instruments by P13.7 million or 11% and sale of AFS financial assets in 2017 which resulted to a gain
of P14.3 million compared to a loss of P11.7 million in 2016.

Finance Expenses
Our finance expense was P =246.6 million in 2017 compared with P =219.9 million in 2016, an increase of
=26.7 million, or 12%. The movement in our finance expense arose from interest on bank loans of EPI
P
and Jobin, which increased by P =58.3 million mainly because in 2016 a part of the interest expense
incurred by EPI and Jobin were capitalized as borrowing cost. Accretion of interest on provision for

39


mine rehabilitation and decommissioning also increased by P =7.2 million due to the P=263.6 million
adjustment in the capitalized cost of mine rehabilitation and decommissioning in 2016. The increase
was partially offset by P
=33.4 million decrease in guarantee service fee due to reduction in the Group’s
share in THNC’s results of operations from 22.5% to 10% effective July 1, 2016.

Equity in Net Income (Losses) of Associates

Our equity in net income (losses) of THNC and CBNC was P =198.0 million income and P=413.7 million
loss in 2017 and 2016, respectively. The results of operations of THNC and CBNC was net income of
US$19.0 million and US$20.3 million, respectively, in 2017 compared to a net loss of US$21.4 million
and US$21.8 million, respectively, in 2016. The increase in the associates results of operations was
due to lower operating costs and higher cobalt prices, a by-product of THNC and CBNC plants.

Other Income (Charges) - net

Our other income (charges) - net in 2017 were P =84.4 million charges compared to P =493.5 million
income in 2016, a decrease of P577.9 million or 117%. The movement in the account was attributable
to the following: 1) the favorable impact of changes in foreign exchange rate in 2017 was lower by
=282.9 million compared to last year; 2) a gain of P
P =239.6 million on the sale of the Parent Company’s
12.5% interest in THNC to SMM was recognized in 2016; 3) impairment losses on AFS financial assets
was higher by P=14.1 million compared to last year; 4) decrease in special projects by P =18.9 million;
and 5) increase in demurrage by P =35.7 million.

Provision for (Benefit from) Income Tax

Provision for income tax was P1,736.9 million in 2017 compared to P1,449.5 million in 2016, an
increase of P287.4 million, or 20%. Our current provision for income tax in 2017 was P1,865.3 million
compared to P1,441.5 million in 2016, an increase of P423.8 million, or 29% primarily due to the
increase in our taxable income in 2017 resulting from higher sales revenue. Our provision for (benefit
from) deferred income tax in 2017 was P =128.5 million benefit compared to P =8.0 million provision in
2016, a decrease in provision by P=136.5 million. Movement in provision for (benefit from) deferred
income tax arises mainly from the tax impact of lower net unrealized foreign exchange gains in 2017,
which resulted to lower provision for deferred income tax by P =81.5 million as compared in 2016, and
the tax impact of the amortization of long-term stockpile inventory sold, which resulted to P =49.0
million benefit from deferred income tax.

Net Income
As a result of the foregoing, our consolidated net income was P3,854.1 million in 2017 compared to
P2,711.1 million in 2016. Net of non-controlling interests, our net income was P2,770.8 million in
2017 compared to P1,966.1 million in 2016, an increase of P804.7 million, or 41%.

Calendar year ended December 31, 2016 compared with calendar year ended December 31, 2015

Revenues
Our total revenues were P14,122.7 million in 2016 compared to P15,431.6 million in 2015, a decrease
of P1,308.9 million, or 8%.

Sale of ore
We sold an aggregate 19,254.1 thousand WMT of nickel ore in 2016, marginally lower compared to
19,671.6 thousand WMT of nickel ore in 2015. Our sales for this year included 7,342.1 thousand WMT
of saprolite ore sold to customers in Japan, China and Australia, 4,349.6 thousand WMT of limonite
ore to our customers in China and Australia, and 7,562.4 thousand WMT of limonite ore to CBNC and
THNC compared to sales of 7,058.9 thousand WMT, 4,814.8 thousand WMT and 7,797.9 thousand
WMT, respectively, in 2015.

Lower shipment volume coupled with the overall weakness in nickel ore prices led to a drop in the
Group’s value of shipments from P14,381.5 million in 2015 to P13,233.5 million in 2016.

40


The realized nickel price on 11,691.7 thousand WMT of ore sales mainly to Japanese and Chinese
customers in 2016 averaged $20.77 per WMT compared to an average of $22.64 per WMT realized on
11,873.6 thousand WMT in 2015.

With respect to low-grade limonite ore sold to both the Coral Bay and Taganito processing plants,
which are linked to LME prices, the Group realized an average of $4.39 per pound of payable nickel on
7,562.4 thousand WMT sold in 2016. This compares to an average price of $5.36 per pound of payable
nickel on 7,797.9 thousand WMT sold in 2015. The lower volume compared to the prior year was due
to remedial work conducted over a one month period at the Taganito HPAL plant, which reduced ore
delivery from the Group’s Taganito mine. The work was completed in May 2016 and the plant has
since resumed operations at full capacity.

On a per mine basis, the Group’s Taganito operation accounted for 42% of total shipments. The mine
shipped a total of 2,337.7 thousand WMT of saprolite ore and 5,659.0 thousand WMT of limonite ore,
including 4,113.2 thousand WMT to the Taganito HPAL plant in 2016. The comparable figures for 2015
were 2,500.9 thousand WMT, 5,239.8 thousand WMT and 4,426.3 thousand WMT, respectively.

The Rio Tuba mine accounted for 32% of total shipments, which consists of 2,273.5 thousand WMT of
saprolite ore and 3,884.0 thousand WMT of limonite ore, including 3,449.2 thousand WMT of ore
delivered to the Coral Bay HPAL plant in 2016. For 2015, Rio Tuba sold 3,180.2 thousand WMT of
saprolite ore and 3,371.6 thousand WMT of limonite ore to the Coral Bay plant.

The drop in ore shipments was mainly due to a change in the ore grade mix brought about by the
impact of lower ore prices.

The prolonged rainy season and resulting sea swells during the first half of 2016 resulted to delays in
the start of shipments from the Group’s Hinatuan and Cagdianao mines, thereby translating to slightly
lower shipment volumes in 2016. Shipments from the Hinatuan mine in 2016 was 3,034.3 thousand
WMT compared to 3,209.5 thousand WMT in 2015, while the Cagdianao mine shipped 2,065.6
thousand WMT in 2016 versus 2,169.5 thousand WMT in 2015.

RTN’s revenue from sale of limestone was P =340.9 million in 2016 compared to P =414.1 million in 2015,
a decrease of P=73.2 million or 18%. The decrease was attributable to the 111.2 thousand WMT or 19%
decline in limestone sales in 2016 compared to 2015.

Services and Others

Our revenue from services and others was P
=530.3 million in 2016 compared to P
=636.0 million in 2015,
a decrease of P =105.7 million, or 17%. The decline in revenue from services and others was
attributable to the 12% and 7% drop in volume handled by TMC and RTN, respectively. In addition,
the 2015 revenue from services of RTN included price adjustments for 2013 and 2014 materials
handling deliveries.

Costs
Our costs amounted to P6,274.0 million in 2016 compared to P6,637.2 million in 2015, a decrease of
P363.2 million, or 5%.

Cost of Sale of Ore

Our cost of sale of ore was P5,907.2 million in 2016 compared to P6,279.2 million in 2015, a decrease
of P372.0 million, or 6%. Decrease in cost of sale of ore was attributable to the 2% decline in shipment
volume caused by unfavorable weather conditions, effects of sea swells during the first half of 2016
and due to a change in the ore grade mix brought about by the impact of lower ore prices. In addition,
there was a reduction in cost of fuel due to the significant drop in fuel price. Contractor’s fee and
materials and supplies withdrawal also decreased because of lesser volume moved and the two
conveyors of TMC were already operational, thus contract hauling of ore by truck had been
substantially reduced.

41


Cost of Services
Cost of services was P328.5 million in 2016 compared to P357.9 million in 2015, a decrease of
P29.4 million, or 8%. The decline in cost of services was attributable mainly to the 12% and 7% drop in
volume handled by TMC and RTN, respectively. Moreover, the fuel cost per liter was 24% lower than
last year.

Operating Expenses
Our operating expenses amounted to P3,776.4 million in 2016 compared to P3,890.6 million in 2015,
a decrease of P114.2 million, or 3%.

Shipping and Loading

Shipping and loading costs were P =1,823.5 million for the year 2016 compared to P =1,757.9 million for
the year 2015, an increase of P=65.6 million, or 4%. The increase in contract fees by P=67.3 million and
depreciation and amortization by P =24.8 million, which were partially offset by the decrease in fuel, oil
and lubricants by P
=31.1 million, were the main factors for the movements in the account.

Excise Taxes and Royalties

Our excise taxes and royalties were P=1,006.7 million in 2016 compared to P=1,089.6 million in 2015, a
decrease of P=82.9 million, or 8%. The decrease in excise taxes and royalties was attributable to the
8% decline in our sale of ore in 2016 compared to 2015.

General and Administrative

General and administrative expenses were P =850.3 million for the year 2016 compared to P =912.9
million for the year 2015, a decrease of P =62.6 million, or 7%. The decrease in taxes and licenses by
=67.9 million mainly caused the decrease in the account. Lower taxes and licenses in 2016 were
P
attributable to lower fringe benefit tax paid on stock option exercised during the year by P =3.6 million.
Also in 2015, SEC filing fees of P=15.1 million was paid by the Parent Company for the increase in its
authorized capital stock. Documentary stamp tax were also paid in 2015 for the acquisition of Geogen
shares amounting to P =0.9 million and for the stock dividends issued by the Parent Company in August
2015 and TMC in July 2015 amounting to a total of P =14.5 million. Deficiency tax assessments were
also accrued/paid in 2015 amounting to a total of P =59.5 million. Local business taxes paid in 2015
were also higher than 2016 since the basis used in 2015 was revenue of 2014, which was significantly
higher as compared to previous and current years. Depreciation and amortization also decreased due
to full depreciation of Learjet in third quarter of 2015. Donations and contributions were lower by
=19.0 million due to absence of housing constructions in 2016. The decrease was partially offset by
P
the increase in personnel cost due to salary increases during the year. Also, full year general and
administrative expenses of Geogen and EPI group were accounted in 2016 compared to around half
year expenses last year since these companies were acquired only in third quarter of 2015.

Marketing
Marketing costs were P
=95.9 million and P
=130.2 million in 2016 and 2015, respectively. The decrease in
marketing cost was also brought by the decline in our sales revenue in 2016 compared with 2015
since the commission paid by CMC to its claimowner and the marketing fees paid to Mitsubishi
Corporation are based on certain percentage of sales revenue.

Finance Income
Our finance income was P228.4 million in 2016 compared to P305.1 million in 2015, a decrease of
P76.7 million, or 25%. The decrease in finance income was attributable mainly to the sale of AFS
financial assets in 2015 which resulted to a gain of P86.3 million compared to a loss of P11.7 million in
2016. However, the decrease was partially offset by the increase in interest income from loans and
AFS debt instruments.

42


Finance Expenses
Our finance expense was P219.9 million in 2016 compared to P179.1 million in 2015, an increase of
P40.8 million, or 23%. The movement in our finance expense arose from interest on bank loans of EPI,
which increased by P56.4 million, due to additional loans drawn during the year amounting to
P1,190.0 million and loss on sale of AFS financial assets of P11.7 million. The increase was partially
offset by P24.2 million decrease in guarantee service fee as a result of the change in the Parent
Company’s equity interest in THNC, which decreased from 22.5% to 10% effective July 1, 2016.

Equity in Net Losses of Associates

Our equity in net losses of THNC and CBNC was P =413.7 million and P =811.4 million in 2016 and 2015,
respectively. The result of THNC’s operations in 2016 and 2015 was a net loss of US$21.4 million and
US$61.7 million, respectively. On the other hand, the results of CBNC ‘s operations in 2016 and 2015
was also a net loss of US$21.8 million and US$34.4 million, respectively.

Other Income - net

Our other income - net in 2016 and 2015 were almost the same at P =493.5 million. The movements in
the account were attributable to the following: 1) favorable impact of changes in foreign exchange
rate since the Group is in net financial asset position, net effect was P
=40.3 million; 2) recognized gain
of P
=239.6 million on the sale of the Parent Company’s 12.5% interest in THNC to SMM; 3) decrease in
impairment losses on input VAT by P =33.0 million; and 4) increase in special projects by P=29.2 million.
However, the said increases were partially offset by: 1) demurrage incurred in 2016 amounting to
=107.0 million compared to a despatch of P
P =39.0 million in 2015; 2) no business acquisitions happened
in 2016, thus no gain on bargain purchase was recognized; 3) decrease in reversal of allowance for
impairment losses on inventories by P =29.1 million; 4) impairment losses on property and equipment
amounting to P =12.8 million was recognized in 2016; and 5) impairment losses on AFS financial assets
of P119.2 million and trade and other receivables of P25.0 million were also recognized in 2016.

Provision for Income Tax

Provision for income tax was P1,449.5 million in 2016 compared to P1,667.3 million in 2015, a
decrease of P217.8 million, or 13%. Our current provision for income tax in 2016 was P1,441.5 million
compared to P1,605.7 million in 2015, a decrease of P164.2 million, or 10% primarily due to the
decrease in our taxable income in 2016 resulting from lower sales revenue. Our provision for deferred
income tax in 2016 was P=8.0 million compared to P=61.5 million in 2015, a decrease of P
=53.5 million, or
87%. In 2015, the tax impact of movements in net operating loss carry-over (NOLCO) amounted to
=75.0 million provision for deferred income tax as compared in 2016 wherein a benefit of P
P =27.5
million was recognized. Provision for deferred income tax on allowance for impairment losses was
higher in 2015 due to reversals of allowance for inventory losses and impairment losses on property
and equipment amounting to around P =44.3 million as compared to 2016 wherein the total movement
in allowance resulted to a benefit of P=9.9 million. Benefit from deferred income tax on Executive
Stock Option Plan (ESOP) accrual was lower by P =10.5 million in 2016 compared to 2015. Moreover,
the Group recognized a benefit in movement of excess of minimum corporate income tax over regular
corporate income tax in 2015 amounting to P =13.5 million compared to a provision of P =27.5 million in
2016. The tax impact of unrealized foreign exchange gains in 2016 was higher by P =37.0 million as
compared in 2015.

Net Income
As a result of the foregoing, our consolidated net income was P2,711.1 million in 2016 compared to
P3,044.8 million in 2015. Net of non-controlling interests, our net income was P1,966.1 million in
2016 compared to P2,035.1 million in 2015, a decrease of P69.0 million, or 3%.

43


Calendar year ended December 31, 2015 compared with calendar year ended December 31, 2014

Revenues
Our total revenues were P15,431.6 million in 2015 compared to P24,745.7 million in 2014, a decrease
of P9,314.1 million, or 38%.

Sale of ore
We sold an aggregate 19,671.6 thousand WMT of nickel ore in 2015, an increase of 10% compared to
17,873.3 thousand WMT of nickel ore in 2014. Our sales in 2015 included 7,058.9 thousand WMT of
saprolite ore sold to customers in Japan, China and Australia, 4,814.8 thousand WMT of limonite ore
to our customers in China and Australia, and 7,797.9 thousand WMT of limonite ore to CBNC and
THNC compared to sales of 5,740.5 thousand WMT, 4,726.6 thousand WMT and 7,406.2 thousand
WMT, respectively, in 2014.

The direct exports of ore mainly contributed to the higher shipments, increasing to 11,873.6 thousand
WMT in 2015 from 10,467.1 thousand WMT in 2014. Ore deliveries to the two HPAL plants likewise
rose, in particular to the Taganito HPAL facility, which just completed its first full year of operations at
full capacity. The said plant was operating at an average 80% capacity in 2014. Total ore deliveries to
the two HPAL plants reached 7,797.9 thousand WMT in 2015 compared to 7,406.2 thousand WMT in
2014.

The record volume of ore shipments achieved in 2015 was not sufficient to offset the fall in nickel
prices, resulting to a decrease in the estimated value of shipments from P23,736.6 million in 2014 to
P14,381.5 million in 2015.

The realized nickel price on 11,873.6 thousand WMT of direct exports of ore in 2015 averaged $22.64
per WMT, much lower than the average of $45.10 per WMT realized in 2014. It will be recalled that
there was a surge in ore prices in 2014 due to the expectation of supply tightness resulting from the
effects of the Indonesian export ore ban, which did not occur.

With respect to low-grade limonite ore sold to both the Coral Bay and Taganito plants, which
continues to be linked to LME prices, the Group realized an average of $5.36 per pound of payable
nickel in 2015. This compares to an average price of $7.69 per pound of payable nickel sold in 2014.

RTN’s revenue from sale of nickel ore was P =4,646.7 million in 2015 compared to P
=6,610.4 million in
2014, a decrease of P =1,963.7 million or 30%. RTN sold an aggregate 6,551.9 thousand WMT of nickel
ore in 2015 compared to an aggregate 5,972.4 thousand WMT of nickel ore sold in 2014. The volume
of saprolite ore sold to Japanese customers decreased by 160.7 thousand WMT or 18% and the
volume of saprolite and limonite ore sold to Chinese customers increased by 639.9 thousand WMT or
38%. In 2015, RTN also shipped 111.5 thousand WMT of saprolite ore to Australia. Lastly, the volume
of limonite ore sold to CBNC decreased by 11.2 thousand WMT.

TMC’s operations became the largest and accounted for 39% of total shipments in 2015. TMC’s
revenue from sale of nickel ore was P=5,069.8 million in 2015 compared to P
=8,479.0 million in 2014, a
decrease of P=3,409.2 million, or 40%. TMC sold an aggregate 7,740.7 thousand WMT of nickel ore in
2015 as compared to an aggregate 7,087.7 thousand WMT of nickel ore in 2014. The volume of
saprolite ore sold to Japanese customers decreased by 8.7 thousand WMT or 1% and the volume of
saprolite and limonite ore sold to Chinese customers increased by 258.8 thousand WMT or 11%.
Further, TMC was able to deliver 4,426.3 thousand WMT of limonite ore to THNC plant in 2015 as
against 4,023.4 thousand WMT of limonite ore in 2014.

CMC’s revenue from sale of nickel ore was P =2,350.2 million in 2015 compared to P
=3,595.5 million in
2014, a decrease of P
=1,245.3 million, or 35%. CMC sold an aggregate 2,169.5 thousand WMT of nickel
ore in 2015 compared to an aggregate 1,350.3 thousand WMT of nickel ore in 2014. Limonite

44


shipments from CMC mine rose more than three times to 1,441.5 thousand WMT in 2015 compared
to 460.7 thousand WMT in 2014. On the other hand, the saprolite ore sales from Cagdianao mine was
728.0 thousand WMT in 2015 compared to 889.6 thousand WMT in 2014.

HMC’s revenue from sale of nickel ore was P=2,314.8 million in 2015 compared to P
=5,051.7 million in
2014, a decrease of P
=2,736.9 million, or 54%. In 2015, HMC managed to sell an aggregate 3,209.5
thousand WMT of saprolite and limonite ore to Chinese customers compared to 3,462.9 thousand
WMT in 2014.

RTN’s revenue from sale of limestone ore was P =414.1 million in 2015 compared to P=316.1 million in
2014, an increase of P
=98.0 million or 31%. There was an increase in limestone sales in 2015 of 164.3
thousand WMT or 38% due to deliveries to UMPI, which started in August 2014 only.

Services and Others

Our revenue from services and others was P
=636.0 million in 2015 compared to P
=693.0 million in 2014,
a decrease of P
=57.0 million, or 8%. The decrease in our revenues from services and others in 2015
was due to decrease in materials handling services rendered by RTN to CBNC since the processing of
limestone and slake lime of CBNC was now handled by another contractor.

Costs
Our costs amounted to P6,637.2 million in 2015 compared to P5,727.6 million in 2014, an increase of
P909.6 million, or 16%.

Cost of Sale of Ore

Our cost of sale of ore was P6,279.2 million in 2015 compared to P5,356.4 million in 2014, an
increase of P922.8 million, or 17%. Aside from the 10% increase in volume of shipments, the
movement in cost of sale of ore was also attributable to the increase in outside services from
=1,246.4 million to P
P =1,753.5 million. The weather allowed for saprolite mining activities in TMC mine
and in-house resources were utilized for the said activities. Also, limonite mining and hauling were
done by contractors, and this contributed to the increase in cost. RTN also hired contractors for its
hauling activities.

Cost of Services
Cost of services was P357.9 million in 2015 compared to P371.1 million in 2014, a decrease of
P13.2 million, or 4%. In 2015, the cost of materials handling services of RTN decreased by P30.6
million because most of the limestone and slake lime processing that was previously handled by RTN
for CBNC was now handled by another contractor. The decrease was partially offset by the 4%
increase in volume handled by TMC for THNC in 2015 which increased its cost by P19.5 million. Aside
from that, there was an increase in the personnel cost which was directly attributable in rendering of
service.

Operating Expenses
Our operating expenses amounted to P3,890.6 million in 2015 compared to P4,717.8 million in 2014,
a decrease of P827.2 million, or 18%.

Shipping and Loading

Shipping and loading costs were P =1,757.9 million for the year 2015 compared to P =1,837.6 million for
the year 2014, a decrease of P =79.7 million, or 4%. As a result of 13% increase in the volume of our
direct export of ores, contract fees increased by P
=58.7 million due to additional LCT rentals. However,
the said increase was offset by the movement in fuel, oil and lubricants which decreased by P =84.7
million as a result of the significant drop in the price of diesel, and other services and fees which
decreased by P=53.5 million.

45


Excise Taxes and Royalties

Our excise taxes and royalties were P=1,089.6 million in 2015 compared to P=1,754.8 million in 2014, a
decrease of P
=665.2 million, or 38%. The decrease in excise taxes and royalties was attributable to the
38% decline in our sale of ore in 2015 as compared to 2014.

General and Administrative

General and administrative expenses were P =912.9 million for the year 2015 compared to P =956.5
million for the year 2014, a decrease of P
=43.6 million, or 5%. The decrease in taxes and licenses by
=78.6 million mainly caused the decrease in the account. Lower taxes and licenses were attributable
P
to lower fringe benefit tax paid on stock option exercised in 2015. In 2014, a total of 11.4 million
shares were exercised, with corresponding fringe benefit tax of P =116.4 million, as compared to only
2.6 million shares in 2015, with corresponding fringe benefit tax of P =19.0 million. Moreover, the
benefit given in 2014 was higher because the Company’s stock price at exercise dates ranges from
=17.02 to P
P =47.80 compared to P =20.40 in 2015. The decrease in taxes and licenses was partially offset
by the increase in local business tax since the basis used was the revenues in 2014 which was
significantly higher. Donations of the Group in 2014 were also higher by P13.6 million since the
majority of the rehabilitation and reconstruction of houses in Guiuan, Eastern Samar, which was
strongly hit by the typhoon, was completed on the same year. The decrease in the account was
partially offset by the care and maintenance cost incurred by HMC for its South Dinagat mine plus
other publicity and promotional expenses of the Group.

Marketing
Marketing costs were P=130.2 million and P
=168.9 million in 2015 and 2014, respectively. The decrease
in marketing cost was also brought by the decline in our sales revenue in 2015 compared with 2014.
Commission paid by CMC to its claimowner and the marketing fee paid to Mitsubishi Corporation are
based on certain percentage of sales revenue.

Finance Income
Our finance income was P305.1 million in 2015 compared to P172.1 million in 2014, an increase of
P133.0 million, or 77%. In 2015, due to the excess cash of the Group, the Parent Company put up
additional investments in various debt instruments which led to the increase in interest income
earned in 2015 compared with 2014. Total investments in debt instruments accounts for 75% of the
total AFS financial assets.

Finance Expenses
Our finance expense was P179.1 million in 2015 compared with P164.4 million in 2014, an increase of
P14.7 million, or 9%. Basically, the movement in our finance expense arises from interest on loans
availed by EPI which amounted to P30.8 million. But the increase was partially offset by the decrease
in guarantee service fee by P10.6 million due to principal repayments made by THNC in 2015.

Equity in Net Income (Losses) of Associates

Our equity in net income or losses of THNC and CBNC was P =811.4 million loss and P=522.4 million
income in 2015 and 2014, respectively. The result of THNC’s operations in 2015 and 2014 was a net
loss of US$61.7 million and a net income of US$32.1 million, respectively. On the other hand, the
results of CBNC‘s operations in 2015 and in the last three quarters of 2014 was a net loss of US$34.4
million and a net income of US$59.4 million, respectively.

Other Income - net

Our other income - net in 2015 was P=493.5 million compared to P =470.5 million in 2014, an increase of
=23.0 million, or 5%. The increase in the account was attributable to the following: 1) favorable
P
impact of changes in foreign exchange rate, with net effect of P =140.5 million; 2) increase in dividend
income from AFS financial assets by P=19.4 million; and 3) gain on bargain purchase of P =60.0 million
which arises from acquisition of Geogen. However, the said increase was partially offset by:
1) decrease in despatch income by P=28.3 million; 2) provision for impairment losses on input value
added tax of LCSLC of P=54.5 million; 3) decrease in reversal of allowance for impairment losses on

46


inventories by P
=78.0 million; 4) decrease in other income for special projects by P
=25.8 million; and
5) management fee/trust fee incurred for our managed funds increased by P13.2 million due to
additional acquisitions of AFS financial assets during the year 2015.

Provision for Income Tax

Provision for income tax was P1,667.3 million in 2015 compared to P4,292.8 million in 2014, a
decrease of P2,625.5 million, or 61%. Our current provision for income tax in 2015 was P1,605.7
million compared to P4,265.5 million in 2014, a decrease of P2,659.8 million, or 62% primarily due to
the decrease in our taxable income in 2015 resulting from lower sales revenue. Our provision for
deferred income tax in 2015 was P=61.5 million compared to P
=27.4 million in 2014, an increase of
=34.1 million, or 124%. The movement in the account pertains mainly to the application and
P
expiration of NOLCO in 2015 with corresponding tax impact of P =74.4 million and P =9.1 million,
respectively, which was higher compared in 2014 of P
=44.2 million and P
=7.4 million, respectively.

Net Income
As a result of the foregoing, our consolidated net income was P3,044.8 million in 2015 compared to
P11,008.1 million in 2014. Net of non-controlling interests, our net income was P2,035.1 million in
2015 compared to P8,551.6 million in 2014, a decrease of P6,516.5 million, or 76%.

FINANCIAL POSITION

Calendar year as at December 31, 2017 and 2016

Total assets amounted to P45,737.1 million in 2017 compared to P45,351.5 million in 2016.

Current assets increased to P =20,898.4 million from P=20,522.8 million mainly because of net
acquisitions of AFS financial assets amounting to P
=153.0 million and increase in inventories by P
=291.6
million.

The increase in noncurrent assets from P

=24,828.7 million to P
=24,838.7 million was attributable to the
additional project development cost incurred of P=90.0 million and equity take up of net income of
associates during the year amounting to P=198.0 million. However, the increase was partially offset by
the negative adjustment, amounting to P =69.8 million, in the capitalized cost of mine rehabilitation
and decommissioning under property and equipment and reclassification to current assets of long-
term stockpile amounting to P
=212.0 million.

The increase in total current liabilities from P

=7,945.8 million to P
=9,614.4 million pertains to the
remaining P=1,500.0 million loan of EPI from SBC which is due for payment in September 2018. In
2016, the said loan was classified under noncurrent liabilities.

In 2017, EPI paid 50% of its outstanding loan from SBC and the remaining balance of P =1,500.0 million
was reclassified under current liabilities, thus total noncurrent liabilities decreased from P=6,206.0
million to P
=2,904.5 million.

Our equity net of non-controlling interests as at December 31, 2017 increased to P=29,457.0 million
f ro m P
=27,020.5 million as of year-end 2016, due to net difference of cash dividends paid and net
earnings in 2017.

Calendar year as at December 31, 2016 and 2015

Total assets amounted to P45,351.5 million in 2016 compared to P41,730.4 million in 2015.

Current assets increased to P

=20,522.8 million from P =16,677.9 million mainly because of the increase
in cash and cash equivalents from P=7,073.2 million to P=9,647.9 million. The net increase in cash and
cash equivalents arose from cash from operations amounting to P =4,513.4 million, proceeds from sale
of 12.5% interest in THNC of P
=2,037.2 million, loans availment of P
=1,182.8 million, interest received of
=221.6 million, investments from non-controlling shareholders of P
P =226.9 million and favorable foreign

47


exchange impact in cash and cash equivalents of P =248.2 million less acquisitions of property and
equipment of P =3,337.0 million, amount spent for geothermal exploration and evaluation of P =463.2
million, cash dividends paid of P
=1,473.3 million and loan and interest payments of P=293.3 million.

The decrease in noncurrent assets from P =25,052.4 million to P =24,828.7 million was attributable
mainly to the sale of the Parent Company’s 12.5% interest in THNC plus the equity take up of net
losses of associates in 2016 which resulted to a decrease of P =2,182.0 million. Long-term stockpile
inventory also decreased by P =217.5 million due to ore deliveries to CBNC. However, the decrease was
partially offset by the net increase in property and equipment by P =1,656.8 million and geothermal
exploration and evaluation assets by P=463.2 million.

Total current liabilities increased to P

=7,945.8 million from P
=7,713.2 million due to increase in income
tax payable by P =312.9 million and current portion of long-term debt by P =23.8 million. This was
partially offset by the decrease in trade and other payables by P
=109.0 million.

Total noncurrent liabilities increased to P

=6,206.0 million from P
=4,603.9 million due to full drawdown
of EPI’s long-term bank loans amounting to P =890.0 million and bank loans availed by Jobin amounting
to P
=300.0 million. Moreover in 2016, the Group re-assessed its provision for mine rehabilitation and
decommissioning which resulted to additional provisions recognized amounting to P =263.6 million.
Deferred income tax liabilities also increased from P =731.5 million to P
=876.5 million due to the tax
effect of increase in unrealized foreign exchange gains, adjustment in undepleted asset retirement
obligation, capitalized borrowing costs, movement in share in cumulative translation adjustment and
reduction in long-term stockpile inventory.

Our equity net of non-controlling interests as at December 31, 2016 increased to P=27,020.5 million
f ro m P
=25,511.9 million as of year-end 2015, due to net difference of cash dividends paid and net
earnings in 2016.

CASH FLOWS

Calendar years ended December 31, 2017, 2016 and 2015

The net cash flows from operating activities amounted to P5,296.3 million in 2017 compared to
P4,513.4 million in 2016 and P4,858.2 million in 2015, as proceeds from the sale of ore were higher in
2017 and 2015 compared to 2016 because of higher ore prices or volume sold. Increase in ore prices
in 2017 was due to higher average prices, in part the result of a change in the ore mix to higher value
ore, and a more favorable Peso to US dollar exchange rate. In 2015, the volume of shipment was
higher compared to 2016.

The net cash used for investment activities amounting to P1,468.1 million, P1,840.2 million and
P9,285.5 million in 2017, 2016 and 2015, respectively, arises mainly from net acquisitions of property
and equipment amounting to P1,474.3 million, P3,337.0 million and P3,913.6 million, respectively,
and net acquisitions of AFS financial assets amounting to P265.4 million, P344.8 million and P3,229.1
million, respectively. The Group also spent P21.8 million, P463.2 million and P470.7 million for the
geothermal exploration and evaluation assets of its Montelago project in 2017, 2016 and 2015,
respectively. In 2016, the cash used in investing activities was partially offset by P2,037.2 million
proceeds from the sale of the Parent Company’s 12.5% interest in THNC. In addition, in 2015 a loan
amounting to P1,000.0 million was issued to East Coast and new subsidiaries were acquired
amounting to a total of P800.8 million.

In 2017, 2016 and 2015, the net cash used in financing activities amounting to P3,807.7 million,
P346.6 million and P2,195.2 million, respectively, arises mainly from payments of cash dividends,
short and long-term debts plus the related interest. However, these payments were partially offset by
the proceeds from loan availments of P2,099.4 million in 2015 and P1,182.8 million in 2016.
As at December 31, 2017, 2016 and 2015, cash and cash equivalents amounted to P9,645.9 million,
P9,647.9 million and P7,073.2 million, respectively.

48


TOP FIVE KEY PERFORMANCE INDICATORS

1) SALES VOLUME
The volume of saprolite ore that we sell largely depends on the grade of saprolite ore that we
mine. The volume of limonite ore that we sell to our customers in China largely depends on the
demand for NPI and carbon steel in China. PAMCO purchases our high-grade saprolite ore that
we are able to extract and ship at any given time. With respect to our low-grade saprolite and
limonite ore, in periods when we are able to extract more ore than we are able to ship, we
generally continue our mining operations and stockpile such ore for sale when demand improves
or when prices rise to more attractive levels. As stated above, the volume of our low-grade
saprolite ore and limonite ore sales to our Chinese customers is roughly correlated with the LME
nickel price, with volume increasing as nickel prices rise. In addition to sales of nickel ore to
PAMCO, SMM and our customers in China and Australia, we sell limonite ore from our Rio Tuba
mine to the Coral Bay HPAL facility, in which we have a 10% equity interest, and from our
Taganito mine to the Taganito HPAL facility, in which we also have a 10% equity interest. CBNC
purchases an amount of limonite ore from us sufficient to meet its ore requirements. The annual
capacity of its Coral Bay HPAL facility was originally 10,000 tonnes of contained nickel and was
expanded to 20,000 tonnes of contained nickel in the second half of 2009, resulting in a higher
volume of limonite ore sales from RTN. In 2010, the Coral Bay HPAL facility was able to attain an
annual capacity of 24,000 tonnes as a result of the facility’s expansion in 2009 which became fully
operational in 2010. The Taganito HPAL facility has an annual capacity of 30,000 tonnes of mixed
nickel-cobalt sulfide over an estimated thirty (30) year Project life.

Type and Grade of Ore that we Mine

We realize higher sales prices for our saprolite ore than for our limonite ore. Accordingly, the
type and grade (which is a factor of nickel content) of the ore that we mine affects our revenues
from year to year. The quantity of saprolite ore that we mine annually depends on the customer
demand and the availability of such ore at our mine sites. The mix between high-and low-grade
saprolite ore at our minesites coupled with our long-term mining plan determines the quantities
of each that we extract on an annual basis. The quantity of limonite ore that we mine on an
annual basis depends on the amount of such ore that needs to be removed in order to extract the
saprolite ore, as well as market demand.

In 2017 and 2016, we sold an aggregate of 17,702.5 thousand WMT and 19,254.1 thousand
WMT, respectively.

2) TOTAL COST PER VOLUME SOLD

The total cost per volume of ore sold provides a cost profile for each operating mine and allows
us to measure and compare operating performance as well as changes in per unit costs from year
to year.

The total cost includes production, shipping and loading costs, excise taxes and royalties,
marketing and general and administrative expenses incurred by the Group.

The average total cost per volume sold in 2017 is P =527.77 per WMT on the basis of aggregate
cash costs of P=9,342.9 million and a total sales volume of 17,702.5 thousand WMT of ore. This
compares to P =480.15 per WMT in 2016 on the basis of aggregate cash costs of P=9,244.9 million
and a total sales volume of 19,254.1 thousand WMT of ore.

3) ATTRIBUTABLE NET INCOME

Attributable net income represents the portion of consolidated profit or loss for the year, net of
income taxes, which is attributable to the Parent Company. This is a relevant and transparent
metric of the information contained in the consolidated financial statements. The net income
attributable to equity holders of the Parent Company is P
=2,770.8 million in 2017 compared to
=1,966.1 million in 2016.
P

49


4) NUMBER OF HECTARES REHABILITATED/REFORESTED

We adhere to the principles and practices of sustainable development. We are committed to
complying and following environmental regulations by implementing best practices in managing
environmental impacts of our operations. To manage environmental impacts, the Parent
Company's subsidiaries have an EPEP. This refers to the comprehensive and strategic
environmental management plan for the life of mining projects to achieve the environmental
management objectives, criteria and commitments including protection and rehabilitation of the
affected environment. A major component under our EPEP is the rehabilitation and reforestation
of the areas affected by our mining operations. We also participate in the government’s National
Greening Program where we plant trees and/or donate seedlings outside of our mining
properties. In 2017 and 2016, the Group has rehabilitated and reforested a total of 217 hectares
and 219 hectares, respectively, with corresponding number of trees planted of about 429,360
and 452,412, respectively.

5) FREQUENCY RATE
Health and safety are integral parts of our personnel policies. Our comprehensive safety program
is designed to minimize risks to health arising out of work activities and to assure compliance
with occupational health and safety standards and rules and regulations that apply to our
operations. We measure our safety effectiveness through the Frequency Rate which is the ratio
of lost-time accidents to total man-hours worked for the year. In 2017 and 2016, our frequency
rate is 0.04 and 0.05, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

Under the Suretyship Agreement executed by and between the Parent Company and Security Bank
Corporation (SBC) on August 4, 2015, the Parent Company solidarily with EPI guarantees and warrants
to SBC, its assigns and successors-in-interest, prompt and full payment and performance of EPI’s
obligations to SBC (see Note 15 to the Consolidated Financial Statements).

Other than the Suretyship Agreement mentioned above, we have not entered into any off-balance
sheet transactions or obligations (including contingent obligations), or other relationships with
unconsolidated entities or other persons.

Item 7. FINANCIAL STATEMENTS

The audited financial statements are presented in Part V, Exhibits and Schedules.

Item 8. INFORMATION ON INDEPENDENT ACCOUNTANTS AND OTHER RELATED MATTERS

Our consolidated financial statements have been audited by SyCip Gorres Velayo & Co (“SGV & Co”)
(a member practice of Ernst & Young Global Limited), independent auditors, as stated in their reports
appearing herein.

Mr. Jaime F. del Rosario is our current audit partner. He replaced Ms. Eleanore A. Layug who had
served the Company for five years following the regulatory policy of audit partner rotation every five
years. We have not had any disagreements on accounting and financial disclosures with our current
external auditors for the same periods or any subsequent interim period.

Audit and Audit-Related Fees

For the years 2017, 2016 and 2015, SGV & Co. were engaged primarily to express an opinion on the
financial statements of the Parent Company and its subsidiaries.

Non-Audit Services Fees

Non-audit services fees pertain to fees paid to SGV & Co. for the transfer pricing studies, enterprise
risk management, tax advisory and seminar fees.

50


The following table sets out the aggregate fees incurred in 2017 and 2016 for professional services
rendered by SGV & Co.:

2017 2016
(In Thousands)
Audit and Audit-Related Services =14,207
P =13,457
P
Non-Audit Services 1,713 1,574
Total =15,920
P =15,031
P

Audit Committee’s Approval of Policies and Procedures

Prior to the commencement of the year-end audit work, SGV & Co. present their program and
schedule to the Company’s Audit Committee, which include discussion of issues and concerns
regarding the audit work to be done. At the completion of the audit works, the Group’s audited
financial statements for the year are likewise presented by SGV & Co. to the Audit Committee for
committee approval and endorsement to the Board for final approval. The Audit Committee pre-
approve the terms of the annual audit services engagement. They also approve, if necessary, any
changes in terms resulting from changes in audit scope.

51


PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER

A. LIST OF DIRECTORS, EXECUTIVE OFFICERS AND COMMITTEES OF THE ISSUER

The BOD is principally responsible for the Company’s overall direction and governance. The
Company’s Articles of Incorporation provide for nine (9) members of the BOD, who shall be
elected by the stockholders. At present, two (2) of the Company’s nine directors are independent
directors. The BOD holds office for one (1) year and until their successors are elected and
qualified in accordance with the by-laws.

DIRECTORS
The following are the present directors of the Company:

No. of
Date First Date Last Years
Name Age Citizenship Position
Elected Elected served as
Director
Manuel B. Zamora, Jr. 79 Philippine Executive July 11, 2008 May 29, 2017
National Director, 9 years and
Chairman 5 months
Philip T. Ang 76 Philippine Executive July 11, 2008 May 29, 2017 9 years and
National Director and 5 months
Vice-Chairman
Luis J. L. Virata 64 Philippine Non-Executive July 11, 2008 May 29, 2017 9 years and
National Director 5 months
Gerard H. Brimo 66 Philippine Executive August 1, 2009 May 29, 2017 8 years and
National Director, 4 months
President and
Chief Executive
Officer
Martin Antonio G. Zamora 45 Philippine Executive July 30, 2013 May 29, 2017 4 years and
National Director, 5 months
Executive Vice
President
Takanori Fujimura 74 Japanese Non-Executive September 20, May 29, 2017 7 years and
National Director 2010 3 months
1
Takeshi Kubota 63 Japanese Non-Executive March 1, 2010 May 29, 2017 7 years and
National Director 9 months
Toru Higo2 56 Japanese Non-Executive November 6, November 6, 1 month
National Director 2017 2017 and 25
days
Fulgencio S. Factoran, Jr. 74 Philippine Independent September 20, May 29, 2017 7 years and
National Director 2010 3 months
Frederick Y. Dy 63 Philippine Independent September 24, May 29, 2017 7 years and
National Director 2010 3 months

1
Mr. Takeshi Kubota resigned as director effective November 6, 2017.
2
Mr. Toru Higo was elected director by the BOD on November 6, 2017 to fill up the vacancy in the BOD resulting from
the resignation of Mr. Takeshi Kubota.

52
Mr. Manuel B. Zamora, Jr. is a majority shareholder of Mantra Resources Corp. Mr. Philip T. Ang is a
majority shareholder of Ni Capital Corporation.

Certain information on the business and working experience of our Directors and Executive Officers is set
out below:

MANUEL B. ZAMORA, JR. is the Chairman and a founder of the Company and the Chairman of the
Nominations and Corporate Governance Committees of the Board. He is the Chairman of RTN, TMC,
CExCI and CBNC. He is also a director of the Company’s subsidiary, EPI and a number of other companies
in the Philippines, including CLSA Exchange Capital Inc. (CLSA). He once served as Chairman of the
Chamber of Mines of the Philippines. Mr. Zamora is a lawyer and a member of the Integrated Bar of the
Philippines. He received his Bachelor of Science degree from the University of the Philippines. He placed
third in the 1961 Bar Examinations after receiving his Bachelor of Laws degree from the University of the
Philippines.

The Chairman has not been Chief Executive Officer (CEO) of the Company since August 2009.

PHILIP T. ANG is the Vice Chairman of the Company. He is the Chairman of HMC, CMC and the Vice
Chairman for TMC. He is also Director of RTN and EPI. He is an Independent Director of Security Bank
Corporation and a Director of its subsidiary, SB Capital Investment Corp. He was previously involved in
the textile business as Chairman and President of Solid Mills, Inc. and Unisol Industries and
Manufacturing Corp., and as a Director of Investors Assurance Corp. and International Garments Corp.
He received his Bachelor of Science in Business Administration degree from Oregon State University and
his Master of Business Administration degree from the University of Denver, USA.

LUIS J. L. VIRATA is a director of the Company. He is the Chairman and CEO of CLSA. Mr. Virata is also
the Chairman of Cavitex Holdings, Inc., President of Exchange Properties Resources Corp., founder and a
Director of Amber Kinetics, Inc. and holds shares in these companies through a family-owned holding
company, Nonillion Holding Corporation. Mr. Virata is also a Director of Benguet Corporation. He also is a
Founder, Trustee of Asia Society Philippine Foundation and the Metropolitan Museum of Manila and is a
member of the Huntsman Foundation. Mr. Virata previously held positions with Dillon, Read and Co.,
Crocker National Bank, Bankers Trust Company, Philippine Airlines, NSC Properties, Inc., the Philippine
Stock Exchange, the Makati Stock Exchange, and National Steel Corp. He received his Bachelor of Arts
and Master of Arts degrees in Economics from Trinity College, Cambridge University and his Master of
Business Administration degree from the Wharton School of the University of Pennsylvania.

GERARD H. BRIMO is a director and the President and CEO of the Company since August 2009 and a
member of the Board Risk Oversight and Corporate Governance Committees of the Board. He is the
President of RTN, TMC, CMC, HMC, CExCI, Newminco Nickel Mining Corp. and Newminco and is the
Chairman of EPI. Prior to his career in mining, he worked for Citibank for a period of eight (8) years,
resigning as Vice President in the bank’s Capital Markets Group in Hong Kong prior to joining Philex
Mining Corporation as Vice President-Finance. Mr. Brimo served as Chairman and CEO of Philex Mining
Corporation from 1994 until his retirement in December 2003. He served as President of the Chamber of
Mines of the Philippines from 1993 to 1995, as Chairman from 1995 to 2003. He was again elected
Chairman in 2017, a position he currently holds. He received his Bachelor of Science degree in Business
Administration from Manhattan College, USA and his Master of Business Management degree from the
Asian Institute of Management.

MARTIN ANTONIO G. ZAMORA is the Executive Vice President of the Company and serves as Director of
all the subsidiaries of the Company. He is the President of Geogen and Senior Vice President of RTN and
HMC. Before joining NAC in 2007, Mr. Zamora was the Philippine Country Manager and a Director of UPC
Renewables, a global developer, owner and operator of wind farms and solar facilities. Prior to that, he
worked for ten (10) years for finance and investment banking firms such as CLSA, Robert Fleming & Co.
(UK), Jardine Fleming, and SyCip Gorres Velayo & Co. He received his Bachelor of Science in Management
from Ateneo de Manila University (Philippines), his MBA from London Business School (UK), and his
Masters in Organizational Psychology from INSEAD.

53


TAKANORI FUJIMURA is a director of the Company. He is the Chairman of the Related Party Transactions
Committee and a member of the Audit Committee of the Board. Mr. Fujimura is also a Director of the
following subsidiaries of SMM: Sumitomo Metal Mining Philippine Holdings Corporation, THNC, and
CBNC. Prior to joining SMM in 2002, Mr. Fujimura was the Director and General Manager of the
Overseas Business Department of PAMCO. He began his professional career in PAMCO in 1970, and was
once assigned as the General Manager of PAMCO's New Caledonia and Manila offices. As PAMCO's
representative in the Philippines, he was seconded as Vice President of RTN and TMC. He received his
Bachelor of Science degree in Mining Engineering from Waseda University, Japan.

TAKESHI KUBOTA was a director of the Company until November 6, 2017. During his directorship,
Mr. Kubota was a member of the Nominations Committee of the Board. Mr. Kubota is also a qualified
executive of SMM and President of Sumitomo Metal Mining Philippine Holdings Corporation, CBNC and
THNC. He began his career with SMM in 1977 and occupied the following positions prior to assuming his
current post: chief representative of the SMM London office, Manager of the Copper & Precious Metal
Sales and Raw Materials Department, General Manager of the Nickel Sales and Raw Materials
Department, General Manager of the Nickel Business Unit, Managing Executive Officer of the Non-
Ferrous Division, and Director and Senior Managing Executive Officer of SMM. He received his Bachelor
of Arts degree in Economics from Keio University, Japan.

TORU HIGO was elected director of the Company on November 6, 2017. Mr. Higo is also a Qualified
Executive of SMM and the President of Sumitomo Metal Mining Philippine Holdings Corporation, CBNC
and THPAL. He began his career with SMM in 1986 and occupied the following positions prior to
assuming his current post: Company Secretary of SMM Oceania, General Manager of the Nickel Sales and
Raw Materials Department and General Manager of Copper and Precious Metals Raw Materials
Department. He received his Bachelor of Science degree in Mathematics from Rikkyo University in Tokyo,
Japan.

FULGENCIO S. FACTORAN, JR. is an independent director of the Company and is the Chairman of the
Board Risk Oversight Committee and a member of the Related Party Transactions and Nominations
Committees of the Board. Mr. Factoran is also the Chairman of GAIA South, Inc. and Agility, Inc., and an
independent director of Atlas Consolidated Mining and Development Corporation. He was previously a
Director of Central Azucarera de Tarlac and Business Certification International, Ltd. He previously held
several government positions, such as Trustee of the Government Service and Insurance System,
Secretary of the DENR, Chairman of the National Electrification Administration, Chairman of the
Philippine Charity Sweepstakes, Director of the National Development Corp., Trustee of the
Development Academy of the Philippines and Deputy Executive Secretary under the Corazon Aquino
administration. He received his Bachelor of Arts in Humanities and Bachelor of Laws degrees, the latter
as Valedictorian, from the University of the Philippines and his Master of Laws degree from Harvard Law
School, USA.

FREDERICK Y. DY is an Independent Director of the Company, Chairman of the Audit Committee and a
Member of the Related Party Transactions and Corporate Governance (Remuneration) Committees of
the Board. Mr. Dy is also the Chairman Emeritus of Security Bank Corporation, the Chairman of City
Industrial Corporation, the Chairman of St. Luke’s Medical Center, a Trustee of St. Luke’s College of
Medicine, and a Director of Ponderosa Leather Goods Company, Inc. He received his Bachelor of Science
degree in Industrial Engineering from Cornell University, USA.

54


EXECUTIVE OFFICERS
Our Executive Officers, together with our Executive Directors, are responsible for our day-to-day
management and operations. The following table sets forth information regarding our Executive Officers.

Name Age Citizenship Position

Senior Vice President - Chief Operating
Jose B. Anievas 73 Philippine National Officer/Chief Risk Officer
Senior Vice President - Chief Financial
3
Emmanuel L. Samson 58 Philippine National Officer
Raymundo B. Ferrer 62 Philippine National Senior Vice President for Security
Vice President for Project Development
4
Rolando R. Cruz 57 Philippine National and Research
Augusto C. Villaluna 68 Philippine National Vice President - Operations
Vice President for Legal and Special
Projects/Assistant Corporate
5
Jose Roderick F. Fernando 44 Philippine National Secretary/Compliance Officer
Vice President for Legal and Special
Projects/Assistant Corporate
6
Georgina Carolina Y. Martinez 51 Philippine National Secretary/Compliance Officer
Koichi S. Ishihara 44 Japanese National Vice President for Marketing & Purchasing
Vice President for Corporate
Jose Bayani D. Baylon 55 Philippine National Communications
Vice President for Internal Audit/Chief
Ma. Angela G. Villamor 52 Philippine National Audit Executive
Gerardo Ignacio B. Ongkingco 59 Philippine National Vice President - Human Resources
Assistant Vice President - MIS and
Marnelle A. Jalandoon 47 Philippine National Administration
Assistant Vice President for Environment
7
Rogel C. Cabauatan 59 Philippine National and Community Relations
Assistant Vice President for Regulatory
Affairs Claims Management and Labor
8
Ryan Rene C. Jornada 39 Philippine National Relations
Barbara Anne C. Migallos 63 Philippine National Corporate Secretary

Information on the business and working experience of our Executive Officers is set out below:

JOSE B. ANIEVAS is the Senior Vice President for Operations, Chief Operating Officer and Chief Risk
Officer of the Company. He started working with TMC in 2009 as its Resident Mine Manager and later as
its Vice President for Operations. He has worked with the mining industry for more than fifty (50) years,
thirty-seven (37) years with Philex Mining Corporation and Philex Gold Philippines as its Vice President
for Operations until his retirement in December 2002, four (4) years as a freelance mining engineer, two
(2) years with Carrascal Nickel Corporation, five (5) years with TMC and currently with NAC. He also
served the Government in the Professional Regulation Commission as a member of the Board of
Examiners for Mining Engineering in 1997-2000 and was President of the Philippine Society of Mining
Engineers in the Caraga region in 2010-2012. He is a Fellow of the Society of Mining Engineers and a
Competent Person in the Copper and Gold operations. Mr. Anievas earned his Bachelor of Science in
Mining Engineering from Mapua Institute of Technology and subsequently passed the Board Exams in
1967. He also received a certificate for completing the Management Development Program from the
Asian Institute of Management in 1978.

3
Mr. Emmanuel L. Samson held the position of Chief Risk Officer until August 31, 2017.
4
Mr. Rolando R. Cruz held the position of Vice President for Operations until August 14, 2017.
5
Until August 31, 2017.
6
Effective September 1, 2017.
7
Effective June 1, 2017.
8
Effective December 1, 2017.

55


EMMANUEL L. SAMSON is the Senior Vice President and Chief Financial Officer of the Company and is
responsible for the finance and treasury functions of the NAC Group. He is a member of the BOD of EPI
and is also its Treasurer. Prior to joining NAC in 2006, Mr. Samson was Senior Country Officer for Credit
Agricole Indosuez in the Philippines. Mr. Samson has eleven (11) years’ experience in the Philippine
equities markets having held positions with W.I. Carr Indosuez Securities (Phils.) Inc., Amon Securities
Corporation and Rizal Commercial Banking Corporation.

RAYMUNDO B. FERRER is the Senior Vice President for Security. He joined the Company in May 2012.
He is a retired Lieutenant General from the Armed Forces of the Philippines. Some of his previous
assignments prior to his compulsory retirement on January 23, 2012 was Commander of Western
Mindanao Command, Commander of Eastern Mindanao Command, Commander of the 6th Infantry
Division, Philippine Army operating in Central Mindanao; Commander of the 1st Infantry Division,
Philippine Army operating in Zamboanga Peninsula; and Commander of 103rd Infantry Brigade in Basilan
Province.

ROLANDO R. CRUZ is the Vice President for Project Development and Research of the Company and is
responsible for the assessment and development of projects, concepts and plans for the growth and
economic sustainability of the business. Engr. Cruz is a licensed mining engineer in the Philippines with
over twenty-five (25) years of professional experience in both mining operations and project
development in gold, copper, chromite, concrete aggregates, nickel, and oil sands deposits using the
open pit and underground bulk mining methods. He has held various positions with firms such as Albian
Sands Energy, Inc. (Canada), Berong Nickel Corporation, Concrete Aggregates Corporation, Philex Mining
Corporation, and Benguet Corporation.

AUGUSTO C. VILLALUNA is the Vice President for Operations responsible for the Rio Tuba and Hinatuan
mines of the Company. Engr. Villaluna is a licensed Mining Engineer/Fellow with over forty-two (42)
years’ experience in both underground and surface mining. He last served as Executive Vice President of
Lepanto Consolidated Mining Company and Senior Vice President and member of the BOD of Manila
Mining Corporation. He received his Bachelor of Science degree in Mining Engineering from Mapua
Institute of Technology. He is a director of the Philippine Mine Safety and Environment Association. He is
a Competent Person under the PMRC, as well as, a registered APEC and ASEAN Engineer. Engr. Villaluna
sits as member of the Board of Mining Engineering of the Professional Regulation Commission.

JOSE RODERICK F. FERNANDO was the Vice President for Legal and Special Projects and the Assistant
Corporate Secretary of the Company until August 31, 2017. He was also the Compliance Officer of the
Company and the Corporate Secretary of the Company’s subsidiaries. Prior to joining the Company in
2008, Mr. Fernando was a practicing lawyer with Balane Tamase Alampay Law Office for seven (7) years,
specializing in commercial litigation, labor and corporate law. He obtained his Juris Doctor from Ateneo
Law School and he has a Master of Laws from the University of Pennsylvania Law School. Mr. Fernando is
admitted to both the Philippine Bar and the New York State Bar.

GEORGINA CAROLINA Y. MARTINEZ, is the Vice President for Legal and Special Projects and the Assistant
Corporate Secretary of the Company, being primarily responsible for the Group’s legal matters, including
claims and tenements. She is likewise the Compliance Officer of the Company and the Asst. Corporate
Secretary of EPI, CExCI and Newminco. Prior to her appointment with the Company, Ms. Martinez was
the Senior Vice President for Legal/HRAD of EPI. She obtained her Juris Doctor from Ateneo de Manila
University and is a member of the Philippine Bar. Ms. Martinez has over 24 years’ experience in the field
of commercial and corporate law.

KOICHI S. ISHIHARA is the Vice President for Marketing and Purchasing. Prior to joining NAC in 2011, he
was a Manager and Philippine Representative of PAMCO handling nickel and stainless market analysis
and update in Asian countries. He has also supported establishing a Hydro Metallurgical Processing Plant.

JOSE BAYANI D. BAYLON is the Vice President for Corporate Communications. He joined the Company in
June 2012. He has almost two decades of experience in the field of corporate communications and public
affairs. Prior to joining NAC, he was Vice President and Director for Public Affairs and Communications of
The Coca-Cola Export Corporation for 14 years, and, prior to that, was executive assistant and

56


speechwriter to Mr. Enrique Zobel at E. Zobel Inc. for 9 years. He was a public affairs commentator at
Radio Station DWWW 774 KhZ from 2001-2011 and has been contributing opinion pieces to the
newspaper Malaya Business Insight since 2001.

MA. ANGELA G. VILLAMOR is the Vice President for Internal Audit and Chief Audit Executive. She is
responsible for reviewing the Company’s organizational and operational controls, risk management
policies, and governance. Prior to joining NAC in 2011, she was a Senior Director in the Assurance
Division of SyCip Gorres Velayo & Co. She also worked as Senior Manager in KPMG UAE.

GERARDO IGNACIO B. ONGKINGCO is the Vice President for Human Resources. His career in Human
Resources started in the early 80’s and has been enriched with exposure to various industries;
government, manufacturing, agriculture and hospitality. He was past President of the Philippine Quality
and Productivity Movement, Davao Chapter. He earned his Bachelor’s Degree in Community
Development as well as his Masters in Industrial Relations from the University of the Philippines.

MARNELLE A. JALANDOON is the Assistant Vice President - MIS and Administration of the Company and
is responsible for the technology, communications infrastructure and administrative operations of the
Group. Prior to joining NAC in 2008, Mr. Jalandoon was the Technical Operations Director of Concentrix
Technologies, Inc, driving both the Technical Department and the Application Development Teams. He
has held various IT positions with Grand International Airways, First Internet Alliance, WebScape, I-Next
Internet and PSINET Philippines, garnering more than twenty (20) years experience in IT Infrastructure
and Communications.

ROGEL C. CABAUATAN is the Assistant Vice President for Environment and Community Relations and is
responsible for overseeing, guiding and coordinating the environmental and community relations
programs of the Company and its operating companies. Mr. Cabauatan has 32 years of experience in
environment management, community development and organization, and conflict management gained
while working in the government and mining industry. He obtained his Bachelor of Science in Forestry
from the University of the Philippines at Los Banos, Laguna.

RYAN RENE C. JORNADA is the Assistant Vice President for Regulatory Affairs, Claims Management and
Labor Relations. He is responsible for implementing and managing government and regulatory affairs
strategies to support the Company’s business and providing legal support services on claims
management and industrial and labor relations. Prior to joining the Company in 2011, he was an
associate in the law firm of Belo Gozon Elma Parel Asuncion and Lucila and was an election assistant for
nd
the COMELEC and political affairs officer of the congressional representative of the 2 district of Iloilo. A
member of the Philippine bar, Mr. Jornada obtained his Bachelor of Laws degree from the University of
Santo Tomas.

BARBARA ANNE C. MIGALLOS is the Corporate Secretary of the Company and its subsidiaries, EPI
and CExCI. She is the Managing Partner of Migallos and Luna Law Offices, and was a Senior Partner of
Roco Kapunan Migallos and Luna from 1986 to 2006. A practicing lawyer since 1980, Ms. Migallos
focuses principally on corporate law, mergers and acquisitions, and securities law. She is a Director
and Corporate Secretary of Philex Mining Corporation and a Director of Mabuhay Vinyl Corporation, both
publicly listed companies. She is also Corporate Secretary of PXP Energy Corporation and of Alliance
Select Foods International, Inc. both also listed companies. She is a Director of Philippine Resins
Industries, Inc. and other corporations, and is Corporate Secretary of Eastern Telecommunications
Philippines, Inc. Ms. Migallos is a professorial lecturer at the DLSU College of Law and chairs its
Mercantile Law and Taxation Department.

No director or senior officer of the Company is or has been in the past two years, a former employee or
partner of the current external auditor.

Also, the Company discloses the transactions of its directors and officers as required by applicable laws
and regulation.

57


B. SIGNIFICANT EMPLOYEES/EXECUTIVE OFFICERS

No single person is expected to make a significant contribution to the business since the Company
considers the collective efforts of all its employees as instrumental to the overall success of the
Company’s performance.

C. FAMILY RELATIONSHIP

Aside from Mr. Martin Antonio G. Zamora being the son of Mr. Manuel B. Zamora, Jr., and Mr. Ryan
Rene C. Jornada being a third civil degree relative by affinity of Mr. Manuel B. Zamora, Jr. and a fourth
civil degree relative by affinity of Mr. Martin Antonio G. Zamora, none of our Executive Officers are
related to each other or to our Directors and substantial Shareholders.

D. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

None of the members of our Board, nor any of our executive officers, has been or is involved in any
criminal, bankruptcy or insolvency investigations or proceedings for the past five years and up to the
date of this report. None of the members of our Board, nor any of our executive officers, has been
convicted by final judgment of any offense punishable by the laws of the Republic of the Philippines or of
any other nation or country. None of the members of our Board nor any of our executive officers have
been or are subject to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities,
commodities or banking activities. None of the members of our Board nor any of our executive officers
have been found by a domestic or foreign court of competent jurisdiction (in a civil action), the
Commission or comparable foreign body, or a domestic or foreign Exchange or other organized trading
market or self-regulatory organization, to have violated a securities or commodities law or regulation.

Item 10. EXECUTIVE COMPENSATION

The table set out below identifies our CEO and four most highly compensated executive officers (the
“named executive officers”) and summarizes their aggregate compensation in 2016 and 2017 and their
estimated compensation for 2018. The amounts set forth in the table have been prepared based on
what we paid for the compensation of our executive officers for the years indicated and what we expect
to pay on the ensuing year.

December 31, 2018

December 31, 2016 December 31, 2017 (Estimated)
Salary Bonus Total Salary Bonus Total Salary Bonus Total
(In Php Thousands)
Named executive
officers (1) P29,793 P17,565 P47,358 P33,967 P27,766 P61,733 P36,005 P29,432 P65,437
All other officers and
directors as a group
unnamed 23,786 10, 093 33,879 33, 058 12, 656 45,714 35, 042 13, 415 48, 457

1
The named executive officers are: Gerard H. Brimo (President and CEO), Martin Antonio G. Zamora (Executive Vice President),
Emmanuel L. Samson (Chief Financial Officer), Jose B. Anievas (Chief Operating Officer), Rolando R. Cruz (Vice President for Project
Development and Research).

COMPENSATION OF DIRECTORS
Each of the directors of the Parent Company is entitled to a director’s fee for each meeting attended. In
addition, the directors who serve in the committees of the BOD are each entitled to a fee for each
committee meeting attended.

58


The table below shows the compensation of our Directors for each meeting:

Audit Board
Board Committee Risk Related Other Stock
Type Meeting Meeting Oversight Party Meetings Option
Executive Director P10,000 P10,000 P10,000 P- P10,000 Yes
Yes, Except
for
the Non-
Filipino
Non-executive Director 10,000 10,000 - 10,000 10,000 Directors
50,000/
Independent Director 150,000 50,000 25,000 25,000 10,000 Yes

Currently, there are no arrangements for additional compensation of directors.

STOCK OPTION PLANS

On March 24, 2014 and June 6, 2014, our BOD and stockholders, respectively, approved the 2014
Executive Stock Option Plan (the 2014 ESOP or the New Plan) covering up to 32,000,000 shares
allocated to our directors, officers, corporate secretary and the officers of our subsidiaries, specifically
those with positions of Assistant Vice President and higher, including all Resident Mine Managers of our
subsidiaries. The optionees of the 2014 ESOP may avail of the ESOP shares at ninety percent (90%) of
the Offer Price for a number of ESOP Shares equivalent to up to four (4) times the annual salary of the
optionees. In case of non-executive directors and the corporate secretary, their grants shall be the
average of the highest and lowest grants within the ESOP. The 2014 ESOP shall be valid for five (5) years
commencing from the date of the approval of the New Plan. Options shall vest yearly at a rate of 25% of
the entitlement, with the first vesting occurring one year after the grant. The optionee can exercise the
vested option by giving notice to the Parent Company within the term of the New Plan, and can opt to
either purchase the shares directly at the exercise price or request the Parent Company to advance the
purchase price and to sell the shares, in which case the participant will receive the sales proceeds less
the exercise price.

On June 16, 2010, our BOD and stockholders approved the 2010 Executive Stock Option Plan (the 2010
ESOP or the Plan) covering up to 12,000,000 shares allocated to our officers and the officers of our
subsidiaries, specifically those with positions of Assistant Vice President and higher, including all
Resident Mine Managers of our subsidiaries. The optionees of the 2010 ESOP may avail of the ESOP
shares at ninety percent (90%) of the Offer Price for a number of ESOP Shares equivalent to up to three
(3) year’s annual salary of the optionee. The term of the 2010 ESOP shall be six (6) years commencing
from the date of the approval of the Plan. Options shall vest yearly at a rate of 25% of the entitlement,
with the first vesting occurring one year after the grant. The optionee can exercise the vested option by
giving notice to the Parent Company within the term of the Plan, and can opt to either purchase the
shares directly at the exercise price or request the Parent Company to advance the purchase price and
to sell the shares, in which case the participant will receive the sales proceeds less the exercise price.

The cost of share-based payment plan in 2017, 2016 and 2015 amounted to P
=11.0 million, P
=25.7 million
and P
=57.8 million, respectively.

Several executive officers have exercised their option under the ESOP totaling to 2,584,213 shares at an
exercise price of P
=4.80 per share (or P =2.40 per share after the effect of stock dividends) in 2015,
5,989,498 shares at an exercise price of P
=2.40 per share in 2016 and nil in 2017.

On November 10, 2016 and June 2, 2015, the SEC approved the exemption from registration of
31,523,262 common shares and 11,625,987 common shares, respectively, which shall form part of the
ESOP.

59


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

A. SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS

The following table sets forth the record owners and, to the best knowledge of the BOD and
Management of the Company, the beneficial owners of more than 5% or more of the Company’s
outstanding share of common stock as at December 31, 2017 follows:

Name of
Beneficial
Owner and
Name, address of Relationship
Title of record owner and with Record
class relationship with issuer Owner Citizenship No. of Shares Held Percent
PCD Nominee
Common
Corporation Filipino 1,457,853,782 19.17%
Stock
(Filipino)
Mantra Resources
Corporation Manuel B. Filipino
Common 0 - Direct
30th Floor NAC Tower, Zamora, Jr. -
Stock 1,954,779,7389 - Indirect 25.71%
32nd Street, Bonifacio Chairman
Global City, Taguig
Sumitomo Metal
Mining Philippine Foreign
1,444,657,926 - Direct
Common Holdings Corporation
563,340,900 - Indirect
Stock 24F Pacific Star Building 26.41%
Makati Avenue, Makati
City
Ni Capital Corporation Philip T. Ang - Filipino
Common 28th Floor NAC Tower, Vice Chairman 0 - Direct
13.37%
Stock 32nd Street, Bonifacio 1,016,831,38210- Indirect
Global City, Taguig
Nonillion Holding
Corporation Luis J. L. Virata - Filipino
720,000,000 – Direct
Common 3/F Corporate Business Director
250,838,01611 - Indirect 12.77%
Stock Centre, 151
Paseo de Roxas Makati
City
PCD Nominee
Common
Corporation Foreign 507,688,030 - Direct 6.68%
Stock
(Non-Filipino)

B. SECURITY OWNERSHIP OF MANAGEMENT

The beneficial ownership of the Company’s directors and executive officers as of December 31, 2017
follows:

Amount and Nature of

Title of Class Name of Beneficial Owner Citizenship Percent
Beneficial Ownership
Common Stock Manuel B. Zamora Jr. 5,982,236 - Direct Filipino 0.13%
3,548,828 - Indirect
Common Stock Gerard H. Brimo 15,728,247 - Direct Filipino 0.21%
138,425 - Indirect
Common Stock Philip T. Ang 1,616,724 - Direct Filipino 0.02%
147,036 - Indirect

9
Lodged with PCD Nominee Corporation
10
Lodged with PCD Nominee Corporation
11
Lodged with PCD Nominee Corporation

60


Amount and Nature of

Title of Class Name of Beneficial Owner Citizenship Percent
Beneficial Ownership
Common Stock Luis J. L. Virata 400 - Direct Filipino 12.77%
970,838,016 - Indirect
Common Stock Martin Antonio G. Zamora 300 - Direct Filipino 0%
8,706 - Indirect
Common Stock Fulgencio S. Factoran, Jr. 842 - Direct Filipino 0%
Common Stock Frederick Y. Dy 842 - Direct Filipino 0%
Common Stock Toru Higo 1,124 - Direct Japanese 0%
Common Stock Takanori Fujimura 1,124 - Direct Japanese 0%
Common Stock Jose B. Anievas 318,750 - Direct Filipino 0.04%
2,418,744 - Indirect
Common Stock Emmanuel L. Samson - Filipino 0%
Common Stock Raymundo B. Ferrer - Filipino 0%
Common Stock Rolando R. Cruz 614,952 - Direct Filipino 0.01%
330,000 - Indirect
Common Stock Georgina Carolina Y. Martinez - Filipino 0%
Common Stock Koichi Ishihara - Japanese 0%
Common Stock Jose Bayani D. Baylon 10,000 - Indirect Filipino 0%
Common Stock Augusto C. Villaluna - Filipino 0%
Common Stock Gerardo Ignacio B. Ongkingco - Filipino 0%
Common Stock Barbara Anne C. Migallos - Filipino 0%
Common Stock Ma. Angela G. Villamor 540,308 - Indirect Filipino 0%

C. VOTING TRUST HOLDERS OF 5% OR MORE

There is no voting trust holder of 5% or more of the Company’s stock.

D. CHANGES IN CONTROL

There are no arrangements which may result in a change in control of the Company.

Item 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

Related party relationships exist when one party has the ability to control, directly or indirectly through
one or more intermediaries, the other party or exercise significant influence over the other party in
making financial and operating decisions. Such relationships also exist between and/or among entities
which are under common control with the reporting enterprise, or between and/or among the
reporting enterprise and their key management personnel, directors, or its stockholders.

All sales and purchases from related parties are made at prevailing market prices.

Nickel Ore Sale Agreements with PAMCO

The Group supplies saprolite ore to PAMCO. PAMCO is a stockholder of the Parent Company, RTN and
TMC. All sales made to PAMCO are transacted at prevailing market prices. Under the terms of the
agreement, the base price of the ore products for a specific shipment shall be based on LME. Effective
April 2014, ore sales to PAMCO are benchmarked to China prices on the basis of a negotiated price per
WMT of ore. PAMCO shall pay the Group 80% to 90% of the provisional invoice amount upon receipt of
the required documents and pay the final payment of each shipment after the final dry weight and
applicable assay have been determined.

Nickel Ore Sale Agreement with PAMCO and Sojitz Corporation (Sojitz)
RTN supplies saprolite ore to PAMCO under a sale agreement, which shall continue to be valid and in
effect until December 2020, wherein PAMCO appointed Sojitz as agent. PAMCO owns 36% and Sojitz
owns 4% of the outstanding shares in the capital stock of RTN.

61


Nickel Ore Supply Agreement with Mitsubishi Corporation RTM International Pte., Ltd. and Mitsubishi
Corporation RTM Japan Ltd. (Mitsubishi)
RTN, TMC and HMC entered into an agreement with Mitsubishi, a Singapore and Japan-based
corporations, covering the sale of its ore products. Under the terms of the agreement, the ore sales are
benchmarked to China prices on the basis of a negotiated price per WMT of ore. Mitsubishi shall pay
85% of the provisional invoice amount upon receipt of the required documents and pay the final
payment of each shipment after the final dry weight and applicable assay have been determined. Under
the agreement, the end user of the material is PAMCO.

Nickel Ore Supply Agreement with CBNC

RTN entered into an agreement with CBNC to supply all of the limonite ore requirements for the Coral
Bay Hydro Metallurgical Processing Plant (HPP) facility until the earlier of the cessation of operations at
the Coral Bay HPP facility and exhaustion of the limonite ore reserves at the Rio Tuba mine. RTN has
also entered into an agreement with CBNC to supply limestone and provide ancillary services to the
Coral Bay HPAL facility. CBNC is the owner of the Coral Bay HPP facility.

Nickel Ore Supply Agreement with THNC

TMC entered into an agreement with THNC covering the sale of its ore products. Under the terms of the
agreement, the base price of the ore products for a specific shipment shall be based on LME.

Service Agreements with CBNC

RTN entered into various service agreements with CBNC pertaining to materials handling and others.

Materials Handling Agreement with THNC

On October 7, 2013, TMC and THNC executed an agreement wherein TMC will render services related
to the handling, hauling and transport of cargo for THNC. THNC shall compensate TMC based on the
prices stipulated in the agreement which are agreed annually and determined on the basis of the
weight of the cargo. Payment is collected within fifteen (15) days from receipt of TMC’s billing.

Funding Commitment with SMM

RTN’s long-term debt was incurred to complete infrastructure projects to support the development of
the Coral Bay HPAL facility. These projects included the causeway, trestles and dolphins in the Rio Tuba
foreshore and offshore areas.

Funding Commitment with THNC

TMC as owner/developer of Taganito Special Economic Zone (TSEZ) incurred a long-term debt to
finance the construction of the pier facilities that will be utilized to support the operations of the
Taganito HPAL facility. These projects included the jetty, dolphins, rubber fender, jettybollard and
other pier facilities in the Taganito foreshore and offshore areas.

THNC Stockholder’s Agreement

On September 15, 2010, NAC, SMM and Mitsui executed a Stockholders Agreement, pursuant to which
the parties formed a joint venture company, THNC, to build and operate a plant in Barangay Taganito,
Claver, Surigao del Norte for the purpose of producing and selling nickel-cobalt mixed sulfide to be used
in the production of electrolytic nickel and electrolytic cobalt.

Pursuant to the Stockholders Agreement, SMM granted THNC a non-exclusive license of technology
owned by SMM to produce the products and has undertaken to provide technical assistance to THNC.
The Parent Company has undertaken to cause TMC to supply THNC with nickel ore and limestone and
to further cause TMC to make available to THNC the use of the land and infrastructure necessary for the
production of the products while Mitsui shall assist THNC in procuring materials and equipment
necessary for the mine’s operations. The Stockholders Agreement shall terminate upon the dissolution
of THNC.

62


The Parent Company, along with the other stockholders of THNC, also agreed to make loans to THNC or
guarantee the repayment of THNC’s loan obligations in accordance with the financial requirements of
THNC, in proportion to their shareholding ratio in THNC.

In a separate agreement dated December 9, 2011, SMM agreed to assume Parent Company’s obligation
to make loans to, or guarantee the repayment of THNC’s loan obligations. The Parent Company, in
consideration for this agreement, pays SMM an annual guarantee fee of 1% of THNC’s outstanding loan
obligations.

Throughput Agreements
THNC
On October 4, 2010, TMC and THNC executed a Throughput Agreement wherein TMC will construct the
pier facilities within the TSEZ pursuant to its role as Developer. The TSEZ is located within the Surigao
Mineral Reservation, an area declared for mineral development pursuant to Proclamation 391, under
the supervision of the DENR that issued an “Order to Use Offshore Area” dated September 20, 2010 to
TMC for the use of such portion of the Surigao Mineral Reservation for the construction of the pier
facilities. In relation to this, THNC entered into a Registration Agreement with the PEZA to construct
and operate a mineral processing plant within the TSEZ as an Ecozone Export Enterprise.

Under the agreement, TMC will make available the pier facilities and provide certain services to THNC in
consideration for usage fees and service fees to be paid by the latter starting April 2011 until 2031,
unless terminated earlier. The usage fee amounted to $1.3 million for each semi-annual period to be
paid on or before October 10 and April 10.

THNC also agrees to pay service fee that will be agreed upon by both parties which shall be billed on a
monthly basis.

Prior to the commencement date, THNC may also request TMC to use any part of the constructed pier
facilities, which is ready for use, upon payment of reasonable compensation which shall be mutually
agreed by TMC and THNC.

CBNC
Under the agreement, CBNC shall pay RTN the price which consists of all its direct costs for the pier
facilities which includes but not limited to, financial costs, maintenance costs and tax as well as indirect
costs directly used for the pier facilities and the services as agreed by the parties. CBNC shall pay to RTN
in US$, as a part of such financial costs, the amounts to be paid by RTN to SMM such as interests and
loan repayments pursuant to the Omnibus Agreement made and entered into by and between RTN and
SMM. The agreement shall continue for twenty-five (25) years after November 25, 2002 unless
terminated earlier.

MO U
On September 14, 2009, the Parent Company and TMC entered into a MOU with SMM. Pursuant to the
terms thereof, the Parent Company and SMM will move ahead on a joint venture basis to build a nickel-
cobalt processing plant (the Project) using the HPAL technology to be located within the TMC’s mine in
Surigao del Norte, while TMC will supply low-grade nickel ore to the plant over the life of the Project.
The estimated cost of the Project is US$1,420.0 million, which further increased to US$1,590.0 million,
over a three-year construction period, which started in the last quarter of 2010. The plant will have an
annual capacity of 51,000 dry metric tons of mixed nickel-cobalt sulfide over an estimated thirty (30)
year project life. The MOU provides that the equity share of the Parent Company and SMM shall be
20%-25% and 75%-80%, respectively.

Following the MOU is the Taganito HPAL Stockholders Agreement (the Agreement) entered into by the
Parent Company, SMM and Mitsui on September 15, 2010 stating that the Project will be undertaken by
THNC, a company that will be jointly owned by the Parent Company, SMM and Mitsui with equity
interest of 22.5%, 62.5% and 15.0%, respectively. Pursuant to the Agreement, SMM granted THNC a
non-exclusive license of technology owned by SMM to produce the products and has undertaken to

63


provide technical assistance to THNC. The Parent Company has undertaken to cause TMC to supply
THNC with nickel ore and limestone and to further cause TMC to make available to THNC the use of the
land and infrastructure necessary for the production of the products while Mitsui shall assist THNC in
procuring materials and equipment necessary for the plant’s operations.

Pursuant to the sale of 12.5% equity interest of the Parent Company to SMM in October 2016, the
shareholding ratio of the Parent Company and SMM is 10% and 75%, respectively.

The Agreement also sets forth the respective rights and obligations of the Parent Company, SMM and
Mitsui, including their responsibilities in respect of financing the US$1,420.0 million, which further
increased to US$1,590.0 million, project investment undertaken by THNC.

Also, under the Agreement, the Parent Company, SMM and Mitsui agreed to make loans to THNC or
guarantee the repayment of THNC’s obligations in accordance with the financial requirements of THNC
and in proportion to their shareholding ratio in THNC.

Pursuant to the Agreement, the Parent Company, SMM and Mitsui extended loans to THNC amounting
to a total of US$939.5 million as at December 31, 2017 and US$803.9 million as at December 31, 2016
to cover THNC’s working capital requirement, loan repayments, capital investment and/or construction
of tailings dam.

The Agreement shall terminate upon the dissolution of THNC.

Loan Guarantee/Substitution Agreement

NAC
Under a loan guarantee/substitution agreement dated December 9, 2011 between the Parent Company
and SMM, the latter agreed to substitute for the Parent Company to make loans or guarantee the
repayment of THNC pursuant to the Stockholders Agreement dated September 15, 2010.

In consideration of the loans and guarantee made by SMM, the Parent Company shall pay to SMM an
annual fee equal to 1% of the relevant outstanding amount, which is payable every February 21 and
August 21 of each year.

On January 26, 2015, December 18 and December 3, 2013, the Parent Company and SMM entered into
another loan guarantee/substitution agreement with respect to the new loan agreement made and
entered by THNC and SMM on August 4, 2014, December 3 and January 31, 2013, respectively. The
annual fee is also equal to 1% of the relevant outstanding amount, which is payable every March 21 and
September 21 of each year.

In case of default, such loan guarantee/substitution agreements will be terminated and the Parent
Company shall provide loans to THNC or guarantee the repayment of THNC’s loans payable. Failure to
provide such loans or guarantee shall be considered a default under the Stockholders’ Agreement.

Lease Agreement with THNC

On October 31, 2013, TMC and THNC executed a lease agreement wherein TMC will lease the land
within the TSEZ to the lessee. The TSEZ leased area of approximately 675 hectares is located at
Barangays Taganito and Hayanggabon, Claver, Surigao del Norte. The duration of the lease agreement
shall be for a period of twenty (20) years starting January 1, 2013, however, rental rate shall be annually
agreed by both parties.

Loan Agreements with EPI

a. On August 22, 2014, the Parent Company and EPI executed a loan agreement amounting to
P551.0 million which was drawn in two (2) tranches. The first and second tranche of the loans
amounted to P105.0 million and P446.0 million, respectively.

64


The proceeds of the first tranche loan was used by EPI to fund the activities preparatory to drilling
and for the drilling of the initial two (2) wells under the Montelago Geothermal Project, while the
second tranche loan was used to fund the drilling costs and related activities (to include slim or
other test holes) on the said initial two (2) wells.

At the option of the Parent Company, the entire second tranche loan, and not any smaller portion
thereof, may be converted into shares of stock of EPI constituting 55% of its total issued and
outstanding shares, at any time before the lapse of three hundred sixty five (365) days after
drawdown of the entire second tranche loan.

The loan is subject to 2% interest per annum (p.a.). The first tranche of the loan is payable one (1)
year after the first drawdown on the first tranche loan or upon sale of EPI’s entire shareholdings in
Occidental Mindoro Consolidated Power Corporation (OMCP), whichever is earlier. The second
tranche loan is payable one year after the first drawdown on the second tranche loan unless the
conversion right is exercised.

For and to secure the loan and the notes covering the same, EPI executed and delivered a Pledge
Agreement covering its shares of stock in OMCP consisting of 100% of OMCP’s issued and
outstanding shares.

As at December 31, 2015, the entire first and second tranche loan amounting to P105.0 million
and P446.0 million, respectively, were fully drawn by EPI.

On April 15, 2015, the Parent Company expressed its intention to exercise its conversion right on
the entire second tranche loan of P446.0 million to 55% equity interest in EPI, which is equivalent
to 312,888,889 common shares, subject to the SEC’s approval of the increase in authorized capital
stock of EPI.

On July 16, 2015, the Parent Company subscribed to an additional 11% equity interest in EPI,
which is equivalent to 184,052,288 common shares, for a total consideration of P474.0 million,
subject also to the approval of EPI’s increase in authorized capital stock.

The increase in EPI’s authorized capital stock was approved by the SEC on July 28, 2015 and the
corresponding shares were subsequently issued to the Parent Company.

The first tranche loan, including interest, was paid by EPI in August 2015.

b. In July 2016, the Parent Company agreed to provide a loan facility to EPI amounting to P1,500.0
million for EPI’s overhead costs and development of its solar project. The loan bears an interest of
5% p.a. which is payable semi-annually following the date of the corresponding drawdown. The
loan principal is payable within three (3) years after drawdown.

As at December 31, 2017, a total of P1,500.0 million was released to EPI.

On December 22, 2017, the Parent Company and EPI entered into a Deed of Assignment of
Advances wherein the Parent Company offered to subscribe to additional shares of EPI equivalent
to 1,190,476,190 shares, subject to the SEC’s approval of the increase in authorized capital stock
of EPI, and in consideration for which the Parent Company shall assign to EPI its outstanding loan
receivable of P1,500.0 million.

c. On September 22, 2017, the Parent Company and EPI signed a Loan Agreement for the amount of
P450 million to fund the working capital and operational activities of EPI and its subsidiaries. The
loan has an interest rate of 5% p.a. and a maturity of three (3) years for each drawdown. As at
December 31, 2017, a total of P135.0 million was released to EPI.

65


Loan with Manta Equities Inc. (Manta)

On June 8, 2015, EPI entered into a one year loan agreement with Manta amounting to P180.0 million
to finance the development expenses of EPI’s geothermal power project. The loan bears an annual
interest of 5%. The principal and interest is payable at the end of the loan agreement. On June 6, 2016,
EPI and Manta extended the loan for another year or up to June 7, 2017 under the same terms of the
original loan. The principal and interest was paid in June 2017.

Loan with THNC

On October 4, 2010, TMC entered into an Omnibus Agreement with THNC, wherein the latter granted
the former a total loan facility amounting to US$35.0 million at a prevailing one hundred eighty (180)-
day British Banker Association London Inter-Bank Offered Rate (LIBOR) plus 2% spread, to exclusively
finance the construction of the pier facilities within the TSEZ. The loan shall be drawn down in one or
multiple times by July 31, 2011.

The interest on the loan is payable semi-annually, on October 10 and April 10. The total principal is
payable in semi-annual installments of US$0.9 million starting on October 10, 2011 up to April 10,
2031.

Loan with SMM

On November 25, 2002, RTN entered into an Omnibus Agreement with SMM, wherein the latter
granted the former a loan facility amounting to US$1.8 million at a prevailing one hundred eighty
(180)-day LIBOR plus 2% spread, for the construction of the pier facilities.

In July 2003, an additional loan amounting to US$0.2 million was granted by SMM. Starting 2003, the
interest on the original and additional loans is payable semi-annually, on February 28 and August 31.
The total principal is payable in twenty (20) equal semi-annual installments starting on February 28,
2004 up to August 31, 2013. In February 2007, RTN and SMM agreed to an additional loan facility
amounting to US$9.0 million. Of the total loan facility, the remaining US$0.5 million was drawn in
February and March 2008. The additional loan facility is payable in semi-annual installments starting
on August 31, 2008 up to February 28, 2018.

In consideration, and to ensure payment of these loans, RTN assigned, transferred, and set over to
SMM, absolutely and unconditionally, all of RTN’s rights, title, and interest over its future receivable
from CBNC under the Throughput Agreements. RTN also constituted a first ranking mortgage on the
pier facilities.

Lease Agreement with Manta

On March 18, 2013, the Group entered into a lease agreement with Manta for its office and parking
space. The lease agreement is effective for a period of five (5) years starting May 15, 2013 and is
renewable subject to negotiation of the terms and conditions and mutual agreement of both parties.

Notes 34 and 39 of the Notes to Consolidated Financial Statements of the Exhibits in Part IV is
incorporated hereto by reference.

66


PART IV – EXHIBITS AND SCHEDULES

Item 13. EXHIBITS AND REPORTS ON SEC FORM 17-C

Exhibits
See accompanying Index to Exhibits as well as the Company’s Audited Financial Statements for the
recently completed fiscal year. These financial statements are reports from the Corporation’s
Independent Public Accountant, SGV & Co.

Reports on SEC Form 17-C

The Parent Company filed the following reports on SEC Form 17-C during the year 2017.

Items Reported Date Reported

Press Release: Nickel Asia Reports 19.3 Million Wet Metric Tons of Ore
Shipments In 2016 January 12, 2017
Clarification on News Report Involving NIKL's Subsidiary Hinatuan Mining
Corporation February 2, 2017
Receipt of DENR Order February 13, 2017
Clarification of News Article on Press Release Made by the DENR February 15, 2017
Press Release: Nickel Asia Corporation announces 2016 Financial and
Operating Results March 15, 2017
Declaration of Cash Dividends March 15, 2017
Notice of Annual Shareholders Meeting March 15, 2017
Promotion of Officer - Martin Antonio G. Zamora March 15, 2017
Press Release: NIKL’s Estimated Value of Shipments Jumps 47% In First
Quarter 2017 April 11, 2017
Clarification of News Report on DENR Administrative Order May 2, 2017
Re-organization of Existing Board Committees and Creation of New Board
Committees May 5, 2017
Press Release: Nickel Asia Corporation Financial and Operating Results for
1Q 2017 May 5, 2017
Results of NIKL's Annual Stockholders' Meeting May 29, 2017
Results of the Organizational Meeting of NIKL's Board of Directors May 29, 2017
Press Release: Nickel Asia estimated value of shipments rises 41% in 1H
2017 July 13, 2017
Results of the Meeting of NIKL's Board of Directors on 04 August 2017 August 4, 2017
Press Release: Nickel Asia Corporation announces 1H 2017 Financial and
Operating Results with an improvement In Net Income to P1.54B August 4, 2017
Change in Designation of one of NIKL's Officers - Rolando R. Cruz August 23, 2017
Resignation of NIKL's Vice President for Legal and Special Projects,
Assistant Corporate Secretary, and Chief Compliance Officer - Atty. Jose
Roderick F. Fernando; and Appointment of a New Officer - Atty. Georgina
Carolina Y. Martinez; and the Change of Designation of an Officer - Jose B.
Anievas August 31, 2017
NIKL’s Estimated Value of Shipments Rises 16% For The Nine Month Ended
September 2017 October 10, 2017
Change in Director - Toru Higo and Appointment of New Officer - Aloysius
C. Diaz November 6, 2017
Conversion of Shareholder's Advances in Emerging Power Inc. to
additional Equity December 27, 2017

67
 NICKEL ASIA CORPORATION
SEC FORM 17-A
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

CONSOLIDATED FINANCIAL STATEMENTS

Statement of Management’s Responsibility for Financial Statements
Independent Auditor’s Report
Consolidated Statements of Financial Position as at December 31, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements

SUPPLEMENTARY SCHEDULES
Independent Auditor’s Report on Supplementary Schedules
Schedule I: Retained Earnings Available for Dividend Declaration
Schedule II: Schedule of Effective Standards and Interpretations under the PFRS
Schedule III: Supplementary Schedules under Annex 68-E
A. Financial Assets
B. Amounts Receivable from Directors, Officers, Employees, Related Parties,
and Principal Stockholders (Other than Affiliates)
C. Amounts Receivable from Related Parties which are Eliminated during the
Consolidated Financial Statements
D. Intangible Assets - Other Assets
E. Long-Term Debt
F. Indebtedness to Affiliates and Related Parties (Long-Term Loans from
Related Companies)
G. Guarantees of Securities of Other Issuers
H. Capital Stock
Schedule IV: A Map Showing the Relationships Between and Among the Company and its
Ultimate Parent Company, Middle Parent, Subsidiaries, Co-Subsidiaries and Associates
Schedule V: Schedule Showing Financial Soundness
 -2-

On January 16, 2018, the BOD of Geogen approved to change its corporate name to Dinapigue
Mining Corporation. The application for the change in the corporate name was approved by the
SEC on March 5, 2018.

Falck Exp Inc. (FEI)

FEI was registered with the SEC on November 22, 2005, is an 88% owned subsidiary of the
Parent Company through HMC, CMC and Taganito Mining Corporation (TMC), and is primarily
engaged in the business of exploring, prospecting and operating mines and quarries of all kinds of
ores and minerals, metallic and non-metallic. On August 8, 2014, the BOD of FEI approved the
immediate dissolution of FEI. Thereafter, the liquidation process commenced and as a result, FEI
changed from going-concern to liquidation basis of accounting. On November 17, 2016, the
termination of FEI’s registration with the Bureau of Internal Revenue (BIR) was approved. Final
dissolution will take place after the approval of FEI’s application with the SEC. As at
December 31, 2017, FEI is still waiting for the approval of SEC.

Cordillera Exploration Co., Inc. (CExCI)

CExCI was registered with the SEC on October 19, 1994, is a 71.25% owned subsidiary of the
Parent Company and is primarily engaged in the business of large-scale exploration, development
and utilization of mineral resources. CExCI has a number of mining properties at various stages
of exploration. It is currently not engaged in any development or commercial production
activities.

Newminco Pacific Mining Corporation (Newminco)

Newminco was registered with the SEC on October 9, 2006, is a 71.25% owned subsidiary of the
Parent Company through CExCI, and is primarily engaged in the exploration, mining,
development, utilization, extraction, beneficiation and marketing of minerals and mineral
resources. It is currently not engaged in any development or commercial production activities.

Taganito Mining Corporation

TMC was registered with the SEC on March 4, 1987, is a 65% owned subsidiary of the Parent
Company and is primarily engaged in the exploration, mining and exporting of nickel ore located
in Claver, Surigao del Norte. TMC also provides services which involves the handling, hauling
and transportation of materials required in the processing operations of Taganito HPAL Nickel
Corporation (THNC).

Rio Tuba Nickel Mining Corporation (RTN)

RTN was registered with the SEC on July 15, 1969, is a 60% owned subsidiary of the Parent
Company and is primarily engaged in the exploration, mining and exporting of nickel ore located
in Barangay Rio Tuba, Municipality of Bataraza, Palawan and providing non-mining services
required in the processing operations of Coral Bay Nickel Corporation (CBNC).

Emerging Power Inc. (EPI)

EPI was registered with the SEC on October 16, 2007, is an 86.29% owned subsidiary of the
Parent Company and is primarily engaged in the renewable energy business.

Mindoro Geothermal Power Corporation (MGPC)

MGPC was registered with the SEC on May 7, 2014, is an 86.29% owned subsidiary of the Parent
Company through EPI, and is primarily engaged in the renewable energy business. By virtue of a
Deed of Assignment of rights and obligations of EPI under Geothermal Renewable Energy
Service Contract (GRESC) No. 2010-02-013 on November 24, 2014, MGPC acquired the
exclusive rights to explore, develop and exploit geothermal resources covering a geothermal field
in the municipality of Naujan, Oriental Mindoro.

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Manta Energy Inc. (MEI)

MEI was registered with the SEC on May 21, 2007, is an 86.29% owned subsidiary of the Parent
Company through EPI, and is primarily engaged in power business, including but not limited to
power generation, power trading and supply to retail customers and end users. On July 5, 2016,
the Energy Regulatory Commission (ERC) approved MEI’s registration as Registered Electric
Supplier for a period of five (5) years, and renewable thereafter.

Biliran Holdings Inc. (BHI)

BHI was registered with the SEC on July 31, 2015, is an 86.29% owned subsidiary of the Parent
Company through EPI, and is primarily engaged in investing in and holding of assets of every
kind and description, as and to the extent permitted by law. It is also registered, within the limits
prescribed by law, to engage in the business of infrastructure, power generation, real estate,
manufacturing, trading and agribusiness and to pay other evidences of indebtedness or securities
of this or any other corporation.

Jobin-SQM, Inc. (Jobin)

Jobin was registered with the SEC on January 6, 2010, is an 86.29% owned subsidiary of the
Parent Company through EPI, and is primarily engaged in power business, including but not
limited to power generation, power trading and supply to retail customers and end users. Jobin
was acquired by EPI on September 11, 2015. On May 23, 2016, Jobin entered into the testing and
commissioning phase for the 7.14 MW Sta. Rita Solar Power Project. On November 7, 2016,
Jobin was granted by ERC a Provisional Authority to Operate (PAO) to transition from testing and
commissioning phase to actual production and operation phase for a period of six (6) months for
its 7.14 MW Sta. Rita Solar Power Plant pending approval of Jobin’s dedicated point to point
limited facilities to connect to the transmission system. On March 18, 2017, Jobin commenced
testing and commissioning phase for the 25.19 MW Sta. Rita Solar Power Project and was granted
by ERC a PAO to transition from testing and commissioning phase to actual production on
September 27, 2017.

Biliran Geothermal Inc. (BGI)

BGI was registered with the SEC on October 31, 2007, is a 51.77% owned subsidiary of the
Parent Company through EPI. The principal activities of BGI are to explore, exploit, discover,
develop, extract, dig and drill for, produce, utilize, refine, treat, process, transport, store, market,
sell, use, supply, experiment with, distribute, manufacture, or otherwise deal in, any substance,
minerals or otherwise, which by itself or in contribution with other substances generate or emanate
heat or power and to enter into and perform service contracts including geothermal services. On
December 28, 2014, BGI received the Confirmation of Commerciality for the Biliran Geothermal
Project from the Philippine Government through the Department of Energy (DOE). BGI was
acquired by BHI on December 17, 2015.

Mantex Services Inc. (Mantex)

Mantex was registered with the SEC on March 26, 2012, is a 43.15% owned subsidiary of the
Parent Company through EPI. Mantex is established primarily to provide technical, financial and
public relations advisory, management and investments services for infrastructure projects.

Updates in the Philippine Mining Industry

In line with the issuance of Department of Environment and Natural Resources (DENR)
Memorandum Order No. 2016-01 mandating a comprehensive review of all operating mines and
mines under suspended and/or care and maintenance status, and a moratorium on the acceptance,
processing and/or approval of mining applications and/or new mining projects for all metallic and
non-metallic minerals, an industry-wide audit was carried on since July 2016.

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On February 2, 2017, the Secretary of the DENR ordered the closure and suspension of several
mines in the country for alleged environmental violations noted during the industry-wide audit.

In light of concerns expressed by various industry stakeholders, the Mineral Industry Coordinating
Council (MICC) issued a resolution on February 9, 2017, which called for the review of the audit
conducted on mining companies, and the closure and suspension orders by the DENR
Secretary. This mandate of the MICC covers all mining contracts in the Philippines, although the
review will start with mining companies affected by the closure order. The multi-stakeholder
review shall be based on the guidelines and parameters set forth in mining contracts and in other
pertinent laws, and will advise the DENR on the performance of existing mining operations in
consultation with local government units. Five technical review teams (TRT) will conduct the
review over a three (3) month period starting in March 2017. The TRTs will check the
compliance of affected mining companies with applicable agreements, and laws and regulations
taking into account the technical, legal, social, environmental and economic aspects of their
mining operations. The results of the review will be submitted to the multi-stakeholder Technical
Working Group (TWG) of the MICC. The TWG will verify the results before the final
presentation to the MICC. The MICC will then present the findings and submit its
recommendations to the Office of the President, which shall make the final decision on the
DENR’s closure and suspension orders. As at March 14, 2018, the MICC review is still ongoing.

On February 14, 2017, the Secretary of the DENR announced the cancellation of a total of
75 Mineral Production Sharing Agreements (MPSAs) considered to be situated in watersheds.
Show cause orders were issued to the concerned mining companies, which were given seven (7)
days to respond.

On February 13, 2017, HMC received a letter from DENR stating that MPSA in Taganaan Island,
Surigao is being cancelled due to alleged violations of Republic Act (RA) No. 7942 or the
“Philippine Mining Act of 1995” as a result of the audit conducted in July 2016. On
February 17, 2017, HMC filed a Notice of Appeal with the Office of the President. It is
the Parent Company’s position that there are no legal and technical grounds to support the
cancellation of HMC’s MPSA.

The Parent Company will pursue all legal remedies to overturn the said order because of due
process violations and the absence of any basis that would warrant a suspension of HMC’s
operations, much less the cancellation of its MPSA.

RTN, TMC and CMC were not included in the list of mining operations recommended for
suspension or closure by the DENR.

The consolidated financial statements as at December 31, 2017 and 2016 and for each of the three
years in the period ended December 31, 2017 were authorized for issuance by the Parent
Company’s BOD on March 14, 2018.

2. Basis of Preparation and Consolidation, Statement of Compliance and Summary of

Significant Accounting Policies

Basis of Preparation
The consolidated financial statements have been prepared on a historical cost basis, except for
AFS financial assets which are measured at fair value. The consolidated financial statements are
presented in Philippine peso, which is the Parent Company’s functional and presentation currency.
The Parent Company and its subsidiaries (collectively referred to as the Group) have the

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Philippine Peso as their functional currency and items included in the financial statements of each
entity are measured using that functional and presentation (or reporting) currency. All amounts
are rounded to the nearest thousand (P=000), except when otherwise indicated.

Basis of Consolidation
The consolidated financial statements include the Group and its associates:

Principal Place Effective Ownership

of Business Principal Activities 2017 2016
Subsidiaries
HMC Philippines Mining and Services 100.00% 100.00%
CMC Philippines Mining 100.00% 100.00%
SNMRC Philippines Mining 100.00% 100.00%
LCSLC (a) Philippines Services 100.00% 100.00%
Geogen Philippines Mining 100.00% 100.00%
FEI (b) Philippines Mining 88.00% 88.00%
CExCI Philippines Mining 71.25% 71.25%
Newminco (c) Philippines Mining 71.25% 71.25%
TMC Philippines Mining and Services 65.00% 65.00%
RTN Philippines Mining and Services 60.00% 60.00%
Renewable Energy (RE)
EPI* Philippines Developer 86.29% 70.92%
RE
MGPC (d) Philippines Developer 86.29% 70.92%
Power Generation, Trading
MEI (d) Philippines and Services 86.29% 70.92%
BHI (d) Philippines Services 86.29% 70.92%
Jobin (d) Philippines Power Generation 86.29% 70.92%
BGI (d) Philippines Power Generation 51.77% 42.55%
Management
Mantex (d) Philippines and Advisory Services 43.15% 35.46%

Associates
THNC Philippines Manufacturing 10.00% 10.00%
CBNC Philippines Manufacturing 10.00% 10.00%

* The Parent Company’s equity interest in EPI increased from 70.92% to 86.29% as a result of capital infusion of
=1,500.0 million in September 2017.
P

(a) Indirect ownership through HMC

(b) Indirect ownership through HMC, CMC and TMC
(c) Indirect ownership through CExCI
(d) Indirect ownership through EPI

The consolidated financial statements comprise the financial statements of the Group as at
December 31, 2017 and 2016. The financial statements of the subsidiaries are prepared for the
same reporting year as the Parent Company using uniform accounting policies. When necessary,
adjustments are made to the separate financial statements of the subsidiaries to bring their
accounting policies in line with the Group’s accounting policies.

Subsidiaries
Subsidiaries are entities over which the Parent Company has control.

The Parent Company controls an investee if and only if the Parent Company has:
∂ Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee);
∂ Exposure, or rights, to variable returns from its involvement with the investee; and
∂ The ability to use its power over the investee to affect its returns.

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When the Parent Company has less than a majority of the voting or similar rights of an investee,
the Parent Company considers all relevant facts and circumstances in assessing whether it has
power over an investee, including:
∂ The contractual arrangement with the other vote holders of the investee;
∂ Rights arising from other contractual arrangements; and
∂ The Parent Company’s voting rights and potential voting rights.

The Parent Company re-assesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control. Consolidation of a
subsidiary begins when the Parent Company obtains control over the subsidiary and ceases when
the Parent Company loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated financial
statements from the date the Parent Company gains control until the date the Parent Company
ceases to control the subsidiary.

Consolidated statement of income and each component of consolidated statement of

comprehensive income are attributed to the equity holders of the Parent Company and to the NCI,
even if this results in the NCI having a deficit balance.

NCI
NCI represents interest in a subsidiary that is not owned, directly or indirectly, by the Parent
Company.

NCI represents the portion of profit or loss and the net assets not held by the Group. Transactions
with NCI are accounted for using the entity concept method, whereby the difference between the
consideration and the book value of the share in the net assets acquired is recognized as an equity
transaction.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Parent Company loses control over a subsidiary, it:
∂ Derecognizes the assets (including goodwill) and liabilities of the subsidiary;
∂ Derecognizes the carrying amount of any NCI;
∂ Derecognizes the cumulative translation differences recorded in equity;
∂ Recognizes the fair value of the consideration received;
∂ Recognizes the fair value of any investment retained;
∂ Recognizes any surplus or deficit in the consolidated statement of income; and
∂ Reclassifies the Parent Company’s share of components previously recognized in the
consolidated statement of comprehensive income to consolidated statement of income or
retained earnings, as appropriate, as would be required if the Parent Company had directly
disposed of the related assets or liabilities.

All intra-group balances, transactions, income and expenses and profits and losses resulting from
intra-group transactions are eliminated in full.

Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).

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Changes in Accounting Policies and Disclosures

The accounting policies adopted are consistent with those of the previous financial year except
that the Group has applied for the first time certain pronouncements, which are effective for
annual periods beginning on or after January 1, 2017. Adoption of these pronouncements did not
have any significant impact on the Group’s financial position or performance unless otherwise
indicated.

∂ Amendments to PFRS 12, Disclosure of Interests in Other Entities, Clarification of the Scope
of the Standard (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that the disclosure requirements in PFRS 12, other than those relating
to summarized financial information, apply to an entity’s interest in a subsidiary, a joint
venture or an associate (or a portion of its interest in a joint venture or an associate) that is
classified (or included in a disposal group that is classified) as held for sale.

Adoption of these amendments did not have any impact on the consolidated financial
statements.

∂ Amendments to Philippine Accounting Standards (PAS) 7, Statement of Cash Flows,

Disclosure Initiative
The amendments require entities to provide disclosure of changes in their liabilities arising
from financing activities, including both changes arising from cash flows and noncash
changes (such as foreign exchange gains or losses).

The Group has provided the required information in Note 41 to the consolidated financial
statements. As allowed under the transition provisions of the standard, the Group did not
present comparative information for the year ended December 31, 2016.

∂ Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized
Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources
of taxable profits against which it may make deductions upon the reversal of the deductible
temporary difference related to unrealized losses. Furthermore, the amendments provide
guidance on how an entity should determine future taxable profits and explain the
circumstances in which taxable profit may include the recovery of some assets for more than
their carrying amount.

The Group applied the amendments retrospectively. However, their application has no
significant effect on the Group’s financial position and performance as the Group has no
deductible temporary differences or assets that are in the scope of the amendments.

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Standards and Interpretations Issued but not yet Effective

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the
Group does not expect that the future adoption of the said pronouncements will have a significant
impact on its consolidated financial statements. The Group intends to adopt the following
pronouncements when they become effective.

Effective beginning on or after January 1, 2018:

∂ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-

based Payment Transactions
The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the classification of a share-
based payment transaction with net settlement features for withholding tax obligations; and
the accounting where a modification to the terms and conditions of a share-based payment
transaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, but
retrospective application is permitted if elected for all three amendments and if other criteria
are met. Early application of the amendments is permitted.

The Group is currently assessing the potential effect of the amendments on its consolidated
financial statements.

∂ PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial
Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The
standard introduces new requirements for classification and measurement, impairment, and
hedge accounting. Retrospective application is required but providing comparative
information is not compulsory. For hedge accounting, the requirements are generally applied
prospectively, with some limited exceptions.

The Group is still assessing the potential impact of adopting PFRS 9 in 2018.

∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with

PFRS 4
The amendments address concerns arising from implementing PFRS 9, the new financial
instruments standard before implementing the new insurance contracts standard. The
amendments introduce two options for entities issuing insurance contracts: a temporary
exemption from applying PFRS 9 and an overlay approach. The temporary exemption is first
applied for reporting periods beginning on or after January 1, 2018. An entity may elect the
overlay approach when it first applies PFRS 9 and apply that approach retrospectively to
financial assets designated on transition to PFRS 9. The entity restates comparative
information reflecting the overlay approach if, and only if, the entity restates comparative
information when applying PFRS 9.

The amendments are not applicable to the Group since none of the entities within the Group
have activities that are predominantly connected with insurance or issue insurance contracts.

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∂ PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts
with customers. Under PFRS 15, revenue is recognized at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods or
services to a customer. The principles in PFRS 15 provide a more structured approach to
measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under PFRSs. Either a full retrospective application or a modified
retrospective application is required for annual periods beginning on or after January 1, 2018.
Early adoption is permitted.

The Group is still assessing the potential impact of adopting PFRS 15 in 2018.

∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of
Annual Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that an entity that is a venture capital organization, or other
qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to
measure its investments in associates and joint ventures at fair value through profit or loss
(FVPL). They also clarify that if an entity that is not itself an investment entity has an interest
in an associate or joint venture that is an investment entity, the entity may, when applying the
equity method, elect to retain the fair value measurement applied by that investment entity
associate or joint venture to the investment entity associate’s or joint venture’s interests in
subsidiaries. This election is made separately for each investment entity associate or joint
venture, at the later of the date on which (a) the investment entity associate or joint venture is
initially recognized; (b) the associate or joint venture becomes an investment entity; and
(c) the investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively, with earlier application permitted.

Adoption of these amendments is not expected to have any impact on the consolidated
financial statements.

∂ Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property under
construction or development into, or out of investment property. The amendments state that a
change in use occurs when the property meets, or ceases to meet, the definition of investment
property and there is evidence of the change in use. A mere change in management’s
intentions for the use of a property does not provide evidence of a change in use. The
amendments should be applied prospectively to changes in use that occur on or after the
beginning of the annual reporting period in which the entity first applies the amendments.
Retrospective application is only permitted if this is possible without the use of hindsight.

Since the Group’s current practice is in line with the clarifications issued, the Group does not
expect any significant effect on its consolidated financial statements upon adoption of these
amendments.

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∂ Philippine Interpretation based on International Financial Reporting Interpretations Committee

(IFRIC) 22, Foreign Currency Transactions and Advance Consideration
The interpretation clarifies that, in determining the spot exchange rate to use on initial
recognition of the related asset, expense or income (or part of it) on the derecognition of a
non-monetary asset or non-monetary liability relating to advance consideration, the date of the
transaction is the date on which an entity initially recognizes the non-monetary asset or non-
monetary liability arising from the advance consideration. If there are multiple payments or
receipts in advance, then the entity must determine a date of the transactions for each payment
or receipt of advance consideration. Entities may apply the amendments on a fully
retrospective basis. Alternatively, an entity may apply the interpretation prospectively to all
assets, expenses and income in its scope that are initially recognized on or after the beginning
of the financial reporting period in which the entity first applies the interpretation or the
beginning of a prior reporting period presented as comparative information in the financial
statements of the financial reporting period in which the entity first applies the interpretation.

Since the Group’s current practice is in line with the clarifications issued, the Group does not
expect any effect on its consolidated financial statements upon adoption of this interpretation.

Effective beginning on or after January 1, 2019:

∂ Amendments to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepayment
features to be measured at amortized cost or fair value through other comprehensive income
(OCI). An entity shall apply these amendments for annual financial reporting periods
beginning on or after January 1, 2019. Earlier application is permitted. Adoption of these
amendments is not expected to have any impact on the consolidated financial statements.

∂ PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure
of leases and requires lessees to account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under PAS 17, Leases. The standard includes two
recognition exemptions for lessees - leases of ‘low-value’ assets (e.g., personal computers)
and short-term leases (i.e., leases with a lease term of 12 months or less). At the
commencement date of a lease, a lessee will recognize a liability to make lease payments
(i.e., the lease liability) and an asset representing the right to use the underlying asset during
the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize
the interest expense on the lease liability and the depreciation expense on the right-of-use
asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain
events (e.g., a change in the lease term, a change in future lease payments resulting from a
change in an index or rate used to determine those payments). The lessee will generally
recognize the amount of the remeasurement of the lease liability as an adjustment to the right-
of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting under
PAS 17. Lessors will continue to classify all leases using the same classification principle as
in PAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under
PAS 17.

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Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose
to apply the standard using either a full retrospective or a modified retrospective approach.
The standard’s transition provisions permit certain reliefs.

The Group is currently assessing the impact of adopting PFRS 16.

∂ Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account under PFRS 9 its long-term
interests in an associate or joint venture to which the equity method is not applied. An entity
shall apply these amendments for annual financial reporting periods beginning on or after
January 1, 2019. Earlier application is permitted. Adoption of these amendments is not
expected to have any impact on the consolidated financial statements.

∂ Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve
uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside
the scope of PAS 12, nor does it specifically include requirements relating to interest and
penalties associated with uncertain tax treatments.

The interpretation specifically addresses the following:

∂ Whether an entity considers uncertain tax treatments separately
∂ The assumptions an entity makes about the examination of tax treatments by taxation
authorities
∂ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused
tax credits and tax rates
∂ How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or
together with one or more other uncertain tax treatments. The approach that better predicts the
resolution of the uncertainty should be followed.

The Group is currently assessing the impact of adopting this interpretation.

Deferred Effectivity:

∂ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture
The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The
amendments clarify that a full gain or loss is recognized when a transfer to an associate or
joint venture involves a business as defined in PFRS 3, Business Combinations. Any gain or
loss resulting from the sale or contribution of assets that does not constitute a business,
however, is recognized only to the extent of unrelated investors’ interests in the associate or
joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original
effective date of January 1, 2016 of the said amendments until the International Accounting
Standards Board completes its broader review of the research project on equity accounting
that may result in the simplification of accounting for such transactions and of other aspects of
accounting for associates and joint ventures.

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The Group is currently assessing the impact of adopting the amendments to this standard on
its consolidated financial statements.

The revised, amended and additional disclosures or accounting changes provided by the standards
and interpretations will be included in the consolidated financial statements in the year of
adoption, if applicable.

Summary of Significant Accounting Policies

Presentation of Consolidated Financial Statements

The Group has elected to present all items of recognized income and expense in two statements: a
statement displaying components of profit or loss (consolidated statement of income) and a second
statement beginning with profit or loss and displaying components of OCI (consolidated statement
of comprehensive income).

Foreign Currency Transactions

Transactions in foreign currencies are initially recorded in the functional currency rate ruling at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
translated at functional currency rate of exchange ruling at the end of the financial reporting
period. Nonmonetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rates prevailing as at the date of the initial transactions.
Nonmonetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value is determined. All differences are taken to “Other income
(charges) - net” in the consolidated statement of income.

As at the end of the financial reporting period, the statement of financial position of associates
(whose functional currency is other than the Philippine peso) is translated into the presentation
currency of the Group (the Philippine peso) using the rate of exchange prevailing at the end of the
financial reporting period and the consolidated statement of income is translated using the
weighted average exchange rate for the year. The exchange differences arising on the translation
is recognized in OCI. Upon disposal of such associate, the component of OCI relating to that
particular associate will be recognized in the consolidated statement of income.

Current versus Noncurrent Classification

The Group presents assets and liabilities in the consolidated statement of financial position based
on current/noncurrent classification. An asset is current when it is:
∂ Expected to be realized or intended to be sold or consumed in normal operating cycle;
∂ Held primarily for the purpose of trading;
∂ Expected to be realized within twelve (12) months after the end of the financial reporting
period; or
∂ Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for
at least twelve (12) months after the end of the financial reporting period.

The Group classifies all other assets as noncurrent.

A liability is current when:

∂ It is expected to be settled in normal operating cycle;
∂ It is held primarily for the purpose of trading;
∂ It is due to be settled within twelve (12) months after the end of the financial reporting period;
or

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∂ There is no unconditional right to defer the settlement of the liability for at least twelve (12)
months after the end of the financial reporting period.

The Group classifies all other liabilities as noncurrent.

Cash and Cash Equivalents

Cash includes cash on hand, with banks and under managed funds. Cash with banks and under
managed funds earn interest at the prevailing bank deposit rates. Cash equivalents pertain to
short-term cash investments that are made for varying periods of up to three (3) months depending
on the immediate cash requirements of the Group and earn interest at the respective short-term
cash investment rates.

Financial Instruments
Date of Recognition
The Group recognizes a financial asset or a financial liability in the consolidated statement of
financial position when it becomes a party to the contractual provisions of the instrument.

Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace (regular way trades) are recognized on
the trade date (i.e., the date that the Group commits to purchase or sell the asset).

Initial Recognition, Classification and Measurement of Financial Instruments

The Group determines the classification of financial instruments at initial recognition and, where
allowed and appropriate, re-evaluates this designation at every end of the financial reporting
period.

All financial instruments are recognized initially at fair value. Directly attributable transaction
costs are included in the initial measurement of all financial instruments, except for financial
instruments measured at FVPL.

Financial Assets
Financial assets within the scope of PAS 39 are classified in the following categories: financial
assets at FVPL, loans and receivables, held-to-maturity (HTM) investments, AFS financial assets,
or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The
classification depends on the purpose for which the investments were acquired and whether they
are quoted in an active market.

The Group’s financial assets are in the nature of loans and receivables and AFS financial assets.
The Group has no financial assets at FVPL, HTM investments and derivatives designated as
hedging instruments in an effective hedge as at December 31, 2017 and 2016.

Financial Liabilities
Also under PAS 39, financial liabilities are classified into financial liabilities at FVPL, other
financial liabilities or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.

Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or
a component that is a financial liability, are reported as expense or income. Distributions to
holders of financial instruments classified as equity are charged directly to equity net of any
related income tax.

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The Group’s financial liabilities are in the nature of other financial liabilities. The Group has no
financial liabilities classified as at FVPL and derivatives designated as hedging instruments in an
effective hedge as at December 31, 2017 and 2016.

Fair Value Measurement

The Group measures financial instruments, such as AFS financial assets, at fair value at each end
of the financial reporting period. Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The fair value measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
∂ In the principal market for the asset or liability; or
∂ In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Group. The fair value of
an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a nonfinancial asset takes into account a market participant’s ability
to generate economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest-level input that is significant to the fair value measurement as a whole:
∂ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
∂ Level 2 - Valuation techniques for which the lowest-level input that is significant to the fair
value measurement is directly or indirectly observable; and
∂ Level 3 - Valuation techniques for which the lowest-level input that is significant to the fair
value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between Levels in the hierarchy by
re-assessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at each end of the financial reporting period.

The fair value of financial instruments that are actively traded in organized financial markets is
determined by reference to quoted market close prices at the close of business at the end of the
financial reporting period.

For financial instruments where there is no active market, fair value is determined using valuation
techniques. Such techniques include comparison to similar investments for which market
observable prices exist and discounted cash flow analysis or other valuation models.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities
on the basis of the nature, characteristics and risks of the asset or liability and the Level of the fair
value hierarchy as explained above.

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“Day 1” Difference
Where the transaction price in a non-active market is different from the fair value based on other
observable current market transactions in the same instrument or based on a valuation technique
whose variable include only data from observable market, the Group recognizes the difference
between the transaction price and fair value (a “Day 1” difference) in the consolidated statement
of income unless it qualifies for recognition as some other type of asset. In cases where use is
made of data which is not observable, the difference between the transaction price and model
value is only recognized in the consolidated statement of income when the inputs become
observable or when the instrument is derecognized. For each transaction, the Group determines
the appropriate method of recognizing the “Day 1” difference amount.

Subsequent Measurement
The subsequent measurement of financial instruments depends on their classification as follows:

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are not entered into with the intention of immediate or
short-term resale and are not classified as “Financial assets held for trading”, designated as “AFS
financial assets” or “Financial assets designated at FVPL”. After initial measurement, loans and
receivables are subsequently measured at amortized cost using the effective interest rate (EIR)
method, less any allowance for impairment. Amortized cost is calculated by taking into account
any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The
amortization and losses arising from impairment are included in “Other income (charges) - net” in
the consolidated statement of income. Gains and losses are recognized in the consolidated
statement of income when the loans are derecognized or impaired as well as through the
amortization process.

Loans and receivables are included in current assets if maturity is within twelve (12) months from
the end of the financial reporting period or within the Group’s normal operating cycle, whichever
is longer. Otherwise, these are classified as noncurrent assets.

The Group’s loans and receivables include “Cash and cash equivalents”, “Trade and other
receivables”, loan receivable and long-term negotiable instruments which are included under
“Other noncurrent assets” in the consolidated statement of financial position (see Notes 4, 5
and 13).

AFS Financial Assets

AFS financial assets are those which are designated as such or do not qualify to be classified or
designated at FVPL, HTM investments or loans and receivables.

Financial assets may be designated at initial recognition as AFS financial assets if they are
purchased and held indefinitely, and may be sold in response to liquidity requirements or changes
in market conditions.

AFS financial assets are included in current assets if it is expected to be realized or disposed of
within twelve (12) months from the end of the financial reporting period. Otherwise, these are
classified as noncurrent assets.

When the security is disposed of, the cumulative gain or loss previously recognized in “Net
valuation gains on AFS financial assets” under equity is recognized in the consolidated statement
of income. Where the Group holds more than one investment in the same security, these are

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deemed to be disposed of on a first-in, first-out basis. Interest earned on holding AFS financial
assets are reported as “Interest income” using the EIR. Dividends earned on holding AFS
financial assets are recognized in the consolidated statement of income when the right to receive
payment has been established. The losses arising from impairment of such investments are
recognized in the consolidated statement of income.

The Group uses the specific identification method in determining the cost of securities sold.

The Group’s investments in debt and equity instruments are classified under this category
(see Note 7).

Other Financial Liabilities

This category pertains to financial liabilities that are not held for trading, not derivatives, or not
designated at FVPL upon the inception of the liability. After initial recognition, other financial
liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses
are recognized in the consolidated statement of income when the liabilities are derecognized as
well as through the EIR amortization process.

Amortized cost is calculated by taking into account any issue cost, and any discount or premium
on settlement. The EIR amortization is included under “Finance income” in the consolidated
statement of income.

Other financial liabilities are included in current liabilities if settlement is within twelve (12)
months from the end of the financial reporting period, otherwise, these are classified as noncurrent
liabilities.

This accounting policy applies primarily to the Group’s trade and other payables, short-term and
long-term debts, long-term payable and other obligations that meet the above definition (excluding
government payables and other liabilities that are covered by other accounting standards, such as
income tax payable and pension; see Notes 14, 15 and 17).

Offsetting of Financial Instruments

Financial instruments are only offset and the net amount is reported in the consolidated statement
of financial position when there is a legally enforceable right to offset the recognized amounts and
the Group intends to either settle on a net basis, or to realize the asset and the liability
simultaneously. The Group assesses that it has a currently enforceable right of offset and the right
is not contingent on a future event, event of default and event of insolvency or bankruptcy of the
Group and all of the counterparties, and is legally enforceable in the normal course of business.

Impairment of Financial Assets

The Group assesses at the end of each financial reporting period whether there is any objective
evidence that a financial asset or a group of financial assets is impaired. A financial asset or a
group of financial assets is deemed to be impaired if, and only if, there is objective evidence of
impairment as a result of one or more events that has occurred after the initial recognition of the
asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal
payments, the probability that they will enter bankruptcy or other financial reorganization and
where observable data indicate that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.

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Loans and Receivables

For financial assets carried at amortized cost, the Group first assesses individually whether
objective evidence of impairment exists individually for financial assets that are individually
significant, or collectively for financial assets that are not individually significant. If the Group
determines that no objective evidence of impairment exists for an individually assessed financial
asset, whether significant or not, it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment loss is, or continues to be,
recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss was incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated
future cash flows (excluding future expected credit losses that have not yet been incurred). The
present value of the estimated future cash flows is discounted at the financial assets’ original EIR.
If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the
current EIR.

The carrying amount of the assets is reduced through the use of an allowance account and the
amount of loss is recognized in the consolidated statement of income. Interest income continues
to be accrued on the reduced carrying amount and is accrued using the rate of interest used to
discount the future cash flows for the purpose of measuring the impairment loss. The interest
income is recorded as part of “Finance income” in the consolidated statement of income.

Loans, together with the associated allowance, are written-off when there is no realistic prospect
of future recovery and all collateral has been realized or has been transferred to the Group.

If, in a subsequent year, the amount of the estimated impairment loss decreases because of an
event occurring after the impairment loss was recognized, the previously recognized impairment
loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an
impairment loss is recognized in the consolidated statement of income, to the extent that the
carrying value of the asset does not exceed its amortized cost at the reversal date.

AFS Financial Assets

For AFS financial assets, the Group assesses at each end of the financial reporting period whether
there is objective evidence that a financial asset or group of financial assets is impaired.

In the case of equity investments classified as AFS financial assets, objective evidence would
include a significant or prolonged decline in the fair value of the investments below its cost. The
determination of what is “significant” or “prolonged” requires judgment. “Significant” is to be
evaluated against the original cost of the investment and “prolonged” is to be evaluated against the
period in which the fair value has been below its original cost. Where there is evidence of
impairment, the cumulative loss (measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that investment previously recognized in OCI) is
removed from OCI and recognized in the consolidated statement of income.

Impairment losses on equity investments are not reversed through the consolidated statement of
income while increases in fair value after impairment are recognized directly in OCI under equity.

In the case of debt instruments classified as AFS financial assets, the impairment is assessed based
on the same criteria as financial assets carried at amortized cost. However, the amount recorded

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for impairment is the cumulative loss measured as the difference between the amortized cost and
the current fair value, less any impairment loss on that investment previously recognized in the
consolidated statement of income.

Future interest income continues to be accrued based on the reduced carrying amount of the asset,
using the rate of interest used to discount the future cash flows for the purpose of measuring the
impairment loss. The interest income is recorded as part of “Finance income” in the consolidated
statement of income. If, in the subsequent year, the fair value of a debt instrument increases and
the increase can be objectively related to an event occurring after the impairment loss was
recognized through the consolidated statement of income, the impairment loss is reversed through
the consolidated statement of income.

If there is objective evidence of impairment loss in unquoted equity instrument for AFS financial
assets carried at cost, such as unquoted equity instrument that is not carried at fair value because
its fair value cannot be reliably measured, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows
discounted at the current market rate of return for a similar financial asset. Objective evidence of
impairment includes, but is not limited to, significant financial difficulty of the issuer or obligor
and it becoming probable that the borrower will enter bankruptcy or other financial reorganization.

Derecognition of Financial Instruments

Financial Assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar
financial assets) is derecognized when:
∂ The rights to receive cash flows from the asset have expired;
∂ The Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a “pass-through”
arrangement; or
∂ The Group has transferred its rights to receive cash flows from the asset and either: (a) has
transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay. In
such case, the Group also recognizes an associated liability.

The transferred asset and the associated liability are measured on a basis that reflects the rights
and obligations that the Group has retained.

Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or has expired.

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Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts of a financial liability extinguished
or transferred to another party and the consideration paid, including any non-cash assets
transferred or liabilities assumed, is recognized in the consolidated statement of income.

Inventories
Inventories, including the long-term stockpile inventory, are carried at the lower of cost and net
realizable value (NRV). Cost is determined by the moving average production cost during the
year for beneficiated nickel ore and limestone exceeding a determined cut-off grade and average
handling costs of limonite ores. The NRV of beneficiated nickel ore and limestone inventories is
the estimated selling price in the ordinary course of business, less the estimated costs of
completion and the estimated costs necessary to make the sale. Periodic ore inventory survey is
performed to determine the volume of ore inventory.

For materials and supplies, cost is determined using the moving average method and composed of
purchase price, transport, handling and other costs directly attributable to its acquisition. The
NRV of materials and supplies is the current replacement cost. Any provision for inventory losses
is determined by reference to specific items of stock. A regular review is undertaken to determine
the extent of any provision or obsolescence.

The long-term stockpile inventory cost is represented by the fair value of the long-term stockpile
inventory related to the acquisition of the controlling interest in RTN in August 2006. The fair
value was determined using the present value of the estimated cash flows, which RTN will derive
from the sale of this inventory to CBNC under its Nickel Ore Supply Agreement with CBNC
(see Note 34a). After initial recognition, the long-term stockpile inventory is subsequently
charged to cost of sale of ore based on actual tonnage delivered to CBNC. NRV of long-term
stockpile inventory is the estimated selling price in the ordinary course of business less the
estimated costs necessary to make the sale.

Prepayments and Other Current Assets

Prepayments and other current assets include advances and deposits, input Value Added Tax
(VAT), tax credit certificates and various prepayments which the Group expects to realize or
consume the assets within twelve (12) months after the end of the financial reporting period.

VAT
Revenues, expenses, and assets are recognized net of the amount of VAT, if applicable.

When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on from
purchases of goods or services (input VAT), the excess is recognized as payable in the
consolidated statement of financial position. When VAT passed on from purchases of goods or
services (input VAT) exceeds VAT from sales of goods and/or services (output VAT), the excess
is recognized as an asset in the consolidated statement of financial position. Deferred input VAT,
which represents input VAT on capital assets subject to amortization, and any excess input VAT
which: (1) may be utilized against output VAT, if any, beyond twelve (12) months from the end of
the financial reporting period; or (2) are being claimed for refund or as tax credits with the BIR
and/or Court of Tax Appeals are presented as part of “Other noncurrent assets” in the consolidated
statement of financial position. Input VAT is stated at cost less any impairment in value.

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Property and Equipment

Property and equipment, except land, is stated at cost, excluding the costs of day-to-day servicing,
less accumulated depreciation, amortization and depletion and accumulated impairment loss, if
any. The initial cost of property and equipment consists of its purchase price including import
duties and any directly attributable costs of bringing the property and equipment to its working
condition and location for its intended use. Such cost also includes the cost of replacing part of
such property and equipment when the recognition criteria are met. When each major inspection
is performed, its cost is recognized in the carrying amount of the property and equipment as a
replacement if the recognition criteria are satisfied. Land is carried at cost less any impairment
loss.

Depreciation and amortization are computed using the straight-line method over the following
estimated useful lives of the assets:

Category Number of Years

Land improvements 5
Machinery and equipment 2-15
Buildings and improvements 2-25
Transmission lines and substations 10-40
Solar farm 5-40

Mining properties and development costs include the capitalized cost of mine rehabilitation and
decommissioning and other development cost necessary to prepare the area for operations.
Depletion of mining properties and development costs is calculated using the unit-of-production
method based on the estimated economically recoverable reserves to which they relate to or are
written-off if the property is abandoned. Development costs are depreciated using the straight-line
method over the estimated useful life of the asset of twenty (20) to thirty (30) years.

Construction in-progress represents work under construction and is stated at cost. Construction
in-progress is not depreciated until such time that the relevant assets are completed and available
for use. This also include interest on borrowed funds incurred during the construction period.

Depreciation, amortization and depletion of property and equipment, except land, begins when it
becomes available for use, i.e., when it is in the location and condition necessary for it to be
capable of operating in the manner intended by management, or in case of mining properties, from
start of commercial operations upon extraction of ore reserves. Depreciation, amortization and
depletion ceases when the assets are fully depreciated, amortized or depleted, or at the earlier of
the date that the item is classified as held for sale (or included in the disposal group that is
classified as held for sale) in accordance with PFRS 5, Noncurrent Assets Held for Sale and
Discontinued Operations, and the date the item is derecognized.

The assets’ estimated recoverable reserves, residual values, useful lives and depreciation,
amortization and depletion methods are reviewed periodically to ensure that the estimated
recoverable reserves, residual values, periods and methods of depreciation, amortization and
depletion are consistent with the expected pattern of economic benefits from items of property and
equipment. If there is an indication that there has been a significant change in depreciation,
amortization and depletion rate, useful life or residual value of an asset, these are revised
prospectively to reflect the new expectations.

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The carrying values of property and equipment are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable.

An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of
the asset) is included in the consolidated statement of income in the year the asset is derecognized.

The asset revaluation surplus which arose from the acquisition of the controlling interest in RTN
in August 2006, relates to the land, machinery and equipment, and building and improvements.
The related and applicable depreciation on these assets is transferred periodically to retained
earnings.

Fully depreciated assets are retained in the accounts until they are no longer in use and no further
depreciation is charged to current operations.

Borrowing Cost
Borrowing costs directly attributable to the development of the Group’s projects that necessarily
take a substantial period of time to get ready for its intended use are capitalized. Borrowing costs
consist of interest on borrowed funds used to finance the construction of the asset and other
financing costs that the Group incurs in connection with the borrowing of funds. The
capitalization of the borrowing cost as part of the cost of the asset: (a) commences when the
expenditures and borrowing costs are being incurred during the construction and related activities
necessary to prepare the asset for its intended use are in progress; and (b) ceases when
substantially all the activities necessary to prepare the asset for its intended use are complete.
Capitalized borrowing costs are based on the applicable borrowing rate agreed in the agreement.

Investments in Associates
Associates are entities over which the Group is able to exert significant influence. Significant
influence is the power to participate in the financial and reporting policy decisions of the investee,
but has no control or joint control over those policies. The considerations made in determining
significant influence are similar to those necessary to determine control activities. The Group’s
investments in associates are accounted for using the equity method, less any impairment in value,
in the consolidated statement of financial position.

The consolidated statement of income reflects the Group’s share of the results of operations of the
associates. When there has been a change recognized directly in the equity of the associate, the
Group recognizes its share of any changes, when applicable, in the consolidated statement of
changes in equity. Unrealized gains and losses resulting from transactions between the Group and
the associates are eliminated to the extent of the interest in the associate. The aggregate of the
Group’s share in profit or loss of an associate is shown in the consolidated statement of income
outside operating profit and represents profit or loss after tax and NCI in the subsidiaries of the
associate.

Upon loss of significant influence over the associate, the Group measures and recognizes any
retained investment at its fair value. Any difference between the carrying amount of the associate
upon loss of significant influence and the fair value of the retained investment and proceeds from
disposal is recognized in the consolidated statement of income.

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If the ownership interest in an associate is reduced, but the investment continuous to be an

associate, the Group shall reclassify to profit or loss the proportion gain or loss that had previously
been recognized in OCI relating to the reduction in ownership interest if that gain or loss would be
required to be reclassified to profit or loss on the disposal of the related asset.

The financial statements of the associates are prepared for the same reporting period and using
uniform accounting policies as the Group. When necessary, adjustments are made to bring the
accounting policies of the associates in line with those of the Group.

Business Combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration transferred, measured at acquisition date fair
value and the amount of any NCI in the acquiree. For each business combination, the acquirer
measures the NCI in the acquiree either at fair value or at the proportionate share of the acquiree’s
identifiable net assets. Acquisition-related costs incurred are charged to profit or loss.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date
through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration which is
deemed to be an asset or liability, will be recognized in accordance with PAS 39, either in profit or
loss or as a charge to OCI. If the contingent consideration is classified as equity, it should not be
remeasured until it is finally settled within equity.

Geothermal Exploration and Evaluation Assets

The Group follows the full cost method of accounting for its geothermal exploration and
evaluation assets determined on the basis of the service contract. Under this method, all
exploration costs relating to each service contract are accumulated and deferred under
“Geothermal exploration and evaluation assets” account in the consolidated statement of financial
position pending the determination of whether the wells have proved reserves. Capitalized
expenditures include costs of license acquisition, technical services and studies, exploration
drilling and testing, and appropriate technical and administrative expenses. General overhead or
costs incurred prior to having obtained the legal rights to explore an area are recognized as
expense in the consolidated statement of income when incurred.

If tests conducted on the drilled exploratory wells reveal that these wells cannot produce proved
reserves, the capitalized costs are charged to expense except when the management decides to use
the unproductive wells, for recycling or waste disposal.

Once the technical feasibility and commercial viability of the project to produce proved reserves
are established, the geothermal exploration and evaluation assets are reclassified to property and
equipment.

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Geothermal exploration and evaluation assets are derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the assets. Any gain or loss
arising from the derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the assets) is included in the consolidated statement of
income in the year the item is derecognized.

Geothermal exploration and evaluation assets also include interest on borrowed funds that are
directly attributable to the construction and development of the Group’s projects.

Other Noncurrent Assets

Other noncurrent assets of the Group include deferred mine exploration costs, input VAT, loan
receivable, mine rehabilitation fund (MRF), advances and deposits, project development costs,
long-term negotiable instruments, Social Development Management Program (SDMP) funds,
investment properties, pension asset, and other deposits. Aside from MRF, SDMP funds and
restricted cash which are restriced as to withdrawal for specified purpose, these are classified as
noncurrent since the Group expects to utilize the assets beyond twelve (12) months from the end
of the financial reporting period.

Deferred Mine Exploration Costs

Expenditures for the acquisition of property rights are capitalized. Expenditures for mine
exploration work prior to drilling are charged to operations. When it has been established that a
mineral deposit is commercially mineable and a decision has been made to formulate a mining
plan (which occurs upon completion of a positive economic analysis of the mineral deposit), costs
subsequently incurred to develop a mine on the property prior to the start of mining operations are
capitalized. Upon the start of commercial operations, such costs are transferred to property and
equipment. Capitalized amounts may be written down if future cash flows, including potential
sales proceeds related to the property, are projected to be less than the carrying value of the
property. If no mineable ore body is discovered, capitalized acquisition costs are expensed in the
period in which it is determined that the mineral property has no future economic value.

Costs incurred during the start-up phase of a mine are expensed as incurred. Ongoing mining
expenditures on producing properties are charged against earnings as incurred. Major
development expenditures incurred to expose the ore, increase production or extend the life of an
existing mine are capitalized.

Deferred Stripping Costs

Stripping costs incurred in the development of a mine before production commences are
capitalized as part of the cost of constructing the mine which are amortized subsequently. Where
a mine operates several open pit that are regarded as separate operations for the purpose of mine
planning, stripping costs are accounted for separately by reference to the ore from each separate
pit. If, however, the pits are highly integrated for the purpose of the mine planning, the second
and subsequent pits are regarded as extensions of the first pit in accounting for stripping costs. In
such cases, the initial stripping (i.e., overburden and other waste removal) of the second and
subsequent pits is considered to be production phase stripping relating to the combined operation.

For stripping costs incurred subsequently during the production stage of the operation, the
stripping activity cost is accounted as part of the cost of inventory if the benefit from the stripping
activity will be realized in the current period. When the benefit is the improved access to ore, the
Group shall recognize these costs as stripping activity assets. The stripping activity asset is
accounted for as an addition to, or as an enhancement of, an existing asset. After initial
recognition, the deferred stripping cost is carried at its cost less depreciation or amortization and
less impairment losses.

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Project Development Costs

Project development costs are expensed as incurred until management determines that the project
is technically, commercially, and financially viable, at which time project development costs are
capitalized. Project’s viability generally occurs in tandem with management’s determination that
a project should be classified as an advanced project as evidenced by a favorable system impact
study, interconnection agreements, or when project financing is in place.

Following initial recognition of the project development cost as an asset, the cost model is applied
requiring the asset to be carried at cost less accumulated amortization and any accumulated
impairment losses. Amortization of the asset begins when the development of the wind and solar
energy projects is complete and the asset is available for use. It is amortized using the straight-
line method over the period of expected future benefit. During the period in which the asset is not
yet available for use, the project development costs are tested for impairment annually,
irrespective of whether there is indication of impairment.

Investment Properties
Investment properties, which pertain to land, are measured initially at cost, including transaction
costs. The carrying amount includes the cost of replacing part of an existing investment property
at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-
day servicing of an investment property. Subsequent to initial recognition, investment property is
carried at cost less any accumulated impairment losses.

Investment property is derecognized when either they have been disposed of or when the
investment property is permanently withdrawn from use and no future economic benefit is
expected from its disposal. Any gains or losses on the retirement or disposal of an investment
property are recognized in the consolidated statement of income in the year of retirement or
disposal.

Transfers are made to investment properties when, and only when, there is a change in use,
evidenced by ending of owner-occupation or commencement of an operating lease to another
party. Transfers are made from investment properties when, and only when, there is a change in
use, evidenced by commencement of owner-occupation or commencement of development with a
view to sale.

Under the cost model, transfers between investment property and owner-occupied property do not
change the carrying amount of the property transferred and they do not change the cost of that
property for measurement or disclosure purposes.

Impairment of Nonfinancial Assets

Inventories and Long-term Stockpile Inventory
The Group determines the NRV of inventories and long-term stockpile inventory at each end of
the financial reporting period. If the cost of the inventories and long-term stockpile inventory
exceeds its NRV, the asset is written down to its NRV and impairment loss is recognized in the
consolidated statement of income in the year the impairment is incurred. In the case when NRV
of the inventories and long-term stockpile inventory increased subsequently, the NRV will
increase the carrying amounts of inventories but only to the extent of their original acquisition
costs.

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Property and Equipment and Nonfinancial Prepayments and Other Current and Noncurrent
Assets
The Group assesses, at each end of the financial reporting period, whether there is an indication
that an asset may be impaired. Assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If any such
indication exists and where the carrying amount of an asset exceeds its recoverable amount, the
asset or cash generating unit (CGU) is written down to its recoverable amount. An asset’s
recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in
use. The fair value less costs to sell is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date
less the costs of disposal, while value in use is the present value of estimated future cash flows
expected to arise from the continuing use of an asset and from its disposal at the end of its useful
life. These calculations are corroborated by valuation multiples or other available fair value
indicators. For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the CGU to which the asset belongs. Impairment losses are recognized
in the consolidated statement of income.

Recovery of impairment loss recognized in prior years is recorded when there is an indication that
the impairment losses recognized for the asset no longer exist or have decreased. The recovery is
recorded in the consolidated statement of income. However, the increased carrying amount of an
asset due to a recovery of an impairment loss is recognized to the extent it does not exceed the
carrying amount that would have been determined (net of depreciation, amortization and
depletion) had no impairment loss been recognized for that asset in prior years.

Investments in Associates
After application of the equity method, the Group determines whether it is necessary to recognize
an impairment loss on its investments in associates. At each end of the financial reporting period,
the Group determines whether there is objective evidence that the investments in associates are
impaired. If there is such evidence, the Group calculates the amount of impairment as the
difference between the recoverable amount of the associate and its carrying value, and then
recognizes the amount in the consolidated statement of income.

Geothermal Exploration and Evaluation Assets and Deferred Mine Exploration Costs
An impairment review is performed, either individually or at the CGU level, when there are
indicators that the carrying amount of the assets may exceed their recoverable amounts. To the
extent that this occurs, the excess is fully provided against, in the financial reporting period in
which this is determined.

Facts and circumstances that would require an impairment assessment as set forth in PFRS 6,
Exploration for and Evaluation of Mineral Resources, are as follows:
∂ The period for which the Group has the right to explore in the specific area has expired or
will expire in the near future and is not expected to be renewed;
∂ Substantive expenditure on further exploration and evaluation of mineral resources in the
specific area is neither budgeted nor planned;
∂ Exploration for and evaluation of mineral resources in the specific area have not led to the
discovery of commercially viable quantities of mineral resources and the entity has decided
to discontinue such activities in the specific area;

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∂ When a service contract where the Group has participating interest in is permanently
abandoned; and
∂ Sufficient data exist to indicate that, although a development in the specific area is likely to
proceed, the carrying amount of the exploration and evaluation asset is unlikely to be
recovered in full from successful development or by sale.

Geothermal exploration and evaluation assets and deferred mine exploration costs are reassessed
for impairment on a regular basis.

Other Current Liability

Other current liability pertains to deposits for future stock subscription which represents advance
payments from stockholders for the subscription of future issuance of shares.

The Group classifies its deposits for future stock subscription as a separate account under equity if
and only if, all of the following elements are present as at the end of the financial reporting period:
∂ There is a lack of or insufficiency in unissued authorized capital stock;
∂ The BOD and stockholders have approved the proposed increase in authorized capital stock;
and
∂ An application for the approval of the proposed increase in authorized capital stock has been
presented for filing or has been filed with the SEC.

If any or all of the foregoing elements are not present, the deposits for future stock subscription
shall be recognized and included as a separate line item under liabilities in the consolidated
statement of financial position.

Deferred Income
Deferred income is advance payments received during one (1) financial reporting period but
earned and shown in the consolidated statement of income in the year when it can be matched with
the period in which it is realized as income.

Provisions
General
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Provisions are reviewed at each end of the financial reporting period and adjusted to
reflect the current best estimate. The expense relating to any provision is presented in the
consolidated statement of income, net of any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as part of “Finance expense” in the consolidated
statement of income.

Provision for Mine Rehabilitation and Decommissioning

The Group records the present value of estimated costs of legal and constructive obligations
required to restore operating locations in the period in which the obligation is incurred. The nature
of these restoration activities includes dismantling and removing structures, rehabilitating mines
and tailings dams, dismantling operating facilities, closure of plant and waste sites, and
restoration, reclamation and re-vegetation of affected areas. The obligation generally arises when
the asset is installed or the ground/environment is disturbed at the production location. When the

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liability is initially recognized, the present value of the estimated cost is capitalized by increasing
the carrying amount of the related mining assets. Over time, the discounted liability is increased
for the change in present value based on the discount rates that reflect current market assessments
and the risks specific to the liability.

The periodic unwinding of the discount is recognized as part of “Finance expense” in the
consolidated statement of income. Additional disturbances or changes in rehabilitation costs will
be recognized as additions or charges to the corresponding assets and provision for mine
rehabilitation and decommissioning when they occur. When rehabilitation is conducted
systematically over the life of the operation, rather than at the time of closure, provision is made
for the estimated outstanding continuous rehabilitation work at each end of the financial reporting
period and the cost is charged to consolidated statement of income.

The ultimate cost of mine rehabilitation and decommissioning is uncertain and cost estimates can
vary in response to many factors including changes to the relevant legal requirements, the
emergence of new restoration techniques or experience. The expected timing of expenditure can
also change, for example in response to changes in ore reserves or production rates. As a result,
there could be significant adjustments to the provision for mine rehabilitation and
decommissioning, which would affect future financial results. For closed sites, changes to
estimated costs are recognized immediately in the consolidated statement of income.

MRF committed for use in satisfying environmental obligations are included within “Other
noncurrent assets” in the consolidated statement of financial position.

OCI
OCI comprises items of income and expense (including items previously presented under the
consolidated statement of changes in equity) that are not recognized in the consolidated statement
of income for the year in accordance with PFRS.

Capital Stock
Common shares are classified as equity and are measured at par value for all shares issued and
outstanding.

Preferred shares are classified as equity if it is non-redeemable, or redeemable only at the Parent
Company’s option, and any dividends are discretionary. Dividends thereon are recognized as
distributions within equity upon approval by the Parent Company’s BOD. Preferred shares are
classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or
if dividend payments are not discretionary. Dividends thereon are recognized as “Interest
expense” in the consolidated statement of income as accrued.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as
a deduction from proceeds. The excess of proceeds from issuance of shares over the par value of
shares are credited to additional paid-in capital.

Unpaid subscriptions are recognized as a reduction from subscribed capital shares.

Retained Earnings
Retained earnings represent the cumulative balance of periodic net income or loss, prior period
adjustments, effect of changes in accounting policies in accordance with PAS 8, Accounting
Policies, Changes in Accounting Estimates and Errors and other capital adjustments, net of any
dividend declaration.

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Dividends are recognized as a liability and deducted from equity when they are approved or
declared by the BOD and/or stockholders. Dividends for the period that are approved after the end
of the financial reporting period are dealt with as an event after the end of the financial reporting
period.

Share-based Payment Transactions

The executives of the Group receive remuneration in the form of share-based payments, whereby
employees render services as consideration for equity instruments (equity-settled transactions).

The cost of equity-settled transaction is determined by the fair value at the date when the grant is
made using the Black Scholes-Merton model. The cost of equity-settled transaction is recognized,
together with a corresponding increase in equity, over the period in which the service conditions
are fulfilled ending on the date on which the relevant employees become fully entitled to the
award (“the vesting date”). The cumulative expense recognized for equity-settled transactions at
the end of each financial reporting period until the vesting date reflects the extent to which the
vesting period has expired and the Parent Company’s best estimate of the number of equity
instruments that will ultimately vest.

The charge or credit in the consolidated statement of income for a period represents the movement
in cumulative expense recognized as at the beginning and end of that period and are recognized in
“Personnel costs”.

No expense is recognized for awards that do not ultimately vest.

Where the terms of an equity-settled transaction award are modified, the minimum expense
recognized is the expense as if the terms had not been modified, if the original terms of the award
are met. An additional expense is recognized for any modification that increases the total fair
value of the share-based payment transaction, or is otherwise beneficial to the employee as
measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation,

and any expense not yet recognized for the award is recognized immediately. However, if a new
award is substituted for the cancelled award, and designated as a replacement award on the date
that it is granted, the cancelled and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the
computation of diluted EPS.

Basic/Diluted EPS
Basic EPS
Basic EPS amounts are calculated by dividing the net income attributable to ordinary equity
holders of the Parent Company by the weighted average number of ordinary shares outstanding,
after giving retroactive effect for any stock dividends, stock splits or reverse stock splits during the
year.

Diluted EPS
Diluted EPS amounts are calculated by dividing the net income attributable to ordinary equity
holders of the Parent Company by the weighted average number of ordinary shares outstanding,
adjusted for any stock dividends declared during the year plus weighted average number of
ordinary shares that would be issued on the conversion of all the dilutive ordinary shares into
ordinary shares, excluding treasury shares.

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Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:

Sale of Beneficiated Nickel Ore and Limestone

Revenue is recognized when the significant risks and rewards of ownership of the goods have
passed to the buyer which, in the case of deliveries other than to CBNC and THNC, coincides with
the loading of the ores into the buyer’s vessel and the date of the bill of lading issued by the
buyer’s shipping agent. In the case of deliveries to CBNC and THNC, this occurs at the time the
ore passes into the ore preparation hopper of the respective plants. Under the terms of the
arrangements with customers, other than CBNC and THNC, the Group bills the remaining
balance, generally at 5% to 20% of the ore shipped, based on the assay results agreed by both the
Group and the customers. Where the assay results are not yet available as at the end of the
financial reporting period, the Group accrues the remaining 5% to 20% of the revenue based on
the amount of the initial billing made. For CBNC and THNC, 100% of the revenue is billed
monthly.

Rendering of Services
Revenue from rendering of services consists of shipsiding activities, service fees, usage fees,
assaying fees, drilling fees and materials handling fees are recognized when the services are
rendered.

Sale of Power
Revenue from sale of solar power is based on sales price and is composed of generation fees from
spot sales to the Wholesale Electricity Spot Market. Revenue is recognized monthly based on the
actual energy delivered.

Interest
Income is recognized as interest accrues (using the EIR method that is the rate that exactly
discounts estimated future cash receipts through the expected life of the financial instrument to the
net carrying amount of the financial asset).

Dividend
Dividend income is recognized when the Group’s right to receive payment is established.

Rental
Revenue is recognized based on a straight-line basis over the term of the lease agreement.

Despatch
Despatch is recognized when shipment loading is completed within the allowable laytime.

Issuance of Fuel, Oil and Lubricants

Revenue is recognized upon release of inventory from the depot.

Other Income
Revenue is recognized in the consolidated statement of income as they are earned.

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Cost and Expense Recognition

Cost and expenses are decreases in economic benefits during the financial reporting period in the
form of outflows or decrease of assets or incurrence of liabilities that result in decrease in equity,
other than those relating to distributions to equity participants. Cost and expenses, finance
expenses and other charges are generally recognized when the expense arises, incurred or accrued
in the appropriate period.

Cost of Sale of Ore

Cost of sale of ore is incurred in the normal course of business and is recognized when incurred.
They comprise mainly of cost of goods sold, which are provided in the period when goods are
delivered.

Cost of Services
Cost of services is incurred in the normal course of business and is provided in the period when
the related service has been rendered.

Cost of Power Generation

Cost of power generation using solar energy include expenses incurred directly for the generation
of revenues from power at operating project locations. Cost of power generation are expensed
when incurred.

Operating Expenses
Operating expenses consist of costs associated with the development and execution of marketing
and promotional activities, costs of shipping and loading which are expenses incurred in
connection with the distribution of ores, excise taxes and royalties due to the government and to
indigenous people, and expenses incurred in the direction and general administration of day-to-day
operation of the Group. These are generally recognized when the expense arises.

Demurrage
Demurrage represents the damages incurred as a result of a contractual breach; i.e., failure on the
part of the Group to complete the loading of ore within the agreed laytime. Such cost for the delay
or detention of the vessel beyond the period allowed is reimbursed by the Group to the buyer.

Leases
Determination of Whether an Arrangement Contains a Lease
The determination of whether an arrangement is, or contains, a lease is based on the substance of
the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment
of the arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset or assets, even if that right is not explicitly specified in an
arrangement.

A reassessment is made after inception of the lease only if one of the following applies:
a) There is a change in contractual terms, other than a renewal or extension of the
arrangement;
b) A renewal option is exercised or extension granted, unless that term of the renewal or
extension was initially included in the lease term;
c) There is a change in the determination of whether fulfillment is dependent on a specified
asset; or
d) There is a substantial change to the asset.

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Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the
date of renewal or extension period for scenario (b).

Group as a Lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are amortized as expense in the
consolidated statement of income on a straight-line basis over the lease term.

Group as a Lessor
Leases where the Group retains substantially all the risks and rewards of ownership of the asset
are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are
added to the carrying amount of the leased asset and recognized over the lease term on the same
basis as rental income.

Pension Costs
The net defined benefit liability or asset is the aggregate of the present value of the pension
liability at the end of the financial reporting period reduced by the fair value of plan assets (if any),
adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling
is the present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method. This method reflects service rendered by employees to the date of
valuation and incorporates assumptions concerning the employees’ projected salaries.

Defined benefit costs comprise the following:

∂ Service cost;
∂ Net interest on the net defined benefit liability or asset; and
∂ Remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on non-
routine settlements are recognized as pension costs under “Personnel costs” in the consolidated
statement of income. Past service costs are recognized when plan amendment or curtailment
occurs. These amounts are calculated periodically by independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the net
defined benefit liability or asset that arises from the passage of time which is determined by
applying the discount rate based on government bonds to the net defined benefit liability or asset.
Net interest on the net defined benefit liability or asset is recognized and included under “Finance
expense” or “Finance income” in the consolidated statement of income.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in
the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized
immediately in OCI in the period in which they arise. Remeasurements are not reclassified to
consolidated statement of income in subsequent periods. Remeasurements recognized in OCI
after the initial adoption of Revised PAS 19 are closed to retained earnings.

*SGVFS027977*
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Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance
policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly
to the Group. Fair value of plan assets is based on market price information. When no market
price is available, the fair value of plan assets is estimated by discounting expected future cash
flows using a discount rate that reflects both the risk associated with the plan assets and the
maturity or expected disposal date of those assets (or, if they have no maturity, the expected
period until the settlement of the related obligations).

If the fair value of the plan assets is higher than the present value of the defined benefit obligation,
the measurement of the resulting defined benefit asset is limited to the present value of economic
benefits available in the form of refunds from the plan or reductions in future contributions to the
plan.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined
benefit obligation is recognized as a separate asset at fair value when and only when
reimbursement is virtually certain.

Income Taxes
Current Income Tax
Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The income tax rates
and income tax laws used to compute the amount are those that are enacted or substantively
enacted at the end of the financial reporting period. Management periodically evaluates positions
taken in the tax returns with respect to situations in which applicable tax regulations are subject to
interpretations and establishes provisions where appropriate.

Deferred Income Tax

Deferred income tax is provided using the balance sheet liability method on temporary differences
at the end of the financial reporting period between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:
∂ Where the deferred income tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable income or loss; and
∂ In respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary differences will not reverse
in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward
benefits of unused tax credits and unused tax losses, to the extent that it is probable that sufficient
taxable income will be available against which the deductible temporary differences, and the
carryforward benefits of unused tax credits and unused tax losses can be utilized except:
∂ Where the deferred income tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting income nor
taxable income or loss; and

*SGVFS027977*
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∂ In respect of deductible temporary differences associated with investments in subsidiaries,

associates and interests in joint ventures, deferred income tax assets are recognized only to the
extent that it is probable that the temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each end of the financial
reporting period and reduced to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred income tax asset to be utilized.
Unrecognized deferred income tax assets are reassessed at each end of the financial reporting
period and are recognized to the extent that it has become probable that future taxable profit will
allow the deferred income tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply
to the year when the asset is realized or the liability is settled, based on income tax rates (and
income tax laws) that have been enacted or substantively enacted as at the end of the financial
reporting period.

Deferred income tax relating to items recognized outside the consolidated statement of income is
recognized outside the consolidated statement of income. Deferred income tax items are
recognized in correlation to the underlying transaction either in OCI or directly in equity.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable
right exists to set off current tax assets against current tax liabilities and the deferred income taxes
relate to the same taxable entity and the same taxation authority.

Business Segments
For management purposes, the Group is organized into operating segments (mining, power and
services) according to the nature of the products and the services provided, with each segment
representing a strategic business unit that offers different products and serves different markets.
The segment locations are the basis upon which the Group reports its primary segment
information for the mining segment. All of the segments operate and generate revenue only in the
Philippines. Financial information on business segments is presented in Note 42.

Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are
disclosed in the notes to consolidated financial statements unless the possibility of an outflow of
resources embodying economic benefits is remote. Contingent assets are not recognized in the
consolidated financial statements but are disclosed when an inflow of economic benefits is
probable.

Events after the End of the Financial Reporting Period

Post year-end events that provide additional information about the Group’s position at each end of
the financial reporting period (adjusting events) are reflected in the consolidated financial
statements. Post year-end events that are not adjusting events are disclosed in the notes to the
consolidated financial statements when material.

*SGVFS027977*
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3. Significant Accounting Judgments, Estimates and Assumptions

The consolidated financial statements prepared in accordance with PFRS requires management to
make judgments, estimates and assumptions that affect the amounts reported in the consolidated
financial statements and related notes. Future events may occur which will cause the assumptions
used in arriving at the estimates to change. The effects of any change in estimates are reflected in
the consolidated financial statements as they become reasonably determinable.

Judgments, estimates and assumptions are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. However, actual outcome can differ from these estimates.

Judgments
In the process of applying the Group’s accounting policies, management has made the following
judgments, apart from those involving estimations, which has the most significant effect on the
amounts recognized in the consolidated financial statements:

Determining Functional Currency

Based on the economic substance of the underlying circumstances relevant to the Group, the
functional currency of the parent company and its subsidiaries has been determined to be the
Philippine peso. The functional currency is the currency of the primary economic environment in
which the Group operates. It is the currency that mainly influences labor, material and other costs
of providing goods and services.

Classifying Financial Instruments

The Group classifies a financial instrument, or its component parts, on initial recognition as a
financial asset, a financial liability or an equity instrument in accordance with the substance of the
contractual agreement and the definitions of a financial asset, a financial liability or an equity
instrument. The substance of the financial instrument, rather than its legal form, governs its
classification in the consolidated statements of financial position.

Assessing Production Start Date

The Group assesses the stage of each mine development project to determine when a mine moves
into the production stage. The criteria used to assess the start date of a mine are determined based
on the unique nature of each mine development project. The Group considers various relevant
criteria to assess when the mine is substantially complete, ready for its intended use and moves
into the production phase.

Some of the criteria include, but are not limited to the following:
∂ The level of capital expenditure compared to construction cost estimates;
∂ Completion of a reasonable period of testing of the property and equipment;
∂ Ability to produce ore in saleable form; and
∂ Ability to sustain ongoing production of ore.

When a mine development project moves into the production stage, the capitalization of certain
mine construction costs ceases and costs are either regarded as inventory or expensed, except for
capitalizable costs related to mining asset additions or improvements, mine development or
mineable reserve development. It is also at this point that depreciation or depletion commences.

*SGVFS027977*
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Assessing Units-of-Production Depletion

Estimated recoverable reserves are used in determining the depletion of mine assets. This results
in a depletion charge proportional to the depletion of the anticipated remaining mine life. Each
item’s life, which is assessed annually, has regard to both physical life limitations and to present
assessments of economically recoverable reserves of the mine property at which the asset is
located. The calculations require the use of estimates of future capital expenditure. The Group
uses the tons of ore produced as the basis for depletion. Any change in estimates is accounted for
prospectively.

Determining Whether Significant Influence Exists

The Parent Company recognized its ownership interest in THNC and CBNC as investments in
associates. In accordance with the provisions of PAS 28 (2011), Investments in Associates and
Joint Ventures, the existence of significant influence by an entity is usually evidenced in one or
more of the following ways:
∂ Representation on the BOD or equivalent governing body of the investee;
∂ Participation in policy-making processes, including participation in decisions about dividends
or other distributions;
∂ Material transactions between the entity and its investee;
∂ Interchange of managerial personnel; or
∂ Provision of essential technical information.

Due to the nature of the Parent Company’s involvement in THNC and CBNC and other various
factors, the Parent Company assessed that significant influence exists (see Note 10).

Determining Capitalizability of Geothermal Exploration and Evaluation Assets and Deferred

Mine Exploration Costs
Careful judgment by management is applied when deciding whether the recognition requirements
for geothermal exploration and evaluation assets and deferred mine exploration costs relating to
the Group’s geothermal and mining projects have been met. Capitalization of these costs is based,
to a certain extent, on management’s judgment of the degree to which the expenditure may be
associated with finding specific geothermal and ore reserve. This is necessary as the economic
success of the exploration is uncertain and may be subject to future technical problems at the time
of recognition. Judgments are based on the information available at the end of each financial
reporting period.

Determining Applicability of IFRIC 12, Service Concession Arrangements on the Solar Energy
Service Contract (SESC)
An arrangement would fall under IFRIC 12 if the two conditions below are met:
a) the grantor controls or regulates the services that the operator must provide using the
infrastructure, to whom it must provide them, and at what price, and
b) the grantor controls any significant residual interest in the property at the end of the
concession term through ownership, beneficial entitlement or otherwise.

The infrastructure used for its entire useful life (‘whole of life assets’) is within the scope of
IFRIC 12 if the arrangement meets the conditions in (a).

However, based on management’s judgment, the SESC entered into by Jobin is outside the scope
of IFRIC 12 since Jobin controls the significant residual interest in the properties at the end of the
concession term through ownership.

*SGVFS027977*
 - 36 -

Estimates and Assumptions

The key estimates and assumptions concerning the future and other key sources of estimation
uncertainty as at the end of the financial reporting period, that have the most significant risk of
causing a material adjustment to the carrying amounts of assets within the next financial year are
as follows:

Estimating Ore Reserves

Ore reserves are estimates of the amount of ore that can be economically and legally extracted
from the Group’s mining properties. The Group estimates its ore reserves based on information
compiled by appropriately qualified persons relating to the geological data on the size, depth and
shape of the ore body, and requires complex geological judgments to interpret the data. The
estimation of recoverable reserves is based upon factors such as estimates of foreign exchange
rates, commodity prices, future capital requirements, and production costs along with geological
assumptions and judgments made in estimating the size and grade of the ore body. Changes in the
reserve or resource estimates may impact upon the carrying values of property and equipment,
provision for mine rehabilitation and decommissioning, recognition of deferred income tax assets
and depreciation and depletion charges.

The Group also makes estimates and assumptions regarding a number of economic and technical
factors, such as production rates, grades, production and transport costs and prices. These
economic and technical estimates and assumptions may change in the future in ways that affect the
quality and quantity of the reserves. The Group reviews and updates estimates as required, but at
least annually, to reflect actual production, new exploration data or developments and changes in
other assumptions or parameters. These estimates will change from time to time to reflect mining
activities, analyses of new engineering and geological data, changes in ore reserve and mineral
resource holdings, modifications of mining plans or methods, changes in nickel or limestone
prices or production costs and other factors.

Estimating Recoverability of Geothermal Exploration and Evaluation Assets and Deferred Mine
Exploration Costs
The application of the Group’s accounting policy for geothermal exploration and evaluation assets
and deferred mine exploration costs requires judgment in determining whether it is likely that
future economic benefits are certain, which may be based on assumptions about future events or
circumstances. Estimates and assumptions made may change if new information becomes
available. If, after explorations costs are capitalized, information becomes available suggesting
that the recovery of expenditure is unlikely, the amount capitalized is written off in the
consolidated statement of income in the period when the new information becomes available. An
impairment loss is recognized when the carrying value of those assets is not recoverable and
exceeds their fair value.

The carrying values of geothermal exploration and evaluation assets amounted to =

P1,784.2 million
and =
P1,775.8 million as at December 31, 2017 and 2016, respectively (see Note 11).

Deferred mine exploration costs, included in “Other noncurrent assets” in the consolidated
statements of financial position, as at December 31, 2017 and 2016 amounted to = P1,229.4 million
and =P1,218.3 million, respectively (net of allowance for impairment losses of =
P143.6 million and
=142.3 million as at December 31, 2017 and 2016, respectively; see Note 13). The Group has
P
directly written-off deferred mine exploration costs amounting to nil, P
=2.3 million and
=5.5 million in 2017, 2016 and 2015, respectively (see Note 31).
P

*SGVFS027977*
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Estimating Allowance for Impairment Losses on Property and Equipment

The Group assesses impairment on property and equipment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.

The factors that the Group considers important which could trigger an impairment review include
the following:
∂ Significant underperformance relative to expected historical or projected future operating
results;
∂ Significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
∂ Significant negative industry or economic trends.

In determining the present value of estimated future cash flows expected to be generated from the
continued use of the assets, the Group is required to make estimates and assumptions that can
materially affect the consolidated financial statements.

These assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss would be recognized
whenever evidence exists that the carrying value is not recoverable. For purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows.

An impairment loss is recognized and charged to earnings if the discounted expected future cash
flows are less than the carrying amount. Fair value is estimated by discounting the expected future
cash flows using a discount factor that reflects the market rate for a term consistent with the period
of expected cash flows. As at December 31, 2017 and 2016, the Group provided an allowance for
impairment losses on property and equipment amounting to nil and P =12.8 million, respectively.
The impairment is related to dump trucks which has become inoperational in 2016. In 2017,
machinery and equipment, including the said dump trucks, were sold, thus the Group reversed the
previously recognized allowance for impairment losses related to these assets (see Notes 9
and 31).

The carrying values of property and equipment amounted to =

P15,388.3 million and
=15,566.4 million as at December 31, 2017 and 2016, respectively (see Note 9).
P

Estimating Allowance for Impairment Losses on Trade and Other Receivables

The Group evaluates specific accounts where the Group has information that certain customers are
unable to meet their financial obligations. The Group assesses individually the receivables based
on factors that affect its collectibility. Factors such as the Group’s length of relationship with the
customers, the customer’s current credit status, and probability of insolvency and significant
financial difficulties of customers are considered to ascertain the amount of allowances that will
be recorded in the receivables account. These allowances are re-evaluated and adjusted as
additional information is received.

In addition to specific allowance against individually significant loans and receivables, the Group
also makes a collective impairment allowance against exposures which, although not specifically
identified as requiring a specific allowance, have a greater risk of default than when originally
granted. This collective allowance is based on any deterioration in the Group’s assessment of the
accounts since their inception. The Group’s assessments take into consideration factors such as
any deterioration in country risk and industry, as well as identified structural weaknesses or
deterioration in cash flows.

*SGVFS027977*
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The carrying values of trade and other receivables amounted to P

=905.1 million and
=
P1,145.3 million as at December 31, 2017 and 2016, respectively (net of allowance for
impairment losses of =
P45.9 million and =P45.7 million as at December 31, 2017 and 2016,
respectively; see Note 5).

Estimating Allowance for Impairment Losses on Inventories

The Group maintains allowance for inventory losses at a level considered adequate to reflect the
excess of cost of inventories over their NRV. NRV tests are performed at least annually and
represent the estimated future sales price of the product based on prevailing spot metals prices at
the end of the financial reporting period, less estimated costs to complete production and bring the
product to sale. Stockpiles are measured by estimating the number of tonnes added and removed
from the stockpile and the number of contained nickel ore ounces based on assay data. Stockpile
tonnages are verified by periodic surveys. NRV test for materials and supplies is also performed
annually and it represents the current replacement cost. Increase in the NRV of inventories will
increase the cost of inventories but only to the extent of their original production costs.

As at December 31, 2017 and 2016, inventories carried at lower of cost and NRV amounted to
=
P3,502.4 million and =
P3,210.8 million, respectively (net of allowance for inventory losses of
=85.6 million and =
P P84.4 million as at December 31, 2017 and 2016, respectively; see Note 6).

Estimating Recoverability of Long-term Stockpile Inventory

The determination of the Group’s long-term stockpile inventory include among others, projected
revenues and operating and delivering costs from the sale of the long-term stockpile. Actual
results that differ from the Group’s assumptions generally affect the Group’s recognized expense.
The long-term stockpile inventory is carried at the lower of cost and NRV. An allowance for
inventory losses is recognized when the carrying value of the asset is not recoverable and exceeds
the NRV. Long-term stockpile inventory - net of current portion amounted to P =167.6 million and
=367.2 million as at December 31, 2017 and 2016, respectively (see Note 12).
P

Estimating Allowance for Impairment Losses on AFS Financial Assets

The Group treats AFS financial assets as impaired when there has been a significant or prolonged
decline in the fair value below its cost or where other objective evidence of impairment exists.
The determination of what is “Significant” or “Prolonged” requires judgment. The Group treats
“Significant” generally as 20% or more of the original cost of investment, and “Prolonged” as
greater than one (1) year. In addition, the Group evaluates other factors, including normal
volatility in share price for quoted equities and the future cash flows and discount factors for
unquoted equities in determining the amount to be impaired.

The Group treats unquoted AFS financial assets as impaired when there is objective evidence of
impairment as a result of one or more events or loss events and that loss event has an impact on
the estimated future cash flows of the AFS financial assets. An objective evidence may include
information about significant changes with an adverse effect that have taken place in the market,
technological, economic or legal environment in which the investees operate, and indicates that
the cost of the investment in the equity instruments may not be recovered.

In 2017 and 2016, the Group recognized a provision for impairment losses on its quoted AFS
financial assets amounting to =
P133.3 million and =
P119.2 million, respectively (see Note 31). The
carrying values of AFS financial assets amounted to P
=6,658.4 million and =P6,319.1 million as at
December 31, 2017 and 2016, respectively (see Note 7).

*SGVFS027977*
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Estimating Useful Lives of Property and Equipment (except Land)

The Group estimates the useful lives of property and equipment, except land, based on the period
over which the assets are expected to be available for use. The estimated useful lives of property
and equipment are reviewed periodically and are updated if expectations differ from previous
estimates due to physical wear and tear, technical or commercial obsolescence and legal or other
limits on the use of the assets. In addition, estimation of the useful lives of property and
equipment is based on collective assessment of industry practice, internal technical evaluation and
experience with similar assets. It is possible, however, that future results of operations could be
materially affected by changes in estimates brought about by changes in factors mentioned above.
The amounts and timing of recorded expenses for any period would be affected by changes in
these factors and circumstances. There is no change in the estimated useful lives of property and
equipment in 2017 and 2016.

The carrying values of property and equipment, except land, as at December 31, 2017 and 2016
amounted to = P15,119.9 million and =
P15,298.0 million, respectively (net of accumulated
depreciation, amortization and depletion of P
=9,837.8 million and =
P8,874.3 million and
accumulated impairment losses of nil and P=12.8 million as at December 31, 2017 and 2016,
respectively; see Note 9).

Estimating Allowance for Impairment Losses on Investments in Associates

Impairment review on investments in associates are performed when events or changes in
circumstances indicate that the carrying value exceeds its fair value. If any such indication exists
and where the carrying value exceeds the estimated recoverable amount, the investment is written
down to its recoverable amount. Management has determined that there are no events or changes
in circumstances in 2017 and 2016 that may indicate that the carrying value of investments in
associates may not be recoverable. No impairment loss was recognized on investments in
associates in 2017 and 2016. The carrying values of the Group’s investments in associates
amounted to = P2,952.1 million and =
P2,582.1 million as at December 31, 2017 and 2016,
respectively (see Note 10).

Estimating Allowance for Impairment Losses on Nonfinancial Other Assets

The Group provides allowance for impairment losses on nonfinancial other assets when they can
no longer be realized. The amounts and timing of recorded expenses for any period would differ
if the Group made different judgments or utilized different estimates. An increase in allowance
for impairment losses would increase recorded expenses and decrease other assets.

The carrying values of nonfinancial prepayments and other current assets amounted to
=919.3 million and =
P P946.4 million as at December 31, 2017 and 2016, respectively, while
nonfinancial other noncurrent assets amounted to P
=2,673.1 million and P
=2,559.8 million as at
December 31, 2017 and 2016, respectively (see Notes 8 and 13).

The allowance for impairment losses on the Group’s nonfinancial prepayments and other current
assets amounted to P
=55.3 million and P=71.5 million as at December 31, 2017 and 2016,
respectively (see Note 8). The allowance for impairment losses on the Group’s nonfinancial
other noncurrent assets as at December 31, 2017 and 2016 amounted to P =249.4 million and
=253.1 million, respectively (see Note 13).
P

Estimating Provision for Mine Rehabilitation and Decommissioning

The Group assesses its provision for mine rehabilitation and decommissioning annually.
Significant estimates and assumptions are made in determining the provision for mine
rehabilitation as there are numerous factors that will affect the provision. These factors include

*SGVFS027977*
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estimates of the extent and costs of rehabilitation activities, technological changes, regulatory
changes, cost increases and changes in discount rates. Those uncertainties may result in future
actual expenditure differing from the amounts currently provided.

The provision at the end of the financial reporting period represents management’s best estimate
of the present value of the future rehabilitation costs required. Changes to estimated future costs
are recognized in the consolidated statement of financial position by adjusting the rehabilitation
asset and liability. For closed sites, changes to estimated costs are recognized immediately in the
consolidated statement of income.

Provision for mine rehabilitation and decommissioning amounted to P=388.8 million and
=
P442.5 million as at December 31, 2017 and 2016, respectively (see Note 16).

Determining Pension Benefits

The cost of defined benefit retirement as well as the present value of the pension liability is
determined using actuarial valuations. The actuarial valuation involves making various
assumptions, as described in Note 35. These include the determination of the discount rates and
future salary increases. Due to the complexity of the valuation, the underlying assumptions and its
long-term nature, defined benefit pension liability are highly sensitive to changes in these
assumptions. In determining the appropriate discount rate, management considers the interest
rates of government bonds that are denominated in the currency in which the benefits will be paid,
with extrapolated maturities corresponding to the expected duration of the defined benefit pension
liability. All assumptions are reviewed at each end of the financial reporting period. While
management believes that its assumptions are reasonable and appropriate, significant differences
in actual experience or significant changes in the assumptions may materially affect the Group’s
pension liability.

As at December 31, 2017 and 2016, pension asset included under “Other noncurrent assets” in the
consolidated statements of financial position amounted to nil and P
=1.3 million, respectively, and
pension liability amounted to =
P320.8 million and =
P332.3 million, respectively (see Notes 13
and 35).

Estimating Fair Value of Share-based Payment Transactions

The Parent Company’s Executive Stock Option Plan (ESOP) grants qualified participants the right
to purchase common shares of the Parent Company at a grant price. The ESOP recognizes the
services received from the eligible employees and an equivalent adjustment to the equity account
over the vesting period. The Parent Company measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments at the date at which they are
granted. Estimating fair value for share-based payment transactions requires determining the most
appropriate valuation model, which is dependent on the terms and conditions of the grant.

This estimate also requires determining the most appropriate inputs to the valuation model
including the expected life of the share option, volatility and dividend yield. The assumptions and
models used for estimating the fair value of share-based payment transactions are disclosed in
Note 19. While management believes that the estimates and assumptions used are reasonable and
appropriate, significant differences in actual experience or significant changes in the estimates and
assumptions may no longer affect the stock compensation costs charged to operations.

The cost of share-based payment plan recognized as expense in 2017, 2016 and 2015, with a
corresponding charge to the equity account, amounted to =
P11.0 million, P
=25.7 million and

*SGVFS027977*
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P57.8 million, respectively (see Notes 19 and 27). As at December 31, 2017 and 2016, the
=
balance of the cost of share-based payment plan in the equity section of the consolidated
statements of financial position amounted to P
=137.6 million and P=126.6 million, respectively
(see Note 19).

Assessing Recoverability of Deferred Income Tax Assets

The Group reviews the carrying amounts of deferred income tax assets at each end of the financial
reporting period and reduces the amounts to the extent that it is no longer probable that sufficient
future taxable income will be available to allow all or part of the deferred income tax assets to be
utilized. The Group has deferred income tax assets amounting to = P333.1 million and
=370.1 million as at December 31, 2017 and 2016, respectively (see Note 36).
P

As at December 31, 2017 and 2016, the Group has temporary difference amounting to
=1,381.6 million and =
P P998.4 million, respectively, for which no deferred income tax assets were
recognized because it is more likely than not that the carryforward benefits will not be realized in
the future (see Note 36).

Determining Fair Values of Financial Instruments

Where the fair values of financial assets and liabilities recorded in the consolidated statement of
financial position cannot be derived from active markets, they are determined using internal
valuation techniques using generally accepted market valuation models. The inputs to these
models are taken from observable markets where possible, but where this is not feasible, estimates
are used in establishing fair values. These estimates may include considerations of liquidity,
volatility and correlation. Certain financial assets and liabilities were initially recorded at its fair
value (see Note 38).

4. Cash and Cash Equivalents

2017 2016
Cash on hand and with banks P
=955,114 =1,213,398
P
Cash under managed funds 177,014 188,508
Short-term cash investments 8,513,804 8,246,037
P
=9,645,932 =9,647,943
P

Cash with banks and under managed funds earn interest at the prevailing bank deposit rates.
Cash equivalents are short-term cash investments that are made for varying periods of up to three
(3) months depending on the immediate cash requirements of the Group and earn interest at the
respective short-term cash investment rates. The carrying value of cash and cash equivalents
approximates their fair value as of the end of the financial reporting period.

The Group has United States dollar (US$) denominated cash and cash equivalents amounting to
US$134.4 million, equivalent to P
=6,711.4 million, and US$131.1 million, equivalent to
=6,518.8 million, as at December 31, 2017 and 2016, respectively (see Note 37).
P

Interest income earned from cash and cash equivalents amounted to P

=134.2 million,
=73.8 million and =
P P107.5 million in 2017, 2016 and 2015, respectively (see Note 29).

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5. Trade and Other Receivables

2017 2016
Trade (see Note 34) P
=660,883 =865,608
P
Current portion of loan receivable (see Note 39a) 94,203 98,161
Interest receivable 53,619 47,317
Advances to officers and employees 48,845 51,357
Receivable from CBNC (see Note 34) 40,679 47,570
Amounts owed by related parties (see Note 34) 7,351 6,489
Others 45,417 74,515
950,997 1,191,017
Less allowance for impairment losses 45,872 45,746
P
=905,125 =1,145,271
P

The movements of allowance for impairment losses follows:

2017 Trade Others Total

Balances at January 1 P
=41,029 P
=4,717 P
=45,746
Foreign exchange adjustments 126 – 126
Provisions – – –
Balances at December 31 P
=41,155 P
=4,717 P
=45,872

2016 Trade Others Total

Balances at January 1 =17,323
P =2,188
P =19,511
P
Foreign exchange adjustments 1,274 – 1,274
Provisions (see Note 31) 22,432 2,529 24,961
Balances at December 31 =41,029
P =4,717
P =45,746
P

Trade receivables and receivable from CBNC are noninterest-bearing and are generally on
seven (7) to thirty (30)-days’ term, except for the usage fee billed to THNC which is collected on a
semi-annual basis.

Loan receivable represents the loan agreement executed by CMC and East Coast Mineral
Resources Co., Inc. (East Coast), which will be settled based on the agreed repayment terms
(see Note 39a).

Interest receivable is derived from short-term cash investments placed in various local/foreign
banks, which are collectible upon maturity, from AFS debt securities and long-term negotiable
instrument which are collectible, monthly, quarterly or semi-annually, and from loan issued to
East Coast which is collectible based on the agreed repayment terms.

Advances to officers and employees are noninterest-bearing and are generally subject to
liquidation or collectible through salary deduction.

Amounts owed by related parties are noninterest-bearing with no fixed maturities and are
generally collectible on demand.

Other receivables include advances to third party companies which are noninterest-bearing, with
no fixed maturities and are generally collectible on demand. These also include despatch
receivables which are generally on seven (7) to thirty (30)-days’ terms.

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The Group has US$ denominated trade and other receivables amounting to US$11.5 million,
equivalent to =
P576.2 million, and US$14.8 million, equivalent to =
P735.7 million, as at
December 31, 2017 and 2016, respectively (see Note 37).

6. Inventories

2017 2016
Beneficiated nickel ore and limestone - at cost P
=2,432,633 =2,291,470
P
Beneficiated nickel ore - at NRV 434,178 362,363
Materials and supplies:
At NRV 210,612 242,395
At cost 212,980 138,814
Current portion of long-term stockpile
inventory (see Note 12) 212,011 175,796
P
=3,502,414 =3,210,838
P

The movements of allowance for impairment losses on inventories follows:

Beneficiated Materials
2017 nickel ore and supplies Total
Balances at January 1 P
=74,345 P
=10,036 P
=84,381
Provisions (see Note 31) – 7,348 7,348
Reversals (see Note 31) (6,104) – (6,104)
Balances at December 31 P
=68,241 P
=17,384 P
=85,625

Beneficiated Materials
2016 nickel ore and supplies Total
Balances at January 1 =94,419
P =10,036
P =104,455
P
Provisions – – –
Reversals (see Note 31) (20,074) – (20,074)
Balances at December 31 =74,345
P =10,036
P =84,381
P

As at December 31, 2017 and 2016, the cost of beneficiated nickel ore and limestone provided
with allowance for impairment losses amounted to P =2,954.1 million and =P2,904.0 million,
respectively, while the cost of materials and supplies provided with allowance for impairment
losses amounted to =P441.0 million and = P391.2 million, respectively.

Costs of inventories charged as expense amounted to =

P6,410.6 million, =
P6,228.8 million and
=6,655.7 million in 2017, 2016 and 2015, respectively (see Notes 21, 22, 24, 26 and 31).
P

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7. AFS Financial Assets

2017 2016
Quoted instruments:
Debt securities P
=5,097,660 =4,513,565
P
Equity securities 1,354,174 1,599,263
Unquoted equity instruments 206,586 206,250
6,658,420 6,319,078
Less noncurrent portion 732,738 746,793
Current portion P
=5,925,682 =5,572,285
P

AFS financial assets pertain to investments in common and preferred shares of various local and
foreign public and private companies, mutual funds, golf club shares and debt securities which are
either unquoted or with quoted market prices. Quoted instruments are carried at fair market value
as at the end of the financial reporting period. Unquoted equity instruments are carried at cost as
at the end of the financial reporting period, since the fair values of these investments cannot be
reliably measured.

The movements in AFS financial assets follows:

2017 2016
Balances at January 1 P
=6,319,078 =5,831,037
P
Additions 5,234,667 8,651,980
Disposals (4,957,281) (8,308,106)
Effect of changes in foreign exchange rate
(see Note 31) 1,033 113,263
Net valuation gains on AFS financial assets 194,243 153,124
6,791,740 6,441,298
Less:
Provision for impairment losses (see Note 31) 133,320 119,220
Write-off (see Note 31) – 3,000
Balances at December 31 P
=6,658,420 =6,319,078
P

The movements in “Net valuation gains on AFS financial assets” presented as a separate
component of equity follows:

2017 2016
Balances at January 1 P
=12,954 (P
=134,467)
Movements recognized in equity:
Gains recognized in equity 208,579 141,409
Reclassification adjustments for expense
(income) included in the consolidated
statements of income (see Notes 29 and 30) (14,336) 11,715
Income tax effect (41,132) (3,035)
Valuation gains taken into the consolidated
statements of comprehensive income - net of
tax 153,111 150,089
Less share of NCI in gains recognized in equity 2,130 2,668
Balances at December 31 P
=163,935 =12,954
P

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As at December 31, 2017 and 2016, quoted and unquoted debt and equity securities amounting to
=5,925.7 million and =
P P5,572.3 million, respectively, were classified as current based on
management’s intention to dispose the instruments within one (1) year from the end of the
financial reporting period.

The noncurrent portion of AFS financial assets amounted to P

=732.7 million and P
=746.8 million as
at December 31, 2017 and 2016, respectively. The Group has no intention to dispose its unquoted
equity shares within the next year.

Dividend income from AFS equity securities amounted to = P37.0 million, =

P35.1 million and
P25.8 million in 2017, 2016 and 2015, respectively, of which =
= P15.3 million in 2017 and 2016 and
=
P7.6 million in 2015 relates to dividends coming from investments in unquoted equity securities
(see Note 31), while interest income from AFS debt securities amounted to =P135.6 million,
=121.8 million and =
P P99.3 million in 2017, 2016 and 2015, respectively (see Note 29).

The valuation gains of P

=153.1 million and P
=150.1 million taken into the consolidated statements
of comprehensive income is inclusive of share of NCI amounting to a valuation gains of
P
=2.1 million and =
P2.7 million as at December 31, 2017 and 2016, respectively.

In 2017, 2016 and 2015, the Group sold some of its AFS financial assets at a gain of
=
P14.3 million, at a loss of P
=11.7 million and at a gain of =
P86.3 million, respectively (see Notes 29
and 30).

In 2017 and 2016, the Group recognized a provision for impairment losses on its AFS equity
security amounting to =
P133.3 million and =P119.2 million, respectively. Also, the Group has
written-off AFS financial assets amounting to nil and =
P3.0 million in 2017 and 2016, respectively.
In 2015, there were no provision for impairment losses recognized and no AFS financial assets
were written-off (see Note 31).

The Group has US$ denominated AFS financial assets amounting to US$56.9 million, equivalent
to P
=2,841.7 million, and US$53.4 million, equivalent to P
=2,657.5 million, as at December 31, 2017
and 2016, respectively (see Note 37).

8. Prepayments and Other Current Assets

2017 2016
Advances and deposits to suppliers and contractors P
=574,876 =579,085
P
Input VAT (net of allowance for impairment losses
of P
=54.8 million and P =71.0 million as at
December 31, 2017 and 2016, respectively;
see Note 13) 103,563 138,125
Tax credit certificates (net of allowance for
impairment losses of = P0.5 million as at
December 31, 2017 and 2016) 79,384 27,460
Prepaid rent and others 70,585 54,774
Prepaid taxes 64,569 119,257
Prepaid insurance 26,308 27,730
P
=919,285 =946,431
P

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Advances and deposits to suppliers and contractors represent payments made in advance to
suppliers and contractors which will be offset against future billings upon the delivery of goods
and/or completion of services. This includes the advances made to Asiacrest Marketing
Corporation which is related to the Engineering Procurement Construction (EPC) Contract for the
100MW solar power plant in Subic. As at December 31, 2017, there was a pending case against
Asiacrest and First Integrated Bonding and Insurance Co., the surety which secured Asiacrest’s
performance of its obligation, jointly and severally liable to the extent of the value of the
performance bond, for the breach of EPC contract.

Input VAT represents the VAT passed on from purchases of applicable goods and services which
can be recovered as tax credit against future output VAT from the sale of goods and services of
the Group.

Tax credit certificates are tax refunds received by the Group.

Prepaid taxes represent certificates of creditable withholding taxes for services rendered to other
parties which can be recovered as tax credits against certain future tax liabilities of the Group.

Prepayments are amortized within three (3) to twelve (12) months at the end of the financial
reporting period.

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9. Property and Equipment

2017
Mining
Properties and Machinery Buildings
Land and Land Development and and Transmission Lines Construction
Improvements Costs Equipment Improvements and Substations Solar Farm In-progress Total
Cost:
Balances at January 1 P
= 292,343 P
= 774,649 P
= 10,583,221 P
= 3,369,082 P
= 849,472 P
= 1,469,457 P
= 7,115,313 P
= 24,453,537
Additions – – 576,405 60,314 15,556 537,427 304,756 1,494,458
Disposals – – (528,705) (13,306) – – – (542,011)
Transfers/reclassification – – 45,736 111,795 – (47,704) (219,945) (110,118)
Adjustment for capitalized cost of mine
rehabilitation and
decommissioning (see Note 16) – (69,820) – – – – – (69,820)
Capitalized borrowing cost – – – – – – – –
Balances at December 31 292,343 704,829 10,676,657 3,527,885 865,028 1,959,180 7,200,124 25,226,046
Accumulated depreciation, amortization and
depletion:
Balances at January 1 5,329 250,642 7,141,484 1,421,187 16,215 39,430 – 8,874,287
Depreciation, amortization and
depletion (see Note 28) 2,411 28,999 1,031,141 267,342 27,567 122,585 – 1,480,045
Disposals – – (503,979) (12,566) – – – (516,545)
Capitalized depreciation – – – – – – – –
Balances at December 31 7,740 279,641 7,668,646 1,675,963 43,782 162,015 – 9,837,787
Allowance for impairment losses:
Balances at January 1 – – 12,825 – – – – 12,825
Reversal of allowance for impairment
losses (see Note 31) – – (12,825) – – – – (12,825)
Balances at December 31 – – – – – – – –
Net book values P
= 284,603 P
= 425,188 P
= 3,008,011 P
= 1,851,922 P
= 821,246 P
= 1,797,165 P
= 7,200,124 P
= 15,388,259

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2016
Mining
Properties and Machinery Buildings
Land and Land Development and and Transmission Lines Construction
Improvements Costs Equipment Improvements and Substations Solar Farm In-progress Total
Cost:
Balances at January 1 P
=292,209 P
=511,033 P
=9,631,174 P
=3,173,757 =
P– =
P– P
=7,762,984 P
=21,371,157
Additions 134 – 601,305 37,802 108,854 48,737 2,593,048 3,389,880
Disposals – – (108,694) – – – – (108,694)
Transfers/reclassification – – 459,436 157,523 740,618 1,360,064 (3,240,719) (523,078)
Adjustment for capitalized cost of mine
rehabilitation and decommissioning
(see Note 16) – 263,616 – – – – – 263,616
Capitalized borrowing cost (see Note 15) – – – – – 60,656 – 60,656
Balances at December 31 292,343 774,649 10,583,221 3,369,082 849,472 1,469,457 7,115,313 24,453,537
Accumulated depreciation, amortization and
depletion:
Balances at January 1 2,924 234,488 6,053,868 1,170,282 – – – 7,461,562
Depreciation, amortization and depletion
(see Note 28) 2,405 16,154 1,189,465 250,900 16,215 – – 1,475,139
Disposals – – (102,544) – – – – (102,544)
Capitalized depreciation (see Note 28) – – 695 5 – 39,430 – 40,130
Balances at December 31 5,329 250,642 7,141,484 1,421,187 16,215 39,430 – 8,874,287
Allowance for impairment losses (see Note 31) – – 12,825 – – – – 12,825
Net book values P
=287,014 P
=524,007 P
=3,428,912 P
=1,947,895 P
=833,257 P
=1,430,027 P
=7,115,313 P
=15,566,425

Construction in progress includes the costs incurred to date for the Biliran Geothermal Project, which management assessed to be completed in 2021.

Pier facilities (included under “Buildings and improvements”) with a carrying value of nil and =
P37.6 million as at December 31, 2017 and 2016,
respectively, were mortgaged as collateral for the long-term debt of RTN (see Note 15).

The carrying value of the 7.14 MW Sta. Rita Solar Power Plant that was pledged as collateral for Jobin’s borrowing with Land Bank of the Philippines
(LBP) amounted to =P538.5 million and =
P638.9 million as at December 31, 2017 and 2016, respectively (see Note 15).

Depreciation on the excess of the fair value of the assets acquired from RTN over their corresponding book values transferred to retained earnings
amounted to =
P0.4 million in 2017, 2016 and 2015.

The average capitalization rate in 2016 is 4.99% (see Note 15).

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10. Investments in Associates

2017 2016
THNC P
=2,083,079 =1,825,096
P
CBNC 869,053 756,991
P
=2,952,132 =2,582,087
P

The movements in investments in associates follows:

2017 2016
THNC CBNC Total THNC CBNC Total
Balances at January 1 P
= 1,974,700 P
= 724,410 P
= 2,699,110 P
=4,443,075 P
=724,410 P
=5,167,485
Disposal – – – (2,468,375) – (2,468,375)
1,974,700 724,410 2,699,110 1,974,700 724,410 2,699,110
Accumulated equity in
net earnings (losses):
Balances at January 1 (467,168) (155,746) (622,914) (827,611) (52,408) (880,019)
Equity in net income (losses) 95,865 102,107 197,972 (310,364) (103,338) (413,702)
Disposal – – – 670,807 – 670,807
(371,303) (53,639) (424,942) (467,168) (155,746) (622,914)
Share in cumulative
translation adjustment:
Balances at January 1 317,564 188,327 505,891 427,427 49,194 476,621
Movements 162,118 9,955 172,073 126,798 139,133 265,931
Reclassification adjustments
for income included in
the consolidated
statements of income
(see Note 31) – – – (236,661) – (236,661)
479,682 198,282 677,964 317,564 188,327 505,891
Balances at December 31 P
= 2,083,079 P
= 869,053 P
= 2,952,132 P
=1,825,096 P
=756,991 P
=2,582,087

The share in cumulative translation adjustment of associates is gross of deferred income tax
liability of P
=113.8 million and P
=96.6 million as at December 31, 2017 and 2016, respectively
(see Note 36).

THNC
THNC, a private entity that is not listed on any public exchange, was incorporated and registered
with the Philippine SEC on August 22, 2008. THNC is engaged in the manufacture and export of
nickel/cobalt mixed sulfide, nickel hydroxide and any and all ingredient and products and by-
products, wherein TMC has a Nickel Ore Supply Agreement to supply all of the limonite ore
requirements of the Taganito High Pressure Acid Leach (HPAL) facility. TMC also provides
services related to the handling, hauling and transportation of materials required in the processing
operations of THNC. THNC started commercial operations in October 2013.

The Parent Company, together with Sumitomo Metal Mining Co., Ltd. (SMM) and Mitsui and
Co., Ltd. (Mitsui) signed a Stockholders’ Agreement on September 15, 2010, dividing the
ownership of THNC, into 22.5%, 62.5% and 15.0%, respectively.

On November 4, 2010, pursuant to the terms of the Stockholders’ Agreement, the Parent Company
entered into a subscription agreement with THNC for the subscription of 921,375,000 common
shares for a total amount of US$102.4 million or P
=4,443.1 million which is equivalent to 22.5%
interest in THNC.

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On October 17, 2016, the Parent Company sold a portion of its shareholdings in THNC,
equivalent to 511,875,000 shares or 12.5% interest in THNC, to SMM for US$42.0 million, which
is equivalent to =P2,037.2 million (see Note 39o). A net gain of =
P239.6 million was recognized on
the sale of its investment interest in THNC in 2016 (see Note 31). As at December 31, 2017 and
2016, the Parent Company’s equity interest in THNC is 10%. Due to the nature of the Parent
Company’s involvement in THNC, the Parent Company evaluated various factors and assessed
that significant influence exists.

THNC’s financial statements are stated in US$ and translated at the closing rate of
US$1 = = P49.93 and US$1 = = P49.72 as at December 31, 2017 and 2016, respectively, for assets
and liabilities accounts, historical rates for equity accounts and average rate of US$1 = =
P50.40 and
US$1 = = P47.48, respectively, for the statement of income accounts for the years then ended.

The following are the summarized financial information of THNC as at December 31, 2017 and
2016:

2017 2016
Current assets P
=7,295,491 P7,058,636
=
Noncurrent assets 75,123,509 75,549,097
Current liabilities (28,105,542) (6,144,555)
Noncurrent liabilities (35,863,707) (59,036,694)
Net assets P
=18,449,751 =17,426,484
P

2017 2016
Income P
=17,693,870 P12,004,941
=
Expenses (16,735,220) (12,998,338)
Net income (loss) P
=958,650 (P
=993,397)

CBNC
CBNC, a private entity that is not listed on any public exchange, was incorporated and registered
with the Philippine SEC on April 4, 2002. CBNC is engaged in the manufacture and export of
nickel/cobalt mixed sulfide wherein RTN has a Nickel Ore Supply Agreement to supply all of the
limonite ore requirements of the Coral Bay Hydro Metallurgical Processing Plant (HPP) facility.
The agreement provides that it will terminate until the earlier of the cessation of operations at the
Coral Bay HPP facility and exhaustion of the limonite ore reserves at the Rio Tuba mine. RTN
also supplies limestone and provide ancillary services to Coral Bay HPAL facility.

The Parent Company acquired its 10% equity interest in CBNC by way of property dividend
distributed by RTN in March 2014. In accordance with the provisions of PAS 28 (2011),
Investment in Associates and Joint Ventures, and due to the nature of the Parent Company’s
involvement in CBNC, the Parent Company evaluated various factors and assessed that significant
influence exists.

CBNC’s financial statements are stated in US$ and translated at the closing rate of
US$1 = = P49.93 and US$1 = = P49.72 as at December 31, 2017 and 2016, respectively, for assets
and liabilities accounts, historical rates for equity accounts and average rate of US$1 = =
P50.40 and
US$1 = = P47.48, respectively, for the statement of income accounts for the years then ended.

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The following are the summarized financial information of CBNC as at December 31, 2017 and
2016:

2017 2016
Current assets P
=6,472,570 P4,497,923
=
Noncurrent assets 21,688,174 23,029,484
Current liabilities (1,007,843) (1,538,386)
Noncurrent liabilities (195,318) (152,068)
Net assets P
=26,957,583 =25,836,953
P

2017 2016
Income P
=11,429,382 P8,467,035
=
Expenses (10,408,307) (9,500,415)
Net income (loss) P
=1,021,075 (P
=1,033,380)

11. Geothermal Exploration and Evaluation Assets

2017 2016
Balances at January 1 P
=1,775,799 =1,290,603
P
Additions 21,776 463,184
Reversal (13,392) –
Capitalized borrowing cost (see Note 15) – 22,012
Balances at December 31 P
=1,784,183 =1,775,799
P

Geothermal exploration and evaluation assets represent the accumulated costs incurred in
connection with the exploration and development activities for the Montelago Geothermal Project.
The recovery of these costs depends upon determination of technical feasibility, success of
exploration activities and discovery of geothermal resource that can be produced in commercial
quantities.

The reversal of P=13.4 million pertains to the refund made by Iceland Drilling Corporation (IDC)
as a result of the termination of the Well Services Master Agreement (WSMA) with the latter.
IDC was initially engaged to drill twelve (12) geothermal wells in Oriental Mindoro, however, the
WSMA was pre-terminated after IDC completed the drilling of two (2) geothermal wells.

As at December 31, 2017 and 2016, no allowance for impairment losses was recognized on
geothermal exploration and evaluation assets.

12. Long-term Stockpile Inventory

The long-term stockpile inventory pertains to low grade ore extracted from RTN’s minesite. This
amount was not recognized in RTN’s books but was recognized by the Parent Company when it
acquired the controlling interest in RTN in August 2006. The low grade ore inventory was
initially recognized at fair value. The fair value of the long-term stockpile inventory was
computed using the present value of the estimated future cash flows of RTN which it will derive
from the long-term Nickel Ore Supply Agreement with CBNC (see Note 34a). Subsequently, this
fair value represented the cost of the long-term stockpile inventory.

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The cost of the long-term stockpile inventory is periodically charged to cost of sale of ore based
on the actual tonnage delivered to CBNC from the long-term stockpile. The cost of long-term
stockpile inventory amounting to P =163.5 million, P
=201.6 million and =P208.7 million were charged
to “Cost of sale of ore” in 2017, 2016 and 2015, respectively (see Note 21).

A portion amounting to =P212.0 million and P=175.8 million, representing the estimated costs of the
long-term stockpile inventory that will be delivered to CBNC in the next financial reporting
period, were shown as part of “Inventories” as at December 31, 2017 and 2016, respectively
(see Note 6).

The carrying value of long-term stockpile inventory - net of current portion amounted to
=
P167.6 million and =
P367.2 million as at December 31, 2017 and 2016, respectively.

13. Other Noncurrent Assets

2017 2016
Deferred mine exploration costs (see Note 32) P
=1,229,432 =1,218,332
P
Input VAT - net of current portion 797,685 823,164
Loan receivable - net of current portion
(see Note 39a) 767,641 830,514
Mine rehabilitation funds 392,450 302,864
Advances to claimowners (see Note 39e) 144,839 184,839
Project development costs 112,670 22,687
Deposit for aircraft acquisition 97,781 97,781
Advance royalties 55,904 55,904
Long-term negotiable instruments 40,000 30,000
Social development management program funds 37,764 57,164
Investment properties 30,623 30,623
Pension asset (see Note 35) – 1,294
Others 23,259 18,239
3,730,048 3,673,405
Less allowance for impairment losses 249,352 253,057
P
=3,480,696 =3,420,348
P

The movements of allowance for impairment losses follows:

Deferred mine
2017 exploration costs Input VAT Total
Balances at January 1 P
=142,345 P
=110,712 P
=253,057
Reversals (see Note 31) – (21,209) (21,209)
Reclass (see Note 8) – 16,271 16,271
Provisions (see Note 31) 1,233 – 1,233
Write-off – – –
Balances at December 31 P
=143,578 P
=105,774 P
=249,352

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Deferred mine
2016 exploration costs Input VAT Total
Balances at January 1 =146,908
P =89,503
P =236,411
P
Reversals – – –
Reclass – – –
Provisions (see Note 31) 460 21,209 21,669
Write-off (5,023) – (5,023)
Balances at December 31 =142,345
P =110,712
P =253,057
P

Deferred mine exploration costs include mining rights of P

=945.6 million as at December 31, 2017
and 2016.

Input VAT represents the VAT passed on from purchases of applicable goods and services. Input
VAT, in excess of output tax, can be recovered as tax credit against future tax liability of the
Group. The noncurrent portion of input VAT pertains to the unamortized portion of input VAT on
purchase of capital goods spread evenly over the life of the capital goods or five (5) years,
whichever is shorter. The balance is recoverable in future periods.

Loan receivable represents the loan agreement executed by CMC and East Coast, which will be
settled based on the agreed repayment terms (see Note 39a).

MRF, which includes the Final Mine Rehabilitation and Decommisioning Fund, is the amount
deposited in local bank accounts established by the Group in compliance with the requirements of
the Philippine Mining Act of 1995 as amended by DENR Administrative Order No. 2005-07. The
MRF is earmarked for physical and social rehabilitation of areas and communities affected by
mining activities and for research on the social, technical and preventive aspects of rehabilitation.
Any disbursement in the MRF should be authorized by the MRF Committee, the external
overseeing body charged with the duties of managing, operating, monitoring and looking after the
safety of the MRF. The MRF earns interest at the respective bank deposit rates. Interest income
earned from MRF amounted to P =3.1 million, =
P1.9 million and =
P1.5 million in 2017, 2016 and 2015,
respectively (see Note 29).

Advances to claimowners represent advance royalty payments to East Coast, La Salle Mining
Exploration Company (La Salle), Kepha Mining Exploration Company (Kepha) and Ludgoron
Mining Corporation (Ludgoron; see Note 39e).

Project development cost pertains to the development cost incurred for various projects of EPI and
Jobin.

Deposit for aircraft acquisition pertains to advance payments made by RTN to World Aviation
Corporation in 2013, for an absolute and exclusive right to purchase an aircraft which is
exercisable within twelve (12) years.

Advance royalties pertain to royalty payments to claimowners.

The long-term negotiable instruments that will mature in 2019 and 2023 earn interest at 5.25% per
annum (p.a.) and 3.87% p.a., respectively. Interest income from long-term negotiable instruments
amounted to =
P1.3 million in 2017, 2016 and 2015 (see Note 29).

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The SDMP funds shall be used for the sustainable development of the host and neighboring
communities of the mine site. The programs are intended for health, education, livelihood, public
utilities and socio-cultural preservation. Its implementation is under the audit, monitoring and
evaluation of the Mines and Geosciences Bureau (MGB). Interest income earned from SDMP
funds amounted to P =0.1 million, P
=0.2 million and =
P0.1 million in 2017, 2016 and 2015,
respectively (see Note 29).

Investment properties consist of parcels of land located in Surigao City, which is intended for
leasing to THNC in the future, and parcels of land located in Manggahan, Pasig and Cainta, Rizal.

As at December 31, 2017 and 2016, the carrying values of the Group’s investment properties
amounted to = P30.6 million and the fair value of the land amounted to =
P53.0 million. In 2017,
2016 and 2015, no income was earned and no direct expenses, other than real property tax, were
incurred related to the investment properties.

Others include various security deposits, deposit to suppliers and restricted cash.

14. Trade and Other Payables

2017 2016
Trade (see Note 34) P
=870,835 P790,425
=
Amounts owed to related parties (see Note 34) 5,343,367 5,310,193
Dividends payable 636,450 325,187
Accrued expenses:
Third parties 398,558 227,824
Related party (see Note 34) 21,086 33,262
Government payables:
Withholding taxes payable 140,497 115,292
Excise taxes and royalties payable 69,804 72,308
Output VAT 5,367 5,055
Documentary stamp taxes (DST) payable 1,355 17,141
Fringe benefit taxes (FBT) payable 565 15,857
Retention fees payable 19,134 44,629
Interest payable (see Note 34) 11,533 30,511
Others 51,390 28,999
P
=7,569,941 =7,016,683
P

Trade, accrued expenses and other payables are noninterest-bearing and are generally settled
within one (1) year. Trade payables relate to payables to suppliers in the ordinary course of
business. Accrued expenses substantially consist of contractor’s fees, trucking and stevedoring
services, hauling and rental expenses, guarantee service fees and others which are usual in the
business operations of the Group.

Amounts owed to related parties pertain to advances received from Orka Geothermal Investments
Pte. Ltd. (OGI), Biliran Geothermal Holdings Incorporated (BGHI) and SMM. Amounts owed to
OGI pertain to funds used in the drilling operations of BGI and purchases paid by OGI in behalf of
BGI. Amounts owed to BGHI pertain mainly to the amount originally payable to OGI but were
sold by the latter to the former in 2014. Part of this amount pertains also to miscellaneous
expenses paid by BGHI in behalf of BGI. Amounts owed to SMM pertain to the advances made
to CExCI.

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Dividends payable refers to the cash dividends declared by TMC and RTN to Pacific Metals Co.,
Ltd. (PAMCO) and Sojitz Corporation (Sojitz) in December 2017 and 2016 and payable in
January of the following year. The amount is net of final withholding tax.

Government payables include withholding taxes which are normally settled within fifteen (15)
days after the end of each financial reporting month and FBT which are normally settled within
fifteen (15) days after the end of the quarter on which the fringe benefits are granted to the
recipients. Excise tax payable is settled within fifteen (15) days after the end of the quarter when
the beneficiated nickel ore and limestone were shipped. Royalties are paid on or before the
deadline agreed with the MGB or other parties. DST is normally settled within five (5) days after
the close of the month when the taxable document was issued.

Retention fees payable pertains to the amount retained by the Group from its suppliers/contractors
and will be paid after the completion of the construction of the projects.

Interest payable on loans is settled based on the agreed repayment terms.

The Group has US$ denominated trade and other payables amounting to US$30.6 million,
equivalent to =
P1,527.8 million, and US$29.9 million, equivalent to =
P1,488.6 million as at
December 31, 2017 and 2016, respectively (see Note 37).

15. Short-term and Long-term Debts

Short-term debt with Manta Equities Inc. (Manta)

On June 8, 2015, EPI entered into a one (1) year loan agreement with Manta amounting to
=180.0 million to finance the development expenses of EPI’s geothermal power project
P
(see Note 34). The loan bears an annual interest of 5%. The principal and interest is payable at
the end of the loan agreement. On June 6, 2016, EPI and Manta extended the loan for another year
or up to June 7, 2017 under the same terms of the original loan. The principal and interest was
paid in June 2017.

Interest expense incurred in connection with the loans amounted to P =4.3 million, P
=9.0 million, and
=5.1 million in 2017, 2016 and 2015, respectively. Out of the total interest expense incurred in
P
2016, =P3.0 million were capitalized as part of solar farm under “Property and equipment”,
P
=1.0 million as part of “Geothermal exploration and evaluation assets” and P =0.7 million as part of
project development costs under “Other noncurrent assets”. There were no capitalized borrowing
costs in 2017 and 2015 (see Notes 9, 11, 30 and 34).

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Long-term debts
Long-term debts of the following subsidiaries are as follows:

2017 2016
EPI P
=1,498,159 =2,990,338
P
TMC 1,179,596 1,261,645
Jobin 284,265 297,526
RTN 22,369 66,824
2,984,389 4,616,333
Less noncurrent portion:
TMC 1,092,219 1,174,635
Jobin 256,992 280,811
EPI – 2,990,338
RTN – 22,275
1,349,211 4,468,059
Current portion P
=1,635,178 =148,274
P

EPI Loan
On July 15, 2015, Security Bank Corporation (SBC) approved the loan facility of EPI amounting
to =
P3,000.0 million which will be used by EPI in funding its investments and working capital
requirements. Staggered releases of loans are allowed up to August 31, 2016 with terms of up to
three (3) years from date of every drawdown and payable upon maturity. In the event of default,
the loans, together with accrued interest and any other sums payable under the promissory notes
will immediately become due and payable.

The loans are secured by a continuing suretyship of the Parent Company. Under the Suretyship
Agreement executed by and between the Parent Company and SBC on August 4, 2015, the Parent
Company solidarily with EPI, guarantees and warrants to SBC, its assigns and successors-in-
interest, prompt and full payment and performance of EPI’s obligations to SBC (see Note 39q).

Details of the drawdowns received from the =

P3,000.0 million loan facility as at
December 31, 2017 and 2016 are as follows:

Debt Issue Effective

Drawdowns Date Amount Costs Stated Rate Rate Term
First* August 5, 2015 =510,000
P =2,551
P 4.60% 4.78% 3 years
September 21,
Second 2015 1,200,000 6,000 4.60% 4.78% 3 years
Third** December 2, 2015 400,000 2,000 4.90% 5.08% 3 years
Fourth** February 9, 2016 200,000 1,000 4.90% 5.08% 3 years
Fifth** March 1, 2016 200,000 1,000 5.00% 5.18% 3 years
Sixth** March 1, 2016 200,000 1,000 4.85% 5.03% 3 years
Seventh** May 12, 2016 150,000 751 4.85% 5.03% 3 years
Eight** May 25, 2016 140,000 701 4.85% 5.03% 3 years
=3,000,000
P =15,003
P
*partial payment amounting to =
P 210.0 million was made on September 29, 2017
**prepaid on September 29, 2017

On September 29, 2017, EPI prepaid certain promissory notes totaling =

P1,500.0 million. There
were no prepayment penalty charged by SBC and the terms of the unpaid promissory notes remain
the same.

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The carrying amount of long-term debt with SBC, net of unamortized debt issue cost, follows:

2017 2016
Loans payable P
=1,500,000 =3,000,000
P
Less unamortized debt issue cost (1,841) (9,662)
Balances at December 31 P
=1,498,159 =2,990,338
P

Debt issue costs pertain to DST and other transaction costs incurred in connection with the
availment of the loans. These are deducted from the amount of loans payable and are amortized
using the EIR method.

The movements of the unamortized debt issue costs in 2017 and 2016 are as follows:

2017 2016
Balances at January 1 P
=9,662 =9,664
P
Additions – 4,452
Amortization (4,388) (4,454)
Reduction due to early payment of loan
(see Note 30) (3,433) –
Balances at December 31 P
=1,841 =9,662
P

Interest expense, including capitalized borrowing cost, in 2017 and 2016 are summarized below:

2017 2016
Interest on loans P
=116,603 =141,805
P
Amortization of debt issue costs 4,388 4,454
P
=120,991 =146,259
P

Interest expense capitalized as part of solar farm under “Property and equipment” and
“Geothermal exploration and evaluation assets” amounted to P =48.4 million and P
=21.0 million,
respectively, in 2016. There were no capitalized borrowing costs in 2017 and 2015 (see Notes 9
and 11).

The Term Loan Agreement with SBC provides for restrictions with respect to creation or
permission to exist any mortgage or pledge, lien or any encumbrance on all free assets owned or
acquired by EPI. Also, the Term Loan Agreement restricts EPI to assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any obligation of any other
person, firm or corporation; participate or enter into any merger or consolidation; sell, lease,
dispose or convey all or substantially all of EPI’s assets; make advances or loans to any of the
affiliates, subsidiaries, stockholders, directors and officers except in compliance with formally
established and existing fringe benefit program of EPI; suspend its business operation or dissolve
its affairs; and to enter into any credit or loan agreement or arrangement with any creditor under
such terms and conditions that would place SBC in an inferior position risk-wise, vis-a-vis such
other creditors. Moreover, the Term Loan Agreement provides for certain conditions, which
include, among others, prompt disclosure in writing of any material change in EPI’s financial
position and conduct of its operations or any substantial change in its management or ownership,
conduct operations in accordance with sound business practice, maintenance and preservation of
corporate existence, and prompt payment of all taxes, assessment and other governmental charges
due. As at December 31, 2017 and 2016, EPI has been compliant with the covenants contained in
the loan facility and agreements.

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TMC Loan
On October 4, 2010, TMC entered into an Omnibus Agreement with THNC, wherein the latter
granted the former a total loan facility amounting to US$35.0 million at a prevailing one hundred
eighty (180)-day British Banker Association London Inter-Bank Offered Rate (LIBOR) plus 2%
spread, to exclusively finance the construction of the pier facilities within the Taganito Special
Economic Zone (TSEZ). The loan shall be drawn down in one or multiple times by July 31, 2011.
As at December 31, 2017 and 2016, the total loan was fully drawn by TMC.

The interest on the loan is payable semi-annually, on October 10 and April 10. The total principal
is payable in semi-annual installments of US$0.9 million starting on October 10, 2011 up to
April 10, 2031.

The Omnibus Agreement provides for restriction with respect to creation, assumption, incurrence
and permission to exist any lien upon the pier facilities and all TMC’s other real rights over the
same except as permitted under the Omnibus Agreement. Also, the Omnibus Agreement provides
for certain conditions which include, among others, maintenance and preservation of TMC’s
corporate existence, rights, privileges and licenses, prompt submission of written notice to THNC
of any and all litigations and administrative arbitration proceedings before any Governmental
authority affecting TMC, prompt payment of all amounts due under the loan documents and
maintenance of all Governmental approvals necessary to perform the obligations. As at
December 31, 2017 and 2016, TMC is in compliance with the restrictions.

Interest expense in 2017, 2016 and 2015 amounting to =P42.6 million, P

=36.5 million and
=
P31.1 million, respectively, were included in equipment operating cost under “Cost of services”
(see Notes 22 and 34).

As at December 31, 2017 and 2016, the carrying amount of long-term debt with THNC amounted
to =
P1,179.6 million and =
P1,261.6 million, respectively (see Note 34).

Jobin Loan
On April 26, 2016, Jobin entered into a twelve-year (12) term loan agreement with LBP
amounting to P =300.0 million to partially finance the construction and development of a 7.14 MW
Sta. Rita Solar Power Plant and inter-connection assets located in SBFZ. The loan is subject to an
interest based on the applicable benchmark rate (3-month PDST-R2) plus a minimum spread of
1.50% p.a., with a floor rate of 4.75% p.a., subject to quarterly repricing. The loan is payable in
forty-four (44) equal quarterly payments, starting at the end of the fifth (5th) quarter from the date
of the initial loan and interest is payable quarterly in arrears from the date of initial loan. Jobin is
also required to pay gross receipt tax equal to 1% of each interest payment.

The loan shall be secured by the following:

a) Chattel mortgage on the 7.14 MW Sta. Rita Solar Power Plant (see Note 9)
b) Corporate guarantee of EPI
c) Assignment of leasehold rights between Jobin and Subic Bay Metropolitan Authority (SBMA)
on the lot at Mt. Sta. Rita, SBFZ, and 2,300 square meter (sq.m.) lot and 280 sq.m. building
located near the National Grid Corporation of the Philippines (NGCP) facility, Subic Gateway
Park, SBFZ
d) Pledge of shares of stock of Jobin

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The loan agreement contains positive, negative and financial covenants which include, among
others, payment of interest, strict compliance with regulatory provisions regarding internal
revenue taxes and environmental requirements, and the maintenance of certain financial and
project ratios. As at December 31, 2017 and 2016, Jobin has been compliant with the covenants
contained in the loan agreement.

The carrying amount of long-term debt with LBP, net of unamortized debt issue cost, follows:

2017 2016
Loans payable P
=286,364 =300,000
P
Less unamortized debt issue cost (2,099) (2,474)
Balances at December 31 P
=284,265 =297,526
P

The movements of the unamortized debt issue cost in 2017 and 2016 are as follows:

2017 2016
Balances at January 1 P
=2,474 =–
P
Additions – 2,702
Amortization (375) (228)
Balances at December 31 P
=2,099 =2,474
P

Interest expense, including capitalized borrowing cost, in 2017 and 2016 are summarized below:

2017 2016
Interest on loans P
=14,058 =9,253
P
Amortization of debt issue costs 375 228
P
=14,433 =9,481
P

Interest expense capitalized as part of solar farm under “Property and equipment” amounted to
=9.3 million in 2016 and nil in 2017 and 2015 (see Note 9).
P

RTN Loan
On November 25, 2002, RTN entered into an Omnibus Agreement with SMM, wherein the latter
granted the former a loan facility amounting to US$1.8 million at a prevailing one hundred eighty
(180)-day LIBOR plus 2% spread, for the construction of the pier facilities.

In July 2003, an additional loan amounting to US$0.2 million was granted by SMM. Starting
2003, the interest on the original and additional loans is payable semi-annually, on February 28
and August 31. The total principal is payable in twenty (20) equal semi-annual installments
starting on February 28, 2004 up to August 31, 2013. In February 2007, RTN and SMM agreed to
an additional loan facility amounting to US$9.0 million. Of the total loan facility, the remaining
US$0.5 million was drawn in February and March 2008. The additional loan facility is payable in
semi-annual installments starting on August 31, 2008 up to February 28, 2018.

In consideration, and to ensure payment of these loans, RTN will assign, transfer, and set over to
SMM, absolutely and unconditionally, all of RTN’s rights, title, and interest over its future
receivable from CBNC under the Throughput Agreements (see Note 39b). RTN also constituted a
first ranking mortgage on the pier facilities. As at December 31, 2017 and 2016, the carrying
value of pier facilities amounted to nil and =
P37.6 million, respectively (see Note 9).

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The Omnibus Agreement provides for restrictions with respect to creation, assumption, incurrence
and permission to exist any lien upon the pier facilities and all RTN’s other real rights over the
same except as permitted under the Omnibus Agreement. Also, the Omnibus Agreement provides
for certain conditions which include, among others, maintenance and preservation of RTN’s
corporate existence, rights, privileges and licenses, prompt submission of written notice to SMM
of any and all litigations or administrative or arbitration proceedings before any Governmental
authority affecting RTN. As at December 31, 2017 and 2016, RTN is in compliance with the
restrictions.

Interest expense amounted to =

P1.5 million, =
P2.4 million and =
P2.9 million in 2017, 2016 and 2015,
respectively (see Notes 30 and 34).

As at December 31, 2017 and 2016, the carrying amount of long-term debt with SMM amounted
to =
P22.4 million and =
P66.8 million, respectively (see Note 34).

16. Provision for Mine Rehabilitation and Decommissioning

2017 2016
Balances at January 1 P
=442,484 =169,926
P
Effect of change in estimate (see Note 9) (69,820) 263,616
Accretion of interest on provision for mine
rehabilitation and decommissioning
(see Note 30) 16,123 8,942
Balances at December 31 P
=388,787 =442,484
P

Provision for mine rehabilitation and decommissioning pertains to the estimated decommissioning
costs to be incurred in the future on the mined-out areas of the Group.

The Group makes a full provision for the future cost of rehabilitating mine site and related
production facilities on a discounted basis on the development of mines or installation of those
facilities. The rehabilitation provision represents the present value of rehabilitation costs. These
provisions have been created based on the Group’s internal estimates. Assumptions, based on the
current economic environment, have been made which management believes are a reasonable
basis upon which to estimate the future liability. These estimates are reviewed regularly to take
into account any material changes to the assumptions. However, actual rehabilitation costs will
ultimately depend upon future market prices for the necessary decommissioning works required
which will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation
is likely to depend on when the mine ceases to produce at economically viable rates. This, in turn,
will depend upon future ore prices, which are inherently uncertain.

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17. Long-term Payable

On December 14, 2015, CExCI and the stockholders of Newminco entered into a Share Purchase
Agreement (SPA) wherein CExCI agreed to acquire 100% equity interest of Newminco, on a
deferred payment basis, for a total consideration of =
P64.8 million.

Upon execution of the SPA, a downpayment of = P30.8 million was paid and the remaining balance
of P
=34.0 million, which is noninterest-bearing, is payable over a seven (7) year period. The total
principal is payable in annual installment of P
=5.0 million starting in 2017 up to 2020 and annual
installment of P
=7.0 million for the remaining term of the SPA. The unamortized discount on
deferred payment, at 4.58% risk free rate, amounted to = P3.8 million and =
P5.2 million as at
December 31, 2017 and 2016, respectively.

The carrying amount of long-term payable, net of unamortized discount, amounted to

=25.2 million and =
P P28.8 million as at December 31, 2017 and 2016, respectively.

2017 2016
Long-term payable P
=29,000 =34,000
P
Less unamortized discount 3,832 5,154
25,168 28,846
Less noncurrent portion 20,168 23,846
Current portion P
=5,000 =5,000
P

In 2017, 2016 and 2015, the accretion of interest on long-term payable amounted to =
P1.3 million,
=
P1.2 million and =
P0.1 million, respectively (see Note 30).

18. Equity

Capital Stock
The capital structure of the Parent Company follows:

2017 2016
Common stock - P =0.50 par value
Authorized - 19,265,000,000 shares in
2017 and 2016
Issued - 7,602,928,954 shares in 2017 and 2016 P
=3,801,465 =3,801,465
P
Preferred stock - P
=0.01 par value
Authorized and Issued - 720,000,000 shares 7,200 7,200
P
=3,808,665 =3,808,665
P

Preferred share is voting, non-participating but with a fixed cumulative dividend rate of 7% p.a.

Issued Capital Stock

Beginning November 22, 2010, the common shares of the Parent Company were listed and traded
in PSE with an initial public offering of 304,500,000 common shares (consisting of 132,991,182
shares held in treasury and new common shares of 171,508,818) with an offer price of =
P15.00 per
share, which is equivalent to =
P2.67 per share after the stock dividends.

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As at December 31, 2017 and 2016, a total of 2,414,938,006 common shares or 32% and
2,217,481,524 common shares or 29%, respectively, of the outstanding common shares of the
Parent Company are registered in the name of eighty-six (86) and eighty (80) shareholders,
respectively, while the balance of 5,187,990,948 common shares or 68% and 5,385,447,430
common shares or 71%, respectively, are lodged with the Philippine Depository and Trust
Corporation.

The movements in common stock follows:

2017
Number of
Shares Amount
Balances at January 1 7,602,928,954 P
=3,801,465
Exercise of stock options – –
Balances at December 31 7,602,928,954 P
=3,801,465

2016
Number of
Shares Amount
Balances at January 1 7,596,939,456 =3,798,470
P
Exercise of stock options (see Note 19) 5,989,498 2,995
Balances at December 31 7,602,928,954 =3,801,465
P

On June 16, 2010, the BOD and stockholders of the Parent Company approved the ESOP
(2010 ESOP; the Plan). On December 20, 2010, the Plan was approved by the SEC. A total of
12.0 million shares of stock were reserved for issue under the Plan.

On March 24, 2014, the BOD of the Parent Company approved the adoption of a new ESOP
(2014 ESOP; the New Plan) which was ratified by the Parent Company’s stockholders on
June 6, 2014. On November 21, 2014, the New Plan was approved by the SEC. A total of
32.0 million shares of stock were reserved for issue under the New Plan.

The basic terms and conditions of the stock option plans are disclosed in Note 19.

Additional Paid-In Capital

The movements in additional paid-in capital follows:

2017 2016
Balances at January 1 P
=8,300,002 =8,284,767
P
Dilution in NCI (37,547) –
Exercise of stock options – 11,380
Reclassification adjustment from cost of share-based
payment plan upon exercise of stock options – 3,855
Balances at December 31 P
=8,262,455 =8,300,002
P

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Dividends
Dividends declared and paid by the Parent Company follows:

Amount Dividend Date of

Year Type of Dividend Date of Declaration Date of Record Declared per Share Payment/Issuance

2017 Cash Dividends March 15, 2017 March 29, 2017 P

= 608,234 P
= 0.08 April 11, 2017

2016 Cash Dividends March 15, 2016 March 31, 2016 607,755 0.08 April 12, 2016

2015 Cash Dividends

Regular March 27, 2015 April 15, 2015 2,657,120 0.70 April 27, 2015
Special March 27, 2015 April 15, 2015 1,138,765 0.30 April 27, 2015

Stock Dividends June 5, 2015 July 16, 2015 1,899,235 100% August 11, 2015

Appropriated Retained Earnings

On November 5, 2013, the Parent Company’s BOD approved the appropriation of retained
earnings amounting to =
P1,000.0 million, for the construction, operation and maintenance of a
bunker-fired diesel power station (see Note 39g). The project is expected to be completed in 2018.

On February 12, 2016, the BOD of HMC approved the appropriation of retained earnings
amounting to =P94.8 million as at December 31, 2015 for capital expenditures for the year 2016
mainly for acquisition of mining equipment. An additional appropriation amounting to
P
=41.5 million was also approved for HMC’s final mine rehabilitation fund.

On July 4, 2016, the BOD of TMC approved the reversal of =P575.0 million appropriation
following the completion and full operation of TMC’s second conveyor system.

On November 7, 2016, the BOD of HMC approved the reversal of = P136.3 million appropriation
following the completion of the acquisition of mining equipment in 2016. On the same date, the
BOD of HMC approved the appropriation of retained earnings amounting to P =41.5 million for the
final mine rehabilitation and decommissioning plan and P=67.5 million for the capital expenditures
for the year 2017.

On December 7, 2017, the BOD of HMC approved the reversal of the = P109.0 million
appropriation following the completion of the purchase of mining equipments and funding of the
final mine rehabilitation fund. On the same date, the BOD of HMC approved the appropriation of
retained earnings amounting to =P95.6 million for HMC’s capital expenditures for the year 2018.

19. Executive Stock Option Plan

2014 ESOP
On March 24, 2014, the New Plan was approved by the Parent Company’s BOD and was ratified
by the stockholders on June 6, 2014. On November 21, 2014, the New Plan was approved by the
SEC. The basic terms and conditions of the New Plan are as follows:
1. The New Plan covers up to 32.0 million shares allocated to the Parent Company’s officers and
the officers of the subsidiaries.
2. The eligible participants are the directors and officers of the Parent Company and its
subsidiaries, specifically those with positions of Assistant Vice President and higher,
including the Resident Mine Managers of the subsidiaries.

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3. The exercise price is =P25.52, which is equivalent to =

P8.51 after the effect of stock dividends.
4. The New Plan was partially granted on June 6, 2014 and January 13, 2015.
5. The term of the New Plan shall be five (5) years and the shares will vest to the participant at
the rate of 25% after the first year of the New Plan or July 18, 2015.
6. The participant can exercise the vested options by giving notice within the term of the
New Plan, and can opt to either purchase the shares at the exercise price or request the Parent
Company to advance the purchase price and to sell the shares in which case the participant
will receive the sales proceeds less the exercise price.

The fair values of the stock option are =

P7.53 and =
P8.42, which was estimated as at grant date,
June 6, 2014 and January 13, 2015, respectively, using the Black Scholes-Merton model, taking
into consideration the terms and conditions upon which the options were granted.

2010 ESOP
On June 16, 2010, the Parent Company’s BOD and stockholders approved the 2010 ESOP. On
December 20, 2010, the Plan was approved by the SEC. The basic terms and conditions of the
Plan are as follows:
1. The Plan covers up to 12.0 million shares allocated to the Parent Company’s officers and the
officers of the subsidiaries.
2. The eligible participants are the directors and officers of the Parent Company and its
subsidiaries, specifically those with positions of Assistant Vice President and higher,
including the Resident Mine Managers of the subsidiaries.
3. The exercise price is =P13.50, which is equivalent to =P2.40 after the effect of stock dividends.
4. The grant date of the Plan is January 3, 2011 as determined by the Compensation Committee.
5. The term of the Plan shall be six (6) years and the shares will vest to the participant at the rate
of 25% per year after the first year of the Plan or December 21, 2011.
6. The participant can exercise the vested options by giving notice within the term of the Plan,
and can opt to either purchase the shares at the exercise price or request the Parent Company
to advance the purchase price and to sell the shares in which case the participant will receive
the sales proceeds less the exercise price.

The stock option agreement was made and executed on January 3, 2011 between the Parent
Company and the option grantees. The fair value of the stock options is =
P6.44, which was
estimated as at grant date, January 3, 2011, using the Black Scholes-Merton model, taking into
account the terms and conditions upon which the options were granted.

The following assumptions were used to determine the fair value of the stock options at effective
grant date:

2014 ESOP 2010 ESOP

Grant date January 13, 2015 June 6, 2014 January 3, 2011
Spot price per share =15.63
P =28.55
P =15.00
P
Exercise price =8.51
P =25.52
P =13.50
P
Expected volatility 33.52% 33.28% 53.42%
Option life 4.40 years 5.00 years 3.97 years
Dividend yield 0.58% 3.88% 2.06%
Risk-free rate 3.23% 3.30% 4.50%

The expected volatility reflects the assumption that the historical volatility over a period similar to
the life of the options is indicative of future trends, which may also not necessarily be the actual
outcome.

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There have been no modifications or cancellations in 2017 and 2016.

The following table illustrates the number of stock options and its movements during the year:

Weighted Average
Number of Options Exercise Price
2017 2016 2017 2016
2014 ESOP
Balances at January 1 56,222,764 57,442,278 P
=8.51 =8.51
P
Forfeited (1,195,612) (1,219,514) 8.51 8.51
Balances at December 31 55,027,152 56,222,764 P
=8.51 =8.51
P

2010 ESOP
Balances at January 1 – 5,989,498 P
=– =2.40
P
Exercised (see Note 18) – (5,989,498) – 2.40
Balances at December 31 – – P
=– =–
P

On November 10, 2016 and June 2, 2015, the SEC approved the exemption from registration of
31,523,262 common shares and 11,625,987 common shares, respectively, which shall form part of
the ESOP.

The number of exercisable vested stock options as at December 31, 2017 and 2016 are 41,270,374
common shares and 28,111,422 common shares, respectively.

In 2017 and 2016, the weighted average stock prices at exercise dates were nil and P
=7.87,
respectively.

The movements in the cost of share-based payment plan included in equity are as follows:

2017 2016
Balances at January 1 P
=126,622 =104,824
P
Stock option expense (see Note 27) 11,013 25,653
Cost of share-based payment recognized as capital
upon exercise – (3,855)
Movements during the year 11,013 21,798
Balances at December 31 P
=137,635 =126,622
P

The weighted average remaining contractual life of options outstanding under the New Plan was
approximately one and a half (1.5) years and two and a half (2.5) years as at December 31, 2017
and 2016, respectively.

In 2017, 2016 and 2015, the cost of share-based payment plan amounted to P
=11.0 million,
=25.7 million and =
P P57.8 million, respectively (see Note 27).

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20. Earnings Per Share

The following reflects the income and share data used in the basic and diluted EPS computations:

2017 2016 2015

Net income attributable to equity
holders of the parent P
=2,770,768 =1,966,107
P =2,035,143
P
Preferred stock dividends 504 504 504
Net income attributable to equity
holders of the parent for basic
earnings 2,770,264 1,965,603 2,034,639
Dividends on dilutive potential
ordinary shares – – –
Net income attributable to
ordinary equity holders of the
parent adjusted for the effect
of dilution P
=2,770,264 =1,965,603
P =2,034,639
P

Weighted average number of

common shares for basic EPS 7,602,928,954 7,597,438,581 7,594,355,243
Effect of dilution from
stock options – – 14,097,601
Weighted average number of
common shares adjusted for
the effect of dilution 7,602,928,954 7,597,438,581 7,608,452,844

Basic/Diluted EPS P
=0.36 =0.26
P =0.27
P

There have been no other transactions involving ordinary shares or potential ordinary shares
between the end of the financial reporting period and the date of authorization of the consolidated
financial statements.

21. Cost of Sale of Ore

2017 2016 2015

Production overhead P
=2,490,866 =2,160,707
P =2,676,492
P
Outside services 1,673,832 1,592,452 1,753,513
Personnel costs (see Note 27) 972,142 828,658 869,345
Depreciation, amortization and
depletion (see Note 28) 939,804 1,099,255 1,060,175
Long-term stockpile inventory
sold (see Note 12) 163,471 201,625 208,714
6,240,115 5,882,697 6,568,239
Net changes in beneficiated
nickel ore and limestone (206,874) 24,552 (288,991)
P
=6,033,241 =5,907,249
P =6,279,248
P

Production overhead consists of fuel, oil and lubricants, materials and supplies, equipment rentals
and other miscellaneous charges.

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Outside services pertain to services offered by the contractors related to the mining activities of
the Group. These services include, but are not limited to, hauling, stevedoring, maintenance,
security and equipment rental.

22. Cost of Services

2017 2016 2015

Depreciation (see Note 28) P
=106,032 =110,733
P =127,814
P
Personnel costs (see Note 27) 101,470 82,242 82,354
Overhead 69,063 65,106 82,539
Equipment operating cost 64,976 55,873 52,083
Outside services 9,798 14,503 13,127
P
=351,339 =328,457
P =357,917
P

Equipment operating cost includes interest expense amounting to P=42.6 million, P

=36.5 million and
=31.1 million in 2017, 2016 and 2015, respectively (see Note 15).
P

23. Cost of Power Generation

2017 2016 2015

Depreciation and amortization
(see Note 28) P
=154,024 =18,673
P P
=–
Purchased power (see Note 39g) 33,092 262 –
Overhead 29,477 10,211 –
Distribution wheeling service
charges (see Note 39q) 19,456 – –
Personnel costs (see Note 27) 10,461 4,403 –
Outside services 10,135 3,875 –
Materials and supplies 631 871 –
P
=257,276 =38,295
P =–
P

Overhead in cost of power generation consists of insurance, taxes and licenses, utilities and other
miscellaneous charges.

Distribution wheeling service charges pertain to the payments made to Manila Electric Company
(Meralco) and Leyte V Electric Cooperative (LEYECO V) for the conveyance of electricity
through Meralco’s and LEYECO V’s distribution systems.

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24. Shipping and Loading Costs

2017 2016 2015

Contract fees P
=1,007,742 =1,262,207
P =1,194,955
P
Supplies and fuel, oil and
lubricants 289,402 249,714 284,023
Depreciation and amortization
(see Note 28) 177,043 152,124 127,280
Other services and fees 82,610 98,193 90,097
Personnel costs (see Note 27) 69,613 61,311 61,588
P
=1,626,410 =1,823,549
P =1,757,943
P

25. Excise Taxes and Royalties

2017 2016 2015

Royalties (see Notes 39e and 39q) P
=805,744 =735,224
P =793,690
P
Excise taxes (see Note 39e) 297,942 271,488 295,913
P
=1,103,686 =1,006,712
P =1,089,603
P

The implementation of Tax Reform for Acceleration and Inclusion (TRAIN) Act or RA 10963
will have an impact on the Group’s excise taxes in the succeeding years as disclosed in Note 40.

26. General and Administrative

2017 2016 2015

Personnel costs (see Note 27) P
=353,527 =307,726
P =295,670
P
Outside services 120,282 118,668 93,496
Taxes and licenses 65,195 90,504 158,376
Depreciation and amortization
(see Note 28) 56,557 51,493 78,820
Transportation and travel 42,097 41,081 33,421
Rentals 34,276 59,143 28,513
Repairs and maintenance 21,186 22,913 27,850
Entertainment, amusement
and recreation 18,700 19,507 16,527
Dues and subscription 15,951 16,235 13,039
Publicity and promotion 15,086 10,115 8,828
Communications, light and water 14,464 10,759 9,637
Donations 3,190 18,886 37,920
Others 102,642 83,221 110,757
P
=863,153 =850,251
P =912,854
P

Other general and administrative expense is composed of other service fees and other numerous
transactions with minimal amounts.

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27. Personnel Costs

2017 2016 2015

Salaries, wages and employee
benefits P
=1,412,942 =1,198,056
P =1,190,967
P
Pension cost (see Note 35) 83,258 62,253 60,226
Cost of share-based payment
plan (see Note 19) 11,013 25,653 57,764
P
=1,507,213 =1,285,962
P =1,308,957
P

The amounts of personnel costs are distributed as follows:

2017 2016 2015

Cost of:
Sale of ore (see Note 21) P
=972,142 =828,658
P =869,345
P
Services (see Note 22) 101,470 82,242 82,354
Power generation (see Note 23) 10,461 4,403 –
General and administrative
(see Note 26) 353,527 307,726 295,670
Shipping and loading costs
(see Note 24) 69,613 61,311 61,588
Others – 1,622 –
P
=1,507,213 =1,285,962
P =1,308,957
P

28. Depreciation, Amortization and Depletion

The amounts of depreciation, amortization and depletion expense, including capitalized

depreciation, are distributed as follows:

2017 2016 2015

Cost of:
Sale of ore (see Note 21) P
=939,804 =1,099,255
P =1,060,175
P
Services (see Note 22) 106,032 110,733 127,814
Power generation
(see Note 23) 154,024 18,673 –
Shipping and loading costs
(see Note 24) 177,043 152,124 127,280
General and administrative
(see Note 26) 56,557 51,493 78,820
Others 46,585 82,991 45,898
P
=1,480,045 =1,515,269
P =1,439,987
P

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29. Finance Income

2017 2016 2015

Interest income from:
Cash and cash equivalents
(see Note 4) P
=134,248 =73,846
P =107,469
P
AFS financial assets
(see Note 7) 135,557 121,820 99,320
Loans (see Note 39a) 27,145 29,423 1,757
MRF (see Note 13) 3,103 1,921 1,454
Long-term negotiable
instruments (see Note 13) 1,305 1,260 1,260
SDMP funds (see Note 13) 148 160 121
Short-term cash investment – – 1,159
Cash held in escrow – – 235
Others (see Note 35) 461 – 31
Gain on sale of AFS financial
assets (see Note 7) 14,336 – 86,250
Accretion income – – 3,933
Day 1 gain – – 2,123
P
=316,303 =228,430
P =305,112
P

30. Finance Expenses

2017 2016 2015

Interest expense on:
Long-term debts (see Notes 15
and 34) P
=136,890 =79,493
P =28,623
P
Pension (see Note 35) 17,907 14,335 12,663
Short-term debt (see Notes 15
and 34) 4,284 4,234 5,066
Long-term payable
(see Note 17) 1,322 1,205 59
Guarantee service fee
(see Notes 34 and 39f) 66,656 100,009 124,194
Accretion of interest on provision
for mine rehabilitation and
decommissioning
(see Note 16) 16,123 8,942 8,520
Loss on:
Debt extinguishment
(see Note 15) 3,433 – –
Sale of AFS financial
assets (see Note 7) – 11,715 –
P
=246,615 =219,933
P =179,125
P

Interest expense amounted to a total of =

P203.0 million, =
P135.7 million and =
P77.5 million in
2017, 2016 and 2015, respectively, of which =P42.6 million, =
P36.5 million and
=31.1 million in 2017, 2016 and 2015, respectively, were included as part of equipment
P
operating cost under “Cost of services” (see Note 22).

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31. Other Income (Charges) - net

2017 2016 2015

Reversals of allowance for
(provisions for) impairment
losses on:
AFS financial assets
(see Note 7) (P
=133,320) (P
=119,220) P
=–
Input VAT (see Notes 8 and 13) 21,209 (21,494) (54,484)
Property and equipment
(see Note 9) 12,825 (12,825) –
Materials and supplies
(see Note 6) (7,348) – 35,961
Beneficiated nickel ore
inventory (see Note 6) 6,104 20,074 13,239
Deferred mine exploration costs
(see Note 13) (1,233) (460) (1,233)
Trade and other receivables
(see Note 5) – (24,961) –
Despatch (demurrage) (142,700) (106,971) 38,995
Foreign exchange gains - net 80,295 363,241 322,963
Special projects 62,732 81,681 52,477
Dividend income (see Note 7) 36,967 35,117 25,827
Management fee (22,171) (19,024) (13,622)
Rent income 20,788 12,382 11,275
Gain (loss) on:
Write-off of input VAT (12,504) (15) (8)
Sale of property and equipment (4,508) 6,644 6,919
Sale of interest in an associate
(see Note 10) – 239,620 –
Write-off of advances to
claimowners (see Note 39e) – (5,350) –
Write-off of AFS financial
assets (see Note 7) – (3,000) –
Write-off of deferred mine
exploration costs
(see Note 39e) – (2,278) (5,461)
Bargain purchase (see Note 32) – – 59,921
Other services 1,466 2,383 2,864
Issuance of fuel, oil and lubricants 1,419 33,018 29,874
Casualty losses – – (2,516)
Others - net (see Note 39g) (4,408) 14,978 (29,447)
(P
=84,387) =493,540
P =493,544
P

Others include miscellaneous services provided to CBNC on per job order basis, net of related
cost incurred and cost of testing and commissioning - net.

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Breakdown of the foreign exchange gains (losses) - net follows:

2017 2016 2015

Realized foreign exchange gains - net P
=101,711 =146,139
P =149,488
P
Unrealized foreign exchange
gains (losses) - net on:
Cash and cash equivalents (22,430) 248,202 133,794
Long-term debt 11,677 (61,379) (65,212)
Trade and other receivables (6,565) (760) (1,628)
Trade and other payables (5,131) (82,224) 17,149
AFS financial assets (see Note 7) 1,033 113,263 89,372
P
=80,295 =363,241
P =322,963
P

32. Business Combination

Loan Conversion and Additional Subscription to EPI

On April 15, 2015, the Parent Company expressed its intention to exercise its conversion right on
the entire second tranche loan of =
P446.0 million to 55% equity interest in EPI, which is equivalent
to 312,888,889 common shares, subject to the SEC’s approval of the increase in authorized capital
stock of EPI.

On July 16, 2015, the Parent Company subscribed to an additional 11% equity interest in EPI,
which is equivalent to 184,052,288 common shares, for a total consideration of =
P474.0 million,
subject also to the approval of EPI’s increase in authorized capital stock.

The increase in EPI’s authorized capital stock was approved by the SEC on July 28, 2015 and the
corresponding shares were subsequently issued to the Parent Company. The transaction was
accounted for as an asset acquisition. At the time of acquisition, EPI has investments in the
following subsidiaries.

% of Ownership
MEI 100%
MGPC 100%
BHI 100%
Mantex (a) 50%
(a) Indirect ownership through MEI

The Parent Company’s cost of investment in EPI consists of:

Convertible loan including derivative asset =450,506

P
Additional capital infusion 474,000
=924,506
P

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The consolidated amounts recognized as at July 28, 2015 for each major class of EPI and its
subsidiaries’ identifiable assets and liabilities follow:

Fair Value
Assets
Cash =653,836
P
Trade and other receivables 30,593
Prepayments and other current assets 54,697
Property and equipment 5,389
Geothermal exploration and evaluation assets 819,883
Other noncurrent assets 105,414
Total assets 1,669,812

Liabilities
Trade and other payables 91,116
Short-term debts 285,000
Total liabilities 376,116
Net assets, including share of NCI 1,293,696
Share of NCI 369,190
Net assets acquired =924,506
P

The fair value of trade and other receivables approximates its carrying amount since these are
short-term in nature. None of the trade and other receivables has been impaired and it is expected
that the full contractual amounts can be collected/recovered.

NCI have been measured at its proportionate share of the value of the net identifiable assets
acquired and liabilities assumed.

The excess of the Group’s cost of investment in EPI over its proportionate share in the
underlying net assets at the date of acquisition amounting to =
P207.8 million was allocated to the
“Geothermal exploration and evaluation assets” account in the consolidated statements of financial
position.

From acquisition date to December 31, 2015, the amounts of revenue and net loss of EPI and its
subsidiaries which were included in the consolidated statements of income for the year ended
December 31, 2015 amounted to nil and = P71.3 million, respectively. Had the acquisition of EPI
and its subsidiaries occurred at the beginning of the year, the Group’s revenue and net income for
the year ended December 31, 2015 would have decreased by nil and = P344.3 million, respectively.

Cash flow on acquisition follows:

Cash acquired from EPI and its subsidiaries =179,836

P
Cash paid for drawdowns of second tranche
convertible loan 267,600
Net cash outflow P87,764
=

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Acquisition of Geogen
On August 4, 2015, the Parent Company acquired 240,000,000 shares, or 100% interest, of
Geogen for a total consideration of P
=484.8 million. On the same date, a Deed of Assignment of
Receivables was also executed between the Parent Company and the previous shareholders of
Geogen wherein the Parent Company paid the amount of = P209.2 million representing the advances
from stockholders of Geogen prior to acquisition. Geogen is the claimowner of the Isabela Nickel
Project with an aggregate area of 2,392 hectares located in Dinapigue, Isabela covered by MPSA
No. 258-2007-II.

The amounts recognized as at August 4, 2015 for each major class of Geogen’s identifiable assets
and liabilities follow:

Fair Value
Assets
Cash =509
P
Trade and other receivables 402
Prepayments and other current assets 32,800
Property and equipment 28,992
Deferred mine exploration costs 852,840
Other noncurrent assets 35,533
Total assets 951,076

Liabilities
Trade and other payables 209,339
Provision for mine rehabilitation and decommissioning 31,989
Deferred income tax liabilities 164,262
Total liabilities 405,590
Net assets acquired =545,486
P

Income from acquisition is computed as follows:

Acquisition cost =485,565

P
Less: Fair value of net identifiable assets and liabilities acquired 545,486
Gain on bargain purchase (see Note 31) =59,921
P

From acquisition date to December 31, 2015, the amounts of revenue and net loss of Geogen
which were included in the consolidated statements of income for the year ended
December 31, 2015 amounted to nil and = P14.9 million, respectively. Had the acquisition of
Geogen occurred at the beginning of the year, the Group’s revenue and net income for the year
ended December 31, 2015 would have decreased by nil and P =31.4 million, respectively.

Cash flow on acquisition follows:

Cash acquired from Geogen =509

P
Cash paid for:
Acquisition of shares =484,768
P
Assignment of advances from previous
shareholders 209,232
Others 797 694,797
Net cash outflow =694,288
P

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Acquisition of Jobin
On July 16, 2015, EPI entered into a Deed of Assignment with the previous shareholders of Jobin
and acquired 200,000 shares, or 100% interest, of Jobin for a total consideration of =
P0.2 million.
Jobin is the holder of SESC No. 2013-10-039 and Wind Energy Service Contract (WESC)
No. 2013-10-062 which both covers an area in the municipalities of Morong and Hermosa,
Bataan. The transaction was accounted for as an asset acquisition.

The amounts recognized as at July 16, 2015 for each major class of Jobin’s identifiable assets and
liabilities follow:

Fair Value
Assets
Cash =200
P
Property and equipment 455
Total assets 655

Liabilities
Trade and other payables 455
Net assets acquired =200
P

The excess of the Group’s cost of investment in Jobin over the underlying net assets at the date of
acquisition amounting to =
P0.5 million was allocated to the “Property and equipment” account in
the consolidated statements of financial position.

From acquisition date to December 31, 2015, the amounts of revenue and net loss of Jobin which
were included in the consolidated statements of income for the year ended December 31, 2015
amounted to nil and =P0.5 million, respectively, which also have the same impact had the
acquisition of Jobin occurred at the beginning of the year.

Cash flow on acquisition follows:

Cash acquired from Jobin =200

P
Cash paid for acquisition 200
Net cash outflow =–
P

Acquisition of Newminco
On December 14, 2015, CExCI entered into a SPA to acquire 100% equity interest of Newminco
for a total consideration of P
=64.8 million.

CExCI acquired the shares of Newminco on a deferred payment basis and with the following
terms: a downpayment of P =30.8 million upon execution of the SPA while the remaining balance of
=34.0 million, which is noninterest-bearing, is payable over a seven (7) year period.
P

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The amounts recognized as at December 14, 2015 for each major class of Newminco’s identifiable
assets and liabilities follow:

Fair Value
Assets
Cash P68
=
Deferred mine exploration cost 61,680
Total assets 61,748

Liabilities
Trade and other payables 4,273
Net assets, including share of NCI 57,475
Share of NCI 857
Net assets acquired =58,332
P

NCI have been measured at its proportionate share of the value of the net identifiable assets
acquired and liabilities assumed.

The excess of the Group’s cost of investment in Newminco over the underlying net assets at the
date of acquisition amounting to P
=60.5 million was allocated to the deferred mine exploration
costs account under “Other noncurrent assets” in the consolidated statements of financial position.

From acquisition date to December 31, 2015, the amounts of revenue and net loss of Newminco
which were included in the consolidated statements of income for the year ended
December 31, 2015 amounted to nil and = P0.1 million, respectively. Had the acquisition of
Newminco occurred at the beginning of the year, the Group’s revenue and net income for the year
ended December 31, 2015 would have decreased by nil and P =0.3 million, respectively.

Cash flow on acquisition follows:

Cash acquired from Newminco =68

P
Cash paid for acquisition 30,750
Net cash outflow =30,682
P

Acquisition of BGI
On August 24, 2015, EPI and BHI entered into an Investment Agreement with OGI and BGHI to
acquire 60% equity interest of BGI for =
P1.8 million, subject to the SEC’s approval of the increase
in authorized capital stock of BGI. The increase in authorized capital stock of BGI was approved
by the SEC on December 17, 2015 and the corresponding shares were subsequently issued to BHI.
BGI is the holder of GRESC No. 2010-02-010 which covers the geothermal field in Biliran, Leyte.

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The transaction was accounted as an acquisition of a business. The fair values recognized as at
December 17, 2015 for each major class of BGI’s identifiable assets and liabilities follow:

Fair Value
Assets
Cash =13,787
P
Trade and other receivables 72,668
Prepayments and other current assets 3,210
Property and equipment 4,798,021
Other noncurrent assets 254,327
Total assets 5,142,013

Liabilities
Trade and other payables 5,187,541
Deferred income tax liabilities 87,485
Total liabilities 5,275,026
Net liabilities, including share of NCI (133,013)
Share of NCI 134,858
Net assets acquired =1,845
P

The fair value of trade and other receivables approximates its carrying amounts since these are
short-term in nature. None of the trade and other receivables has been impaired and it is expected
that the full contractual amounts can be collected/recovered.

NCI have been measured at its proportionate share of the value of the net identifiable assets
acquired and liabilities assumed.

The excess of the Group’s cost of investment in BGI over its proportionate share in the underlying
net assets at the date of acquisition amounting to =
P291.6 million was allocated to the construction
in-progress account under “Property and equipment” in the consolidated statements of financial
position.

From acquisition date to December 31, 2015, the amounts of revenue and net income of BGI
which were included in the consolidated statements of income for the year ended
December 31, 2015 amounted to nil and = P15.3 million, respectively. Had the acquisition of BGI
occurred at the beginning of the year, the Group’s revenue and net income for the year ended
December 31, 2015 would have decreased by nil and = P240.6 million, respectively.

Cash flow on acquisition follows:

Cash acquired from BGI =13,787

P
Cash paid 1,845
Net cash inflow =11,942
P

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33. Material Partly-Owned Subsidiaries

Financial information of subsidiaries that have material NCI are provided below:

Proportion of equity interest held by NCI:

Principal Place of Business 2017 2016

RTN Philippines 40.00% 40.00%
TMC Philippines 35.00% 35.00%

Equity attributable to material NCI:

2017 2016
RTN P
=1,044,560 =1,258,862
P
TMC 2,272,090 2,358,964

Net income attributable to material NCI:

2017 2016
RTN P
=627,293 =479,779
P
TMC 609,792 474,045

Other comprehensive income (loss) attributable to material NCI:

2017 2016
RTN (P
=1,836) (P
=12,973)
TMC 2,959 (3,614)

The summarized financial information of these subsidiaries are based on amounts before inter-
company eliminations.

The summarized statements of comprehensive income for the years ended December 31, 2017 and
2016 follows:

2017 2016
RTN TMC RTN TMC
Revenues =4,757,156
P =6,195,462
P =4,267,185
P P5,425,636
=
Cost of sale of ore and services (2,012,921) (2,433,283) (2,057,373) (2,284,077)
Operating expenses (629,908) (1,294,798) (619,109) (1,332,357)
Other income (charges) - net 93,467 (25,657) 132,235 115,776
Finance income (expense) - net 21,442 21,580 (14,595) 15,837
Income before income tax 2,229,236 2,463,304 1,708,343 1,940,815
Provision for income tax (661,003) (721,040) (508,895) (586,400)
Net income 1,568,233 1,742,264 1,199,448 1,354,415
Other comprehensive income
(loss) - net (4,591) 8,453 (32,434) (10,327)
Total comprehensive income - net =1,563,642
P =1,750,717
P =1,167,014
P =1,344,088
P

Attributable to NCI P625,457

= P612,751
= P466,806
= P470,431
=
Dividends paid to NCI 840,000 700,000 240,000 437,500

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The summarized statements of financial position as at December 31, 2017 and 2016 follows:

RTN TMC
2017 2016 2017 2016
Current assets P
=3,305,371 P3,098,888
= P
=4,955,468 =4,733,096
P
Noncurrent assets 868,882 1,227,396 4,419,776 4,620,249
Current liabilities (1,415,649) (955,737) (1,491,234) (1,098,052)
Noncurrent liabilities (147,204) (223,391) (1,392,323) (1,515,396)
Total equity P
=2,611,400 =3,147,156
P P
=6,491,687 =6,739,897
P

Attributable to equity
holders of parent P
=1,566,840 =1,888,294
P P
=4,219,597 =4,380,933
P
NCI 1,044,560 1,258,862 2,272,090 2,358,964

The summarized cash flow information for the years ended December 31, 2017 and 2016 follows:

RTN TMC
2017 2016 2017 2016
Operating P
=2,011,056 P1,029,588
= P
=2,312,124 =1,902,424
P
Investing (44,057) (185,034) (330,555) (396,836)
Financing (1,516,581) (389,281) (1,872,703) (1,610,633)
Net increase (decrease)
in cash and cash
equivalents P
=450,418 =455,273
P P
=108,866 (P
=105,045)

34. Related Party Transactions

Related party relationships exist when one party has the ability to control, directly or indirectly
through one or more intermediaries, the other party or exercise significant influence over the other
party in making financial and operating decisions. Such relationship also exist between and/or
among entities which are under common control with the reporting enterprise, or between and/or
among the reporting enterprise and their key management personnel, directors, or its stockholders.

Set out on next page are the Group’s transactions with related parties in 2017, 2016 and 2015,
including the corresponding assets and liabilities arising from the said transactions as at
December 31, 2017 and 2016.

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Trade and Other Trade and Other Amounts Owed by Amounts Owed to Related Short-term and Long-term
Receivables Payables Related Parties Parties Debts
Amount (see Note 5) (see Note 14) (see Note 5) (see Note 14) (see Note 15)
2017 2016 2015 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Terms Conditions

Stockholders
PAMCO
Sale of ore P
= 2,480,426 P
=2,333,894 P
=2,853,830 P
= 113,209 =
P266,297 P
= 141 =
P– =
P– =
P– =
P– =
P– =
P– =
P– Ninety percent (90%) upon Unsecured; no
(see Note 39d) receipt of documents and ten guarantee
percent (10%) after the final dry
weight and applicable assay have
been determined; noninterest-
bearing
Draft survey fee 602 483 359 – – – 95 – – – – – – Payable on demand; noninterest- Unsecured; no
bearing guarantee
Despatch income 6,153 1,309 7,228 405 – – – – – – – – – Collectible on demand; Unsecured; no
noninterest-bearing guarantee
Other service fee 99 – 224 – – – – – – – – – – Collectible upon billing; Unsecured; no
noninterest-bearing guarantee

SMM/ Sumitomo Metal

Mining Philippine
Holdings
Corporation
Sale of ore – – 438,851 – – – – – – – – – – Collectible upon billing; Unsecured; no
noninterest-bearing guarantee
Guarantee service 66,656 100,009 124,194 – – 21,086 33,262 – – – – – – Every twenty first (21st) of Unsecured
fee (see Notes 30 February, March, August and
and 39f) September
Short-term 29,269 1,250 1,250 – – – – – – 28,000 – – – Collectible upon billing; Unsecured;
advances noninterest-bearing no guarantee
Loan facility – – – – – – – – – – – 22,369 66,824 Principal is payable in semi- Secured; with
annual installments, interest is guarantee
based on one hundred eighty
(180)-day British Banker
Association LIBOR plus two
percent (2%) spread
Interest expense on 1,466 2,383 2,861 – – 182 447 – – – – – – Payable semi-annually on Secured; with
long-term debt February 28 and August 31 guarantee
(see Notes 15
and 30)

Nickel Asia Holdings

Inc.
Short-term advances 1 – 14 – – – – – – – – – – Collectible upon billing; Unsecured;
noninterest-bearing no guarantee
Dividends 504 504 504 – – – – – – – 504 – – Payable on demand Unsecured;
no guarantee

(Forward)

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Trade and Other Trade and Other Amounts Owed by Amounts Owed to Related Short-term and Long-term
Receivables Payables Related Parties Parties Debts
Amount (see Note 5) (see Note 14) (see Note 5) (see Note 14) (see Note 15)
2017 2016 2015 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Terms Conditions
With Common
Stockholders
Manta
Rentals, dues and P
= 28,626 =
P27,657 =
P26,687 =
P– =
P– P
= 193 P
=25 =
P– =
P– =
P– =
P– =
P– =
P– Payable upon billing; noninterest- Unsecured; no
utilities bearing guarantee
Rental deposits 10,205 10,184 10,163 – – – – – – – – – – Collectible upon end of the lease; Unsecured;
noninterest-bearing no guarantee
Short-term – – 3 – – – – – – – – – – Collectible upon billing; Unsecured; no
advances noninterest-bearing guarantee
Loan facility – – 180,000 – – – – – – – – – 180,000 Principal is payable at the end of Unsecured; no
loan agreement; interest is at 5% guarantee
Interest expense on 4,284 4,234 5,066 – – – 5,066 – – – – – – Interest is payable at the end of Unsecured; no
short-term debt loan agreement guarantee
(see Notes 15
and 30)
Sale of power 28,165 243 – 2,506 243 – – – – – – – – Collectible upon billing; Unsecured; no
(see Note 39p) noninterest-bearing guarantee

Associates
CBNC
Sale of ore 1,319,472 1,064,817 1,347,290 102,830 136,957 – – – – – – – – Seven (7) to thirty (30) days; Unsecured; no
noninterest-bearing guarantee
Materials handling 162,627 139,921 196,179 28,187 28,881 – – – – – – – – Collectible on demand; Unsecured; no
noninterest-bearing guarantee
Infralease and 63,251 52,092 50,640 30,936 35,191 – – – – – – – – Collectible at the end of February Unsecured; no
throughput and August; noninterest-bearing guarantee
Other income 52,531 95,637 49,402 9,743 12,379 – – – – – – – – Collectible on demand; Unsecured; no
noninterest-bearing guarantee
Short-term advances – – 544 – – – – – – – – – – Collectible upon billing; Unsecured; no
noninterest-bearing guarantee

THNC
Sale of ore 1,574,639 915,150 1,114,844 168,162 102,193 – – – – – – – – 30 days term, Unsecured; no
noninterest-bearing guarantee
Rendering of 139,819 133,241 129,202 33,433 33,474 – – – – – – – – Semi-annual term; Unsecured; no
service noninterest-bearing guarantee
(see Note 39b)
Materials handling 287,750 225,298 270,185 28,418 37,110 – – – – – – – – Collectible on demand; Unsecured; no
(see Note 34a) noninterest-bearing guarantee

Rental income 6,703 6,703 6,703 – – – – – – – – – – Collectible on demand; Unsecured; no

(see Note 39m) noninterest-bearing guarantee
Rental deposit – – – – – 3,352 3,352 – – – – – – Collectible upon end of the lease Unsecured;
payable term; noninterest-bearing no guarantee

(Forward)

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Trade and Other Trade and Other Amounts Owed by Amounts Owed to Related Short-term and Long-term
Receivables Payables Related Parties Parties Debts
Amount (see Note 5) (see Note 14) (see Note 5) (see Note 14) (see Note 15)
2017 2016 2015 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Terms Conditions
THNC
Loan facility =
P– =
P– =
P– =
P– =
P– =
P– =
P– =
P– =
P– =
P– =
P– P
= 1,179,596 P
=1,261,645 Principal is payable in semi- Unsecured;
annual installments, interest is with guarantee
based on one hundred eighty
(180)-day British Banker
Association LIBOR plus two
percent (2%) spread
Interest expense on 42,645 36,474 31,118 – – 7,656 7,592 – – – – – – Payable semi-annually on Unsecured; no
long-term debt April 10 and October 10 guarantee
(see Notes 15
and 22)
Rendering of other 4,170 863 2,208 – – – – – – – – – – Collectible upon billing; Unsecured; no
service noninterest-bearing guarantee
Short-term advances 20,651 19,945 21,484 – – – – 6,666 5,842 – – – – Collectible upon billing; Unsecured; no
noninterest-bearing guarantee

Affiliates
OGI
Short-term advances – – – – – – – – – 1,121,062 1,115,384 – – Collectible upon billing; Unsecured; no
noninterest-bearing guarantee

Orka Geothermal
Holdings, Inc.
Short-term advances 38 – – – – – – 666 628 – – – – Collectible upon billing; Unsecured; no
noninterest-bearing guarantee

BGHI
Short-term advances – – – – – – – 19 19 4,194,305 4,194,305 – – Collectible upon billing; Unsecured; no
noninterest-bearing guarantee

P
= 517,829 =
P652,725 P
= 32,610 =
P49,839 P
= 7,351 P
=6,489 P
= 5,343,367 P
=5,310,193 P
= 1,201,965 P
=1,508,469

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Terms and Conditions of Transactions with Related Parties

All sales to and purchases from related parties are made at prevailing market prices. Outstanding
balances as at December 31, 2017 and 2016 pertain to the extension and receipt of advances to and
from related parties and these are unsecured, short-term, interest-free and settlement occurs in
cash. Except for the guarantee on CBNC, THNC and EPI’s Loan Obligations (see Note 39f and
39q), there have been no guarantees received or provided for any related party receivables or
payables, respectively. This assessment is undertaken at each end of the financial reporting period
through the examination of the financial position of the related party and the market in which the
related party operates.

a. Sales and Service Agreements

Nickel Ore Sale Agreements with PAMCO

The Group supplies saprolite ore to PAMCO. PAMCO is a stockholder of the Parent
Company, RTN and TMC. All sales made to PAMCO are transacted at prevailing market
prices. Under the terms of the agreement, the base price of the ore products for a specific
shipment shall be based on London Metal Exchange (LME). Effective April 2014, ore sales to
PAMCO are benchmarked to China prices on the basis of a negotiated price per wet metric ton
(WMT) of ore. PAMCO shall pay the Group 80% to 90% of the provisional invoice amount
upon receipt of the required documents and pay the final payment of each shipment after the
final dry weight and applicable assay have been determined. Outstanding balances as at
December 31, 2017 and 2016 are unsecured, interest-free and settlement occurs in cash.
Receivable from PAMCO is included as part of “Trade and other receivables” and is expected
to be collected subsequently.

Nickel Ore Sale Agreement with PAMCO and Sojitz

RTN supplies saprolite ore to PAMCO under a sale agreement, which shall continue to be
valid and in effect until December 2020, wherein PAMCO appointed Sojitz as agent.
PAMCO owns 36% and Sojitz owns 4% of the outstanding capital stock of RTN.

Nickel Ore Sale Agreement with SMM

On April 1, 2011, RTN and SMM entered into an agreement to supply nickel ore to the latter.
The agreement shall be valid from April 2011 and shall continue to be valid and in effect until
December 2015. The Nickel Ore Sale Agreement with SMM was not renewed in 2016.

Nickel Ore Supply Agreement with CBNC

RTN entered into an agreement with CBNC to supply all of the limonite ore requirements for
the Coral Bay HPP facility until the earlier of the cessation of operations at the Coral Bay HPP
facility and exhaustion of the limonite ore reserves at the Rio Tuba mine. RTN has also
entered into an agreement with CBNC to supply limestone and provide ancillary services to
the Coral Bay HPAL facility. CBNC is the owner of the Coral Bay HPP facility. Receivable
from CBNC is included as part of “Trade and other receivables” and is expected to be
collected subsequently.

Nickel Ore Supply Agreement with THNC

TMC entered into an agreement with THNC covering the sale of its ore products. Under the
terms of the agreement, the base price of the ore products for a specific shipment shall be
based on LME.

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Service Agreements with CBNC

RTN entered into various service agreements with CBNC pertaining to materials handling and
others.

Materials Handling Agreement with THNC

On October 7, 2013, TMC and THNC executed an agreement wherein TMC will render
services related to the handling, hauling and transport of cargo for THNC. THNC shall
compensate TMC based on the prices stipulated in the agreement which are determined on the
basis of the weight of the cargo. Payment is collected within fifteen (15) days from receipt of
TMC’s billing.

b. Stockholder Agreements

THNC Stockholder’s Agreement

On September 15, 2010, NAC, SMM and Mitsui executed a Stockholders Agreement,
pursuant to which the parties formed a joint venture company, THNC, to build and operate a
plant in Barangay Taganito, Claver, Surigao del Norte for the purpose of producing and
selling nickel-cobalt mixed sulfide to be used in the production of electrolytic nickel and
electrolytic cobalt.

Pursuant to the Stockholders Agreement, SMM granted THNC a non-exclusive license of

technology owned by SMM to produce the products and has undertaken to provide technical
assistance to THNC. The Parent Company has undertaken to cause TMC to supply THNC
with nickel ore and limestone and to further cause TMC to make available to THNC the use of
the land and infrastructure necessary for the production of the products while Mitsui shall
assist THNC in procuring materials and equipment necessary for the mine’s operations. The
Stockholders Agreement shall terminate upon the dissolution of THNC.

The Parent Company, along with the other stockholders of THNC, also agreed to make loans
to THNC or guarantee the repayment of THNC’s loan obligations in accordance with the
financial requirements of THNC, in proportion to their shareholding ratio in THNC.

In a separate agreement dated December 9, 2011, SMM agreed to assume the Parent
Company’s obligation to make loans to, or guarantee the repayment of THNC’s loan
obligations. The Parent Company, in consideration for this agreement, pays SMM an annual
guarantee fee of 1% of THNC’s outstanding loan obligations.

CBNC Stockholder Agreement

On July 1, 2002, RTN, together with the other stockholders of CBNC, agreed to make loans to
CBNC or guarantee the repayment of CBNC’s loan obligations in accordance with the
financial requirements of CBNC, in proportion to their shareholding ratio in CBNC.

In a separate agreement dated October 22, 2002, SMM, which owns 54% of CBNC, agreed to
assume RTN’s obligation to make loans to, or guarantee the repayment of CBNC’s loan
obligations. RTN, in consideration for this agreement, pays SMM an annual guarantee fee of
1% of CBNC’s outstanding loan obligations until August 2015.

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c. Other Agreements

Funding Commitment with SMM

RTN’s long-term debt was incurred to complete infrastructure projects to support the
development of the Coral Bay HPAL facility. These projects included the causeway, trestles
and dolphins in the Rio Tuba foreshore and offshore areas (see Note 15).

Funding Commitment with THNC

TMC as owner/developer of TSEZ incurred a long-term debt to finance the construction of the
pier facilities that will be utilized to support the operations of the Taganito HPAL facility.
These projects included the jetty, dolphins, rubber fender, jettybollard and other pier facilities
in the Taganito foreshore and offshore areas (see Note 15).

d. Compensation of Key Management Personnel

The Group considers as key management personnel all employees holding managerial
positions up to the chairman. The short-term benefits of key management personnel of the
Group in 2017, 2016 and 2015 amounted to about = P274.9 million, P=236.7 million and
=
P273.9 million, respectively, inclusive of cost of share-based payment of =P11.0 million,
=25.7 million and =
P P57.8 million, respectively. The post-employment benefits of key
management personnel of the Group amounted to = P16.7 million, =
P15.5 million, and
=9.0 million in 2017, 2016 and 2015, respectively.
P

e. Lease Agreement

On March 18, 2013, the Group entered into a lease agreement with Manta for its office and
parking space. The lease agreement is effective for a period of five (5) years starting
May 15, 2013 and is renewable subject to negotiation of the terms and conditions and mutual
agreement of both parties. Rent expense pertaining to the lease amounted to = P22.4 million,
=21.5 million and =
P P20.5 million in 2017, 2016 and 2015, respectively.

The future minimum rent payable under the lease as at December 31, 2017 and 2016 are as
follows:

2017 2016
Within one (1) year P
=10,165 =21,742
P
After one (1) year but not more than five (5) years – 10,165
P
=10,165 =31,907
P

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35. Pension Liability

The existing regulatory framework, RA 7641, The Retirement Pay Law, requires a provision for
retirement pay to qualified private sector employees in the absence of any retirement plan in the
entity, provided however that the employee’s retirement benefits under any collective bargaining
and other agreements shall not be less than those provided under the law. The law does not
require minimum funding of the plan.

The following tables summarize the pension liability and pension asset recognized in the
consolidated statements of financial position:

2017 2016
Funded pension liabilities:
TMC P
=172,704 =163,898
P
RTN 56,801 64,060
CMC 50,418 –
NAC 39,496 –
HMC 1,362 –
Unfunded pension liabilities:
NAC – 54,096
CMC – 50,266
P
=320,781 =332,320
P

Funded pension asset:

HMC (see Note 13) P
=– =1,294
P

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The following tables summarize the components of net pension costs recognized in the consolidated statements of income and the funded status and amounts recognized
in the consolidated statements of financial position for the respective plans:

Changes in net defined benefit liability and fair value of pension assets in 2017, 2016 and 2015 are as follows:
December 31, 2017
Net benefit cost in consolidated
statements of income Remeasurements in other comprehensive income
Return on plan Actuarial Actuarial
assets changes Actuarial changes arising
(excluding arising changes from
amount from arising from changes in
January 1, Current Benefits included demographic experience financial Effect of asset December 31,
2017 service cost Net interest Subtotal paid in net interest) adjustments adjustments assumptions ceiling Subtotal Contributions 2017
RTN P
= 440,039 P
= 29,925 P
= 24,994 P
= 54,919 (P
=33,912) =
P– =
P– P
= 16,260 (P
=3,944) =
P– P
= 12,316 =
P– P
= 473,362
TMC 308,081 35,506 17,468 52,974 (10,385) – – (798) (5,659) – (6,457) – 344,213
HMC 31,022 4,978 1,812 6,790 (1,025) – – 5,136 279 – 5,415 – 42,202
CMC 50,266 4,989 2,790 7,779 (3,629) – – 4,158 (826) – 3,332 – 57,748
NAC 54,096 7,860 3,169 11,029 – – (9,216) 4,117 287 – (4,812) – 60,313
Defined benefit liability 883,504 83,258 50,233 133,491 (48,951) – (9,216) 28,873 (9,863) – 9,794 – 977,838
RTN (375,979) – (21,727) (21,727) 33,912 (5,757) – – – – (5,757) (47,010) (416,561)
TMC (144,183) – (8,787) (8,787) 10,385 3,076 – – – – 3,076 (32,000) (171,509)
HMC (32,316) – (2,112) (2,112) 1,025 1,269 – – – – 1,269 (8,706) (40,840)
CMC – – – – – – – – – – – (7,330) (7,330)
NAC – – – – – (9) – – – – (9) (20,808) (20,817)
Fair value of plan assets (552,478) – (32,626) (32,626) 45,322 (1,421) – – – – (1,421) (115,854) (657,057)
RTN 64,060 29,925 3,267 33,192 – (5,757) – 16,260 (3,944) – 6,559 (47,010) 56,801
TMC 163,898 35,506 8,681 44,187 – 3,076 – (798) (5,659) – (3,381) (32,000) 172,704
HMC (1,294) 4,978 (300) 4,678 – 1,269 – 5,136 279 – 6,684 (8,706) 1,362
CMC 50,266 4,989 2,790 7,779 (3,629) – – 4,158 (826) – 3,332 (7,330) 50,418
NAC 54,096 7,860 3,169 11,029 – (9) (9,216) 4,117 287 – (4,821) (20,808) 39,496
Pension liability P
= 331,026 P
= 83,258 P
= 17,607 P
= 100,865 (P
=3,629) (P=1,421) (P
=9,216) P
= 28,873 (P
=9,863) =
P– P
= 8,373 (P
=115,854) P
= 320,781

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December 31, 2016

Net benefit cost in consolidated
statements of income Remeasurements in other comprehensive income
Actuarial Actuarial
changes Actuarial changes arising
Return on plan arising changes from
assets (excluding from arising from changes in
January 1, Current Benefits amount included demographic experience financial Effect of asset December 31,
2016 service cost Net interest Subtotal paid in net interest) adjustments adjustments assumptions ceiling Subtotal Contributions 2016
RTN =
P377,308 =
P24,641 =
P24,298 =
P48,939 (P
=38,259) =
P– =
P– =
P22,841 =
P29,210 =
P– =
P52,051 =
P– =
P440,039
TMC 257,295 23,716 15,463 39,179 (7,133) – – 5,972 12,768 – 18,740 – 308,081
HMC 28,781 4,167 1,851 6,018 (214) – – (6,220) 2,657 – (3,563) – 31,022
Defined benefit liability 663,384 52,524 41,612 94,136 (45,606) – – 22,593 44,635 – 67,228 – 779,142
RTN (359,130) – (22,753) (22,753) 38,259 (5,716) – – – – (5,716) (26,639) (375,979)
TMC (120,301) – (7,917) (7,917) 7,133 6,902 – – – – 6,902 (30,000) (144,183)
HMC (13,896) – (1,478) (1,478) – 1,238 – – – – 1,238 (18,180) (32,316)
Fair value of plan assets (493,327) – (32,148) (32,148) 45,392 2,424 – – – – 2,424 (74,819) (552,478)
RTN – – – – – – – – – – – – –
Restrictions on asset recognized – – – – – – – – – – – – –
RTN 18,178 24,641 1,545 26,186 – (5,716) – 22,841 29,210 – 46,335 (26,639) 64,060
TMC 136,994 23,716 7,546 31,262 – 6,902 – 5,972 12,768 – 25,642 (30,000) 163,898
HMC 14,885 4,167 373 4,540 (214) 1,238 – (6,220) 2,657 – (2,325) (18,180) (1,294)
Pension liability =
P155,172 =
P48,357 P
=9,091 =
P57,448 =
P– P
=1,186 =
P– =
P28,813 =
P41,978 =
P– =
P71,977 (P
=56,639) =
P227,958
Pension liability (asset) =
P14,885 P
=4,167 P
=373 P
=4,540 (P
=214) P
=1,238 =
P– (P
=6,220) P
=2,657 =
P– (P
=2,325) (P
=18,180) (P
=1,294)

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December 31, 2015

Net benefit cost in
consolidated statements of income Remeasurements in other comprehensive income
Actuarial Actuarial
changes Actuarial changes arising
Return on plan arising changes from
assets (excluding from arising from changes in
January 1, Current Benefits amount included demographic experience financial Effect of asset December 31,
2015 service cost Net interest Subtotal paid in net interest) adjustments adjustments assumptions ceiling Subtotal Contributions 2015
RTN =
P383,979 =
P24,560 =
P22,117 =
P46,677 (P
=58,943) =
P– =
P– =
P28,650 (P
=23,055) =
P– P
=5,595 =
P– =
P377,308
TMC 249,346 22,589 13,490 36,079 (8,870) – – 1,048 (20,308) – (19,260) – 257,295
HMC 24,400 3,486 1,391 4,877 (498) – – 3,369 (3,367) – 2 – 28,781
Defined benefit liability 657,725 50,635 36,998 87,633 (68,311) – – 33,067 (46,730) – (13,663) – 663,384
RTN (390,420) – (21,560) (21,560) 58,943 20,614 – – – – 20,614 (26,707) (359,130)
TMC (112,844) – (6,406) (6,406) 8,870 10,079 – – – – 10,079 (20,000) (120,301)
HMC (4,201) – (513) (513) 498 423 – – – – 423 (10,103) (13,896)
Fair value of plan assets (507,465) – (28,479) (28,479) 68,311 31,116 – – – – 31,116 (56,810) (493,327)
RTN 351 – 20 20 – – – – – (371) (371) – –
Restrictions on asset recognized 351 – 20 20 – – – – – (371) (371) – –
RTN (6,090) 24,560 577 25,137 – 20,614 – 28,650 (23,055) (371) 25,838 (26,707) 18,178
TMC 136,502 22,589 7,084 29,673 – 10,079 – 1,048 (20,308) – (9,181) (20,000) 136,994
HMC 20,199 3,486 878 4,364 – 423 – 3,369 (3,367) – 425 (10,103) 14,885
Pension liability =
P150,611 =
P50,635 P
=8,539 =
P59,174 =
P– =
P31,116 =
P– =
P33,067 (P
=46,730) (P
=371) =
P17,082 (P
=56,810) =
P170,057

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Changes in unfunded pension liability as at December 31, 2017, 2016 and 2015 are as follows:

December 31, 2017

Net benefit cost in consolidated statements of income Remeasurements in other comprehensive income
Actuarial Actuarial
changes arising Actuarial changes arising
from changes in changes arising from changes in
January 1, Current Benefits demographic from experience financial December 31,
2017 service cost Interest cost Subtotal paid assumptions adjustments assumptions Subtotal 2017
NAC P
=– P
=– P
=– P
=– P
=– P
=– P
=– P
=– P
=– P
=–
CMC – – – – – – – – – –
Pension liability P
=– P
=– P
=– P
=– P
=– P
=– P
=– P
=– P
=– P
=–

December 31, 2016

Net benefit cost in consolidated statements of income Remeasurements in other comprehensive income
Actuarial Actuarial
changes arising Actuarial changes arising
from changes in changes arising from changes in
January 1, Current Benefits demographic from experience financial December 31,
2016 service cost Interest cost Subtotal paid assumptions adjustments assumptions Subtotal 2016
NAC P
=39,643 P
=6,068 P
=2,509 P
=8,577 (P
=1,411) =
P– P
=1,884 P
=5,403 P
=7,287 P
=54,096
CMC 40,379 3,661 2,362 6,023 (2,928) – 5,276 1,516 6,792 50,266
Pension liability P
=80,022 P
=9,729 P
=4,871 P
=14,600 (P
=4,339) =
P– P
=7,160 P
=6,919 P
=14,079 P
=104,362

December 31, 2015

Net benefit cost in consolidated statements of income Remeasurements in other comprehensive income
Actuarial Actuarial
changes arising Actuarial changes arising
from changes in changes arising from changes in
January 1, Current Benefits demographic from experience financial December 31,
2015 service cost Interest cost Subtotal paid assumptions adjustments assumptions Subtotal 2015
NAC P
=34,850 P
=5,709 P
=1,979 P
=7,688 P
=– =
P– (P
=1,010) (P
=1,885) (P
=2,895) P
=39,643
CMC 39,787 3,882 2,145 6,027 (295) (5,581) (2,086) 2,527 (5,140) 40,379
Pension liability P
=74,637 P
=9,591 P
=4,124 P
=13,715 (P
=295) (P
=5,581) (P
=3,096) P
=642 (P
=8,035) P
=80,022

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The main categories of plan assets as a percentage of the fair value of total plan assets follow:

2017 NAC RTN TMC HMC CMC

Fixed income securities 24.02% 14.23% 72.38% 84.19% 0.00%
Investments in shares of stock 28.82% 36.21% 5.97% 7.81% 0.00%
Others 47.16% 49.56% 21.65% 8.00% 100.00%
100.00% 100.00% 100.00% 100.00% 100.00%

2016 NAC RTN TMC HMC CMC

Fixed income securities – 62.87% 89.26% 61.29% –
Investments in shares of stock – 15.81% 7.10% 9.86% –
Others – 21.32% 3.64% 28.85% –
– 100.00% 100.00% 100.00% –

The overall expected rate of return on assets is determined based on the market expectations
prevailing on that date, applicable to the period over which the obligation is to be settled.

The principal assumptions used in determining the pension asset (liability) for the Group’s plans
are shown below:

2017 NAC RTN TMC HMC CMC

Discount rate 5.78% 5.77% 5.80% 5.79% 5.79%
Expected salary
increase rate 6.00% 5.00% 10.00% 5.00% 5.00%

2016 NAC RTN TMC HMC CMC

Discount rate 5.86% 5.68% 5.67% 5.84% 5.55%
Expected salary
increase rate 6.00% 5.00% 10.00% 5.00% 5.00%

2015 NAC RTN TMC HMC CMC

Discount rate 6.33% 6.44% 6.01% 6.43% 5.85%
Expected salary
increase rate 5.00% 5.00% 10.00% 5.00% 5.00%

Assumptions regarding future mortality rate are based on the 2001 CSO Table - Generational
developed by the Society of Actuaries, which provides separate rates for males and females.

The sensitivity analysis below has been determined based on reasonably possible changes of each
significant assumption on the defined retirement benefits liability - net as at the end of the
financial reporting period, assuming all other assumptions were held constant:

Increase
(decrease) 2017 2016
Discount rates +100 basis points (P
=91,505) (P
=86,125)
-100 basis points 109,284 103,294

Salary increase rate +100 basis points P

=96,704 P92,790
=
-100 basis points (82,961) (79,386)

As at March 14, 2018, the Group has not yet reasonably determined the amount of 2018
contributions to the retirement fund.

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Shown below is the maturity analysis of the undiscounted benefit payments:

2017 2016
Within the next twelve (12) months P
=159,662 P97,299
=
Between two (2) and five (5) years 264,683 234,266
Between six (6) and ten (10) years 539,429 482,112
Total expected payments P
=963,774 =813,677
P

The weighted average duration of the pension liability as at December 31, 2017 and 2016 is
9.7 years and 10.5 years, respectively.

36. Income Taxes

The provision for current income tax shown in the consolidated statements of income includes the
Regular Corporate Income Tax (RCIT) of TMC, RTN, NAC, HMC and CMC, Gross Income Tax
(GIT) of TMC and RTN and Minimum Corporate Income Tax (MCIT) of EPI, MEI, BGI,
Geogen, CExCI and Newminco in 2017, RCIT of TMC, RTN, NAC, HMC and CMC, GIT of
TMC and RTN and MCIT of EPI, BGI and Geogen in 2016, RCIT of TMC, RTN, HMC, CMC
and MEI, GIT of TMC and RTN and MCIT of NAC, Geogen and CExCI in 2015, as follows:

2017 2016 2015

TMC P
=756,771 =574,908
P =583,088
P
RTN 661,275 517,143 635,063
NAC 157,231 65,226 13,562
HMC 149,634 120,875 173,753
CMC 140,020 163,235 197,325
EPI 177 108 –
MEI 86 – 2,937
BGI 65 30 –
Geogen 34 1 20
CExCI 13 – 2
Newminco 12 – –
P
=1,865,318 =1,441,526
P =1,605,750
P

All other companies under the Group were in a gross and/or net taxable loss positions in 2017,
2016 and 2015.

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The reconciliation between the provisions for income tax computed at the statutory income tax
rates and the provisions for income tax computed at the effective income tax rates as shown in the
consolidated statements of income follows:

2017 2016 2015

Income tax at statutory rates from
non-registered activities P
=2,666,111 =1,829,232
P =2,621,842
P
Add (deduct) tax effects of:
Dividend income exempt
from income tax (1,014,489) (613,377) (903,049)
Change in unrecognized
deferred income tax
assets 115,206 135,853 (2,481)
Nondeductible expenses 74,853 174,304 40,012
Interest income subjected to
final tax (66,206) (44,569) (48,214)
Movements in deductible
temporary differences for
which deferred income
taxes were recognized (52,812) (41,874) (66,001)
Expired net operating loss
carry over (NOLCO) and
excess of MCIT over
RCIT 23,021 11,894 29,013
Realized benefit from ESOP
exercised – (8,857) (10,207)
Others (10,463) 5,098 4,807
1,735,221 1,447,704 1,665,722
Income tax at statutory rates from
PEZA registered activities 651 (2,296) (2,168)
Add (deduct) tax effects of:
Nondeductible expenses 1,056 4,111 3,755
Interest income subjected to
final tax (72) (41) (23)
1,635 1,774 1,564
Income tax at effective rates P
=1,736,856 =1,449,478
P =1,667,286
P

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The components of the Group’s net deferred income tax assets and liabilities follow:

2017 2016
Deferred income tax assets:
At 30%
Provision for mine rehabilitation
and decommissioning P
=116,636 =132,745
P
Pension costs 96,234 101,277
Cost of share-based payment plan 40,665 37,361
Allowance for impairment losses on:
Inventories 25,687 25,314
Trade and other receivables 11,833 11,787
Property and equipment – 3,848
Others 1,097 7,459
NOLCO 20,936 36,022
Unamortized past service cost 16,815 6,455
Excess of MCIT over RCIT 34 493
Unrealized valuation losses on AFS
financial assets – 3,024
Accrued SDMP costs – 898

At 5%
Deferred income 3,157 3,369
P
=333,094 =370,052
P

2017 2016
Deferred income tax liabilities:
At 30%
Fair value adjustment arising from business
combination P
=251,590 =251,590
P
Asset revaluation surplus 154,252 157,406
Undepleted asset retirement obligation 72,267 98,736
Unrealized foreign exchange gains - net 60,392 141,884
Long-term stockpile inventory 50,884 99,925
Unrealized valuation gains on AFS
financial assets 38,107 –
Capitalized borrowing cost 23,963 24,659
Unamortized debt issue costs 1,378 5,315

At 10%
Share in cumulative translation
adjustment (see Note 10) 113,812 96,605

At 5%
Unrealized foreign exchange gains - net 229 347
P
=766,874 =876,467
P

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The Group did not recognize net deferred income tax asset on the following temporary differences
since the management believes that it is not probable that sufficient taxable profit will be available
against which the benefits of the net deferred income tax assets can be utilized in the future.

2017 2016
NOLCO P
=1,011,711 =636,567
P
Unrealized foreign exchange losses - net 206,157 202,293
Allowance for impairment losses 158,910 157,677
Interest expense on long-term payable 2,587 1,264
Levelized rent expense 909 496
Excess of MCIT over RCIT 515 143
Others 802 –
P
=1,381,591 =998,440
P

As at December 31, 2017 and 2016, the Group, except for FEI, has NOLCO and excess of MCIT
over RCIT that can be claimed as deduction from future taxable income and income tax liabilities,
respectively, as follows:

NOLCO Excess of MCIT over RCIT

Year Incurred Year of Expiration 2017 2016 2017 2016
2017 2020 P
=400,367 =
P– P
=388 =
P–
2016 2019 498,931 499,023 139 139
2015 2018 181,453 181,720 22 22
2014 2017 – 74,889 – 475
P
=1,080,751 =755,632
P P
=549 =636
P

As at December 31, 2017 and 2016, FEI has NOLCO that can be claimed as deduction from
future taxable income as follows:

Year Incurred Year of Expiration 2017 2016

2017 2022 P
=6 =–
P
2016 2021 134 134
2015 2020 191 191
2014 2019 146 146
2013 2018 272 272
2012 2017 – 267
P
=749 =1,010
P

The movements in NOLCO are as follows:

2017 2016
Balances at January 1 P
=756,642 =294,397
P
Additions 400,373 499,157
Expirations (75,156) (36,912)
Applications (359) –
Balances at December 31 P
=1,081,500 =756,642
P

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The movements in excess of MCIT over RCIT are as follows:

2017 2016
Balances at January 1 P
=636 =29,353
P
Expirations (475) (821)
Additions 388 139
Applications – (28,035)
Balances at December 31 P
=549 =636
P

37. Financial Risk Management Objectives and Policies and Capital Management

The Group’s main financial instruments are cash and cash equivalents, AFS financial assets and
short-term and long-term debts. The main purpose of these financial instruments is to raise funds
and maintain continuity of funding and financial flexibility for the Group. The Group has various
other financial assets and liabilities such as trade and other receivables, loan receivable and long-
term negotiable instruments which are under “Other noncurrent assets”, trade and other payables
and long-term payable which arise directly from its operations, investing and financing activities.

The main risks arising from the Group’s financial instruments are credit risk, liquidity risk and
market risk. The BOD reviews and approves policies for managing each of these risks and they
are summarized below.

Credit Risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument
or customer contract, leading to a financial loss. The Group is exposed to credit risk primarily
from its operating (primarily for trade receivables) and investing activities, including deposits with
banks and financial institutions, foreign exchange transactions and other financial instruments.

In managing credit risk on investments, capital preservation is paramount. The Group trades only
with recognized, reputable and creditworthy third parties and/or transacts only with institutions
and/or banks which have demonstrated financial soundness. It is the Group’s policy that all
customers who wish to trade on credit terms are subject to credit verification procedures. In
addition, receivable balances are monitored on an ongoing basis with the result that the Group’s
exposure to bad debts is not significant. Except for the impaired trade and other receivables, the
Group assessed the loans and receivables as collectible and in good standing.

For investments in debt instruments, funds are invested in highly recommended, creditworthy debt
instruments that provides satisfactory interest yield and capital appreciation. Investments in
foreign and local equity funds are made in mutual funds with investments in A-rated companies,
with good dividend track record as well as capital appreciation. The investment portfolio mix
between debt and equities is reviewed regularly by the Chief Finance Officer and the Audit and
Risk Committee.

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Credit Risk Exposure

With respect to credit risk arising from cash and cash equivalents, trade and other receivables,
AFS financial assets, and loan receivable and long-term negotiable instruments which are under
“Other noncurrent assets”, the Group’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.

Credit Quality and Aging Analysis of Financial Assets

The credit quality and aging analysis of the Group’s financial assets as at December 31, 2017 and
2016 are summarized in the following tables:

Neither
Past Due Nor Past Due But Past Due and
Impaired Not Impaired Individually
2017 (High) (30-180 days) Impaired Total
Cash and cash equivalents P
=9,639,181 P
=– P
=– P
=9,639,181
Cash with banks 948,363 – – 948,363
Cash under managed funds 177,014 – – 177,014
Short-term cash investments 8,513,804 – – 8,513,804
Trade and other receivables 817,171 39,232 45,749 902,152
Trade 602,348 17,383 41,152 660,883
Current portion of loan
receivable 94,203 – – 94,203
Interest receivable 53,619 – – 53,619
Receivable from CBNC 18,830 21,849 – 40,679
Amounts owed by
related parties 7,351 – – 7,351
Others 40,820 – 4,597 45,417
AFS financial assets 6,658,420 – – 6,658,420
Quoted debt securities 5,097,660 – – 5,097,660
Quoted equity securities 1,354,174 – – 1,354,174
Unquoted equity securities 206,586 – – 206,586
Other noncurrent assets 807,641 – – 807,641
Loan receivable - net of
current portion 767,641 – – 767,641
Long-term negotiable
instruments 40,000 – – 40,000
P
=17,922,413 P
=39,232 P
=45,749 P
=18,007,394

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Neither Past Due But Past Due and

Past Due Nor Not Impaired Individually
2016 Impaired (High) (30-180 days) Impaired Total
Cash and cash equivalents =9,642,224
P =–
P =–
P =9,642,224
P
Cash with banks 1,207,679 – – 1,207,679
Cash under managed funds 188,508 – – 188,508
Short-term cash investments 8,246,037 – – 8,246,037
Trade and other receivables 995,813 98,225 45,622 1,139,660
Trade 740,581 83,998 41,029 865,608
Current portion of loan
receivable 98,161 – – 98,161
Interest receivable 47,317 – – 47,317
Receivable from CBNC 33,343 14,227 – 47,570
Amounts owed by
related parties 6,489 – – 6,489
Others 69,922 – 4,593 74,515
AFS financial assets 6,319,078 – – 6,319,078
Quoted debt securities 4,513,565 – – 4,513,565
Quoted equity securities 1,599,263 – – 1,599,263
Unquoted equity securities 206,250 – – 206,250
Other noncurrent assets 860,514 – – 860,514
Loan receivable - net of
current portion 830,514 – – 830,514
Long-term negotiable
instrument 30,000 – – 30,000
=17,817,629
P =98,225
P =45,622
P =17,961,476
P

Credit Quality of Financial Assets

The credit quality of financial assets is managed by the Group using internal credit ratings and is
classified into three: High grade, which has no history of default; Standard grade, which pertains
to accounts with history of one or two defaults; and Substandard grade, which pertains to accounts
with history of at least three (3) payment defaults.

Accordingly, the Group has assessed the credit quality of the following financial assets classified
as neither past due nor impaired:

∂ Cash and cash equivalents are placed in various foreign and local banks. Material amounts are
held by local banks that have good reputation and with low probability of insolvency. The rest
are held by various foreign banks having a Standard and Poor’s (S&P) credit rating of at least
A. Management assesses the quality of these assets as high grade.

∂ Trade receivables, loan receivable and receivable from CBNC pertain to receivables from
customers or related parties which have good financial capacity and with which the Group has
already established a long outstanding and good business relationship. Management assesses
the quality of these assets as high grade. Trade and other receivables which are not foreseen
to be collected are classified as substandard grade.

∂ Interest receivables derived from short-term cash investments placed in various foreign banks
with S&P credit rating of at least A and with local banks with low probability of insolvency,
are assessed as high grade. Interest receivable from AFS debt securities and long term

*SGVFS027977*
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negotiable instruments are also assessed as high grade since these are invested in companies
with good reputation and sound financial condition. Interest receivable from loans are also
assessed as high grade since these are collectible from third parties which are capable of
repaying the amount due.

∂ Amounts owed by related parties are advances that are due and demandable. The related
parties are operating firms and/or capable of repaying the amount due. Management assesses
the quality of these assets as high grade.

∂ Management assesses the quality of other receivables as standard grade since amounts are
settled after due date.

∂ AFS financial assets in debt and equity securities are investments that can be traded and from
companies with good financial capacity, making the investment secured and realizable.
Management assesses the quality of these assets as high grade.

∂ Long-term negotiable instruments are investments placed in local banks with good financial
capacity and with low probability of insolvency. Management assessed the quality of these
assets as high grade.

Liquidity Risk
Liquidity risk arises from the possibility that the Group may encounter difficulties in raising funds
to meet commitments from financial instruments.

The Group’s objective is to maintain sufficient funding to finance its exploration, mining and
power generation activities through internally generated funds, advances from related parties and
borrowings from banks. Aside from yielding good returns, the Group ensures that investments
have ample liquidity to finance operations and capital requirements. The Group considers its
available funds and its liquidity in managing its long-term financial requirements. For its short-
term funding, the Group’s policy is to ensure that there are sufficient capital inflows to match
repayments of short-term debt.

The tables below summarize the maturity profile of the Group’s financial liabilities as at
December 31, 2017 and 2016 based on contractual undiscounted payments.

Three (3) to
Less Than Twelve (12) More Than
2017 On Demand Three (3) Months Months One (1) Year Total
Trade and other payables
Trade P
=467,582 P
=311,455 P
=91,798 =
P– P
=870,835
Amounts owed to related
parties 5,343,367 – – – 5,343,367
Dividends payable – 636,450 – – 636,450
Accrued expenses 285,007 134,448 189 – 419,644
Retention fees payable 19,134 – – – 19,134
Interest payable 11,533 – – – 11,533
Others 41,046 – – – 41,046
Long-term debts
Carrying amount – 29,187 1,605,991 1,349,211 2,984,389
Unamortized debt issue cost – – 1,841 2,099 3,940
Long-term payable
Carrying amount – – 5,000 20,168 25,168
Unamortized discount – – – 3,832 3,832
Short-term debt – – – – –
P
= 6,167,669 P
= 1,111,540 P
= 1,704,819 P
= 1,375,310 P
= 10,359,338

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Three (3) to
Less Than Twelve (12) More Than
2016 On Demand Three (3) Months Months One (1) Year Total
Trade and other payables
Trade P
=391,441 P
=304,836 P
=94,148 =
P– P
=790,425
Amounts owed to related
parties 5,310,193 – – – 5,310,193
Dividends payable – 325,187 – – 325,187
Accrued expenses 191,525 57,674 11,887 – 261,086
Retention fees payable 44,629 – – – 44,629
Interest payable 30,511 – – – 30,511
Others 14,336 1,766 – – 16,102
Long-term debts
Carrying amount – 22,274 126,000 4,468,059 4,616,333
Unamortized debt issue cost – – – 12,136 12,136
Long-term payable
Carrying amount – – 5,000 23,846 28,846
Unamortized discount – – – 5,154 5,154
Short-term debt – – 180,000 – 180,000
P
=5,982,635 P
=711,737 P
=417,035 P
=4,509,195 P
=11,620,602

The tables below summarize the maturity profile of the Group’s financial assets used to manage
the liquidity risk of the Group as at December 31, 2017 and 2016.

Less Than Three (3) to

Three (3) Twelve (12) More Than
2017 On Demand Months Months One (1) Year Total
Cash and cash equivalents
Cash on hand and with banks P
= 955,114 P
=– P
=– P
=– P
= 955,114
Cash under managed funds 177,014 – – – 177,014
Short-term cash investments 8,513,804 – – – 8,513,804
Trade and other receivables
Trade 538,760 73,608 7,363 – 619,731
Current portion of loan receivable 1,884 – 92,319 – 94,203
Interest receivable – 52,595 1,024 – 53,619
Receivable from CBNC 18,830 21,849 – – 40,679
Amounts owed by related parties 7,351 – – – 7,351
Others 31,827 8,993 – – 40,820
AFS financial assets
Quoted debt securities 4,725,078 – – 372,582 5,097,660
Quoted equity securities 1,120,776 – – 233,398 1,354,174
Unquoted equity securities 79,828 – – 126,758 206,586
Other noncurrent assets
Loan receivable - net of current portion – – – 767,641 767,641
Long-term negotiable instruments – – – 40,000 40,000
P
= 16,170,266 P
= 157,045 P
= 100,706 P
= 1,540,379 P
= 17,968,396

Three (3) to
Less Than Twelve (12) More Than
2016 On Demand Three (3) Months Months One (1) Year Total
Cash and cash equivalents
Cash on hand and with banks P
=1,213,398 =
P– =
P– =
P– P
=1,213,398
Cash under managed funds 188,508 – – – 188,508
Short-term cash investments 8,246,037 – – – 8,246,037
Trade and other receivables
Trade 702,580 121,999 – – 824,579
Current portion of loan receivable – – 98,161 – 98,161
Interest receivable 9,782 36,812 723 – 47,317
Receivable from CBNC 14,227 33,343 – – 47,570
Amounts owed by related parties 6,489 – – – 6,489
Others 50,698 19,224 – – 69,922
AFS financial assets
Quoted debt securities 4,252,185 – – 261,380 4,513,565
Quoted equity securities 1,240,608 – – 358,655 1,599,263
Unquoted equity securities 79,492 – – 126,758 206,250

(Forward)

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Three (3) to
Less Than Twelve (12) More Than
2016 On Demand Three (3) Months Months One (1) Year Total
Other noncurrent assets
Loan receivable - net of current portion =
P– =
P– =
P– P
=830,514 P
=830,514
Long-term negotiable instrument – – – 30,000 30,000
P
=16,004,004 P
=211,378 P
=98,884 P
=1,607,307 P
=17,921,573

Market Risk
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may
result from changes in the price of a financial instrument. The value of a financial instrument may
change as a result of changes in foreign currency exchanges rates, commodity prices, interest
rates, equity prices and other market changes.

Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in foreign currency exchange rates.

Transactions with companies outside the Philippines and with CBNC and THNC for the sale of
saprolite and limonite ore are carried out with currencies that management believes to be stable
such as the US$.

The Group has transactional currency exposures. Such exposure arises from cash and cash
equivalents, trade and other receivables, AFS financial assets, trade and other payables and long-
term debts. The Group did not seek to hedge the exposure on the change in foreign exchange rates
between the US$ and the Philippine peso. The Group does not generally believe that active
currency hedging would provide long-term benefits to stockholders.

To mitigate the effects of foreign currency risk, the Group ensures timely follow-up and
accelerates the collection of foreign currency-denominated receivables and the settlement of
foreign currency-denominated payables and loans, whenever practicable. Also, foreign exchange
movements are monitored on a daily basis.

The Group’s foreign currency-denominated financial assets and liabilities and their Philippine
peso equivalents as at December 31, 2017 and 2016 are as follows:

2017 2016
US$ Peso US$ Peso
Amount Equivalent Amount Equivalent
Financial assets:
Cash and cash equivalents $134,416 P
=6,711,375 $131,107 =6,518,810
P
Trade and other receivables 11,540 576,170 14,797 735,714
AFS financial assets 56,915 2,841,746 53,448 2,657,495
$202,871 P
=10,129,291 $199,352 =9,912,019
P
Financial liabilities:
Trade and other payables $30,598 P
=1,527,753 $29,940 =1,488,594
P
Long-term debts 24,073 1,201,965 26,719 1,328,469
$54,671 P
=2,729,718 $56,659 =2,817,063
P

The exchange rate used for conversion of US$1.00 to peso equivalent was P
=49.93 and =
P49.72 as at
December 31, 2017 and 2016, respectively.

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The sensitivity of all the Group’s financial instruments to a reasonably possible change in the
exchange rate, with all other variables held constant, in the Group’s income before income tax
(due to changes in fair value of monetary assets and liabilities) as at December 31, 2017 and 2016
follows:

Peso Weakens Sensitivity to

(Strengthens) pretax income
2017 P
=0.40 P
=59,280
(0.70) (103,740)
2016 P1.00
= =142,693
P
(0.70) (99,885)

There is no other impact on the Group’s equity other than those already affecting the consolidated
statements of income.

Interest Rate Risk

The Group’s exposure to the risk of changes in market interest rate relates to AFS quoted fixed
and floating debt instruments and floating-rate long-term debt.

Floating rate instruments expose the Group to cash flow interest rate risk, whereas, fixed interest
rate instruments expose the Group to fair value risk. The Group regularly monitors the market
interest rate movements and manages its interest rate risks by using a mix of fixed and variable
rates.

The following tables set out the carrying amount, by maturity, of the Group’s financial instrument
that is exposed to cash flow interest rate risk:

Long-term debt <1 year 1-5 years >5 years Total

2017 P
=1,635,178 P
=484,398 P
=864,813 P
=2,984,389
2016 148,274 3,495,399 972,660 4,616,333

Management believes that cash generated from operations is sufficient to pay for its obligations
under the loan agreements as they fall due.

The sensitivity to a reasonably possible change in the interest rate (in basis points), with all
other variables held constant, in the Group’s income before income tax and equity as at
December 31, 2017 and 2016 are as follows:

Change Sensitivity to
in interest rate income before Sensitivity
(in basis points) income tax to equity
2017 AFS financial assets +100 P
=50,977
-100 (50,977)

Long-term debt +100 (P

=29,844)
-100 29,844

(Forward)

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Change Sensitivity to
in interest rate income before Sensitivity
(in basis points) income tax to equity
2016 AFS financial assets +100 =45,136
P
-100 (45,136)

Long-term debt +100 (P

=46,163)
-100 46,163

The impact on the Group’s income before income tax is caused by changes in the interest of the
floating-rate long-term debt, while the impact on the Group’s equity is caused by the changes in
the market value of AFS quoted debt due to interest rate movements. The impact on the Group’s
equity excludes the impact on transactions affecting the consolidated statement of income.

Equity Price Risk

Equity price risk is the risk to earnings or capital arising from changes in stock prices relating to
its quoted equity securities. The Group’s exposure to equity price risk relates primarily to its AFS
financial assets on various stocks of listed companies.

The Group’s policy is to maintain the risk to an acceptable level. Movement of share price is
monitored regularly to determine impact on its financial position.

The table shows the sensitivity to a reasonably possible change in equity prices of AFS quoted
equity instruments as at December 31, 2017 and 2016, except equity-linked investments.

The equity impact is arrived using the reasonably possible change of the relevant market indices
and the specific adjusted beta of each stock the Group holds. Adjusted beta is the forecasted
measure of the volatility of a security or a portfolio in comparison to the market as a whole.

Average change
in market indices Sensitivity
(in percentage) to equity
2017 12.36% P
=31,258
-12.36% (31,258)

2016 18.34% P65,909

=
-18.34% (65,909)

Capital Management
The Group considers its equity as capital. Its primary objective in capital management is to
maintain a strong credit rating in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may issue new shares
or declare dividend payments to shareholders. No changes were made in the objectives, policies
or processes during the years ended December 31, 2017 and 2016.

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The Group monitors capital using the debt-to-equity ratio, which is total liabilities divided by
equity. The Group’s policy is to keep the debt-to-equity ratio to not more than 1:1. Total
liabilities include trade and other payables, income tax payable, other current liability, short-term
and long-term debts, long-term payable, deferred income tax liabilities, provision for mine
rehabilitation and decommissioning, pension liability and deferred income.

The Group considers the following as capital:

2017 2016
Capital stock P
=3,808,665 =3,808,665
P
Additional paid-in capital 8,262,455 8,300,002
Share in cumulative translation adjustment 564,152 409,286
Net valuation gains on AFS financial assets 163,935 12,954
Cost of share-based payment plan 137,635 126,622
Asset revaluation surplus 32,097 32,480
Retained earnings:
Unappropriated 15,392,459 13,221,526
Appropriated 1,095,583 1,108,956
NCI 3,761,207 4,179,162
P
=33,218,188 =31,199,653
P

The table below shows the Group’s debt-to-equity ratio as at December 31, 2017 and 2016.

2017 2016
Total liabilities (a) P
=12,518,911 =14,151,863
P
Equity (b) 33,218,188 31,199,653
Debt-to-equity ratio (a/b) 0.38:1 0.45:1

38. Financial Instruments

The following method and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate such values:

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates its fair value due to the short-term
nature and maturity of these financial instruments.

Trade and Other Receivables, Trade and Other Payables and Short-term Debt
Similarly, the carrying amounts of trade and other receivables, trade and other payables and short-
term debt approximate their fair values due to the short-term nature of these accounts.

Loan Receivable
The carrying amount of loan receivable, which is the transaction price, approximates its fair value.

Long-term Negotiable Instruments

The carrying amount of long-term negotiable instruments approximate their fair values since
interest are earned based on long-term cash investment rates.

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AFS Financial Assets

The fair values were determined by reference to market bid quotes as at the end of the financial
reporting period. For unquoted equity securities for which no reliable basis of fair value
measurement is available, these are carried at cost, less any impairment losses.

Long-term Debts and Long-term Payable

The fair values of long-term debts and long-term payable are based on the present value of future
cash flows discounted using applicable risk free rates for similar types of loans adjusted for credit
risk.

Fair Value Hierarchy

The Group uses the following hierarchy in determining and disclosing the fair value by valuation
technique:
∂ Quoted prices in active markets for identical asset or liability (Level 1);
∂ Those involving inputs other than quoted prices included in Level 1 that are observable for the
asset or liability; either directly (as prices) or indirectly (derived from prices; Level 2); and
∂ Those inputs for assets or liability that are not based on observable market date (unobservable
inputs; Level 3).

2017 2016
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets measured at fair value:
AFS financial assets
Debt securities P
= 5,097,660 P
=– P
=– P
=4,513,565 =
P– =
P–
Equity securities 1,354,174 – – 1,599,263 – –
P
= 6,451,834 P
=– P
=– P
=6,112,828 =
P– =
P–

As at December 31, 2017 and 2016, the fair value of the quoted debt and equity securities is the
quoted market price at the close of the business (Level 1).

As at December 31, 2017 and 2016, there were no transfers between Level 1 and Level 2 fair
value measurements and no transfers into and out of Level 3 fair value measurements.

39. Significant Agreements

a. Loan Agreements

EPI
On August 22, 2014, the Parent Company and EPI executed a loan agreement amounting to
=
P551.0 million which was drawn in two (2) tranches. The first and second tranche of the
loans amounted to P
=105.0 million and =
P446.0 million, respectively.

The proceeds of the first tranche loan was used by EPI to fund the activities preparatory to
drilling and for the drilling of the initial two (2) wells under the Montelago Geothermal
Project, while the second tranche loan was used to fund the drilling costs and related activities
(to include slim or other test holes) on the said initial two (2) wells.

At the option of the Parent Company, the entire second tranche loan, and not any smaller
portion thereof, may be converted into shares of stock of EPI constituting 55% of its total
issued and outstanding shares, at any time before the lapse of three hundred sixty five (365)
days after drawdown of the entire second tranche loan.

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The loan is subject to 2% interest p.a. The first tranche of the loan is payable one year after
the first drawdown on the first tranche loan or upon sale of EPI’s entire shareholdings in
Occidental Mindoro Consolidated Power Corporation (OMCP), whichever is earlier. The
second tranche loan is payable one year after the first drawdown on the second tranche loan
unless the conversion right is exercised.

For and to secure the loan and the notes covering the same, EPI executed and delivered a
Pledge Agreement covering its shares of stock in OMCP consisting of 100% of OMCP’s
issued and outstanding shares.

As at December 31, 2015, the entire first and second tranche loan amounting to P
=105.0 million
and =
P446.0 million, respectively, were fully drawn by EPI.

On April 15, 2015, the Parent Company expressed its intention to exercise its conversion right
on the entire second tranche loan of =
P446.0 million to 55% equity interest in EPI, which is
equivalent to 312,888,889 common shares, subject to the SEC’s approval of the increase in
authorized capital stock of EPI.

On July 16, 2015, the Parent Company subscribed to an additional 11% equity interest in EPI,
which is equivalent to 184,052,288 common shares, for a total consideration of
=
P474.0 million, subject also to the approval of EPI’s increase in authorized capital stock.

The increase in EPI’s authorized capital stock was approved by the SEC on July 28, 2015 and
the corresponding shares were subsequently issued to the Parent Company.

The first tranche loan, including interest, was paid by EPI in August 2015.

East Coast
In relation to the Supplemental Agreement executed by CMC and East Coast on
December 18, 2015, CMC agreed to lend a loan of up to = P1,000.0 million to East Coast which
is subject to 3% interest p.a. The loan was issued in two tranches of =
P150.0 million in
October 2015 and = P850.0 million in December 2015. As payment for the loan, CMC shall
deduct 50% of the commission and royalties, net of withholding tax and interest, each time a
commission, royalty or additional royalty is paid by CMC to East Coast. The loan is secured
by a Pledge Agreement between CMC and East Coast covering the latter’s rights, interests,
receivables, obligations, and liabilities over the MPSA on the Cagdianao property owned by
East Coast (see Note 39e).

The current portion of loan receivable amounting to P

=94.2 million and =
P98.2 million was
included under “Trade and other receivables”, while the noncurrent portion amounting to
=767.6 million and =
P P830.5 million was included under “Other noncurrent assets” as at
December 31, 2017 and 2016, respectively (see Notes 5 and 13). Interest income from the
loan amounted to P=27.1 million, P
=29.4 million and =
P1.8 million in 2017, 2016 and 2015,
respectively (see Note 29).

b. Throughput Agreements

THNC
On October 4, 2010, TMC and THNC executed a Throughput Agreement wherein TMC will
construct the pier facilities within the TSEZ pursuant to its role as Developer. The TSEZ is

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located within the Surigao Mineral Reservation, an area declared for mineral development
pursuant to Proclamation 391, under the supervision of the DENR that issued an “Order to
Use Offshore Area” dated September 20, 2010 to TMC for the use of such portion of the
Surigao Mineral Reservation for the construction of the pier facilities. In relation to this,
THNC entered into a Registration Agreement with the PEZA to construct and operate a
mineral processing plant within the TSEZ as an Ecozone Export Enterprise.

Under the agreement, TMC will make available the pier facilities and provide certain services
to THNC in consideration for usage fees and service fees to be paid by the latter starting
April 2011 until 2031, unless terminated earlier. The usage fee amounted to US$1.3 milion
for each semi-annual period to be paid on or before October 10 and April 10.

THNC also agrees to pay service fee that will be agreed upon by both parties which shall be
billed on a monthly basis.

Prior to the commencement date, THNC may also request TMC to use any part of the
constructed pier facilities, which is ready for use, upon payment of reasonable compensation
which shall be mutually agreed by TMC and THNC.

In 2017, 2016 and 2015, service revenues from usage of pier facilities of TMC amounted to
=135.2 million, P
P =127.9 million and =
P123.7 million, respectively (see Note 34).

CBNC
Under the agreement, CBNC shall pay RTN the price which consists of all its direct costs for
the pier facilities which includes but not limited to, financial costs, maintenance costs and tax
as well as indirect costs directly used for the pier facilities and the services as agreed by the
parties. CBNC shall pay to RTN in US$, as a part of such financial costs, the amounts to be
paid by RTN to SMM such as interests and loan repayments pursuant to the Omnibus
Agreement made and entered into by and between RTN and SMM. The agreement shall
continue for twenty-five (25) years after November 25, 2002 unless terminated earlier.

c. Memorandum of Understanding (MOU)

On September 14, 2009, the Parent Company and TMC entered into a MOU with SMM.
Pursuant to the terms thereof, the Parent Company and SMM will move ahead on a joint
venture basis to build a nickel-cobalt processing plant (the Project) using the HPAL
technology to be located within the TMC’s mine in Surigao del Norte, while TMC will supply
low-grade nickel ore to the plant over the life of the Project. The estimated cost of the Project
is US$1,420.0 million, which further increased to US$1,590.0 million, over a three-year
construction period, which started in the last quarter of 2010. The plant will have an annual
capacity of 51,000 dry metric tons of mixed nickel-cobalt sulfide over an estimated thirty
(30) year project life. The MOU provides that the equity share of the Parent Company and
SMM shall be 20%-25% and 75%-80%, respectively.

Following the MOU is the Taganito HPAL Stockholders Agreement (the Agreement) entered
into by the Parent Company, SMM and Mitsui on September 15, 2010 stating that the Project
will be undertaken by THNC, a company that will be jointly owned by the Parent Company,
SMM and Mitsui with equity interest of 22.5%, 62.5% and 15.0%, respectively. Pursuant to
the Agreement, SMM granted THNC a non-exclusive license of technology owned by SMM
to produce the products and has undertaken to provide technical assistance to THNC. The
Parent Company has undertaken to cause TMC to supply THNC with nickel ore and limestone
and to further cause TMC to make available to THNC the use of the land and infrastructure

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necessary for the production of the products while Mitsui shall assist THNC in procuring
materials and equipment necessary for the plant’s operations.

Pursuant to the sale of 12.5% equity interest of the Parent Company to SMM in October 2016,
the shareholding ratio of the Parent Company and SMM is 10% and 75%, respectively, as at
December 31, 2017 and 2016 (see Note 10).

The Agreement also sets forth the respective rights and obligations of the Parent Company,
SMM and Mitsui, including their responsibilities in respect of financing the
US$1,420.0 million, which further increased to US$1,590.0 million, project investment
undertaken by THNC.

Also, under the Agreement, the Parent Company, SMM and Mitsui agreed to make loans to
THNC or guarantee the repayment of THNC’s obligations in accordance with the financial
requirements of THNC and in proportion to their shareholding ratio in THNC.

Pursuant to the Agreement, the Parent Company, SMM and Mitsui extended loans to THNC
amounting to a total of US$939.5 million as at December 31, 2017 and US$803.9 million as at
December 31, 2016 to cover THNC’s working capital requirement, loan repayments, capital
investment and/or construction of tailings dam.

The Agreement shall terminate upon the dissolution of THNC.

d. Sales Agreements

Nickel Ore Sale Agreement with PAMCO and Sojitz (see Note 34a)

Nickel Ore Supply and Service Agreement with CBNC (see Note 34a)

Nickel Ore Supply Agreement with THNC (see Note 34a)

Materials Handling Agreement with THNC (see Note 34a)

Nickel Ore Sale Agreement with SMM (see Note 34a)

Nickel Ore Supply Agreements with Chinese Customers

HMC, CMC, RTN and TMC have ore supply agreements with a number of Chinese
customers, each for a fixed tonnage at specific nickel grades and iron content.

The fixed tonnage of ore is generally the volume of expected delivery within a few months.
Sale of ore to Chinese customers amounted to =P9,391.3 million, =
P9,084.7 million and
=8,629.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.
P

Nickel Ore Supply Agreements with Queensland Nickel Pty Ltd (QNI)
RTN and CMC entered into agreements with QNI covering the sale of RTN and CMC’s ore
products at a fixed tonnage and specific nickel grade and iron content. Sale of ore to QNI
amounted to nil in 2017, P
=68.9 million in 2016 and =P271.0 million in 2015.

Nickel Ore Supply Agreement with Mitsubishi Corporation RTM International Pte., Ltd. and
Mitsubishi Corporation RTM Japan Ltd. (Mitsubishi)
RTN, TMC and HMC entered into an agreement with Mitsubishi, a Singapore and Japan-

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based corporations, covering the sale of its ore products. Under the terms of the agreement,
the ore sales are benchmarked to China prices on the basis of a negotiated price per WMT of
ore. Mitsubishi shall pay 85% of the provisional invoice amount upon receipt of the required
documents and pay the final payment of each shipment after the final dry weight and
applicable assay have been determined. Under the agreement, the end user of the material is
PAMCO. Sale of ore to Mitsubishi amounted to = P724.8 million, =
P257.8 million and nil in
2017, 2016 and 2015, respectively (see Note 34).

e. Mining Agreements

i. MPSA

RTN
On June 4, 1998, the Government approved the conversion of RTN’s Mining Lease Contracts
under the old mining regime into an MPSA with the Government pursuant to the Philippine
Mining Act of 1995. The MPSA allows RTN to explore, develop and continue mining
operations for nickel ore within the contract area covering 990 hectares in the Municipality of
Bataraza, Southern Palawan Island. Under RTN’s Environmental Compliance Certificate
(ECC), however, 144 hectares of the contract area are excluded from mining operations, being
located within an area classified as “core zone” where mining is prohibited under current
regulations of the Palawan Council for Sustainable Development (PCSD).

On April 28, 2005, RTN and the Government entered into a second MPSA covering
85 hectares in the Municipality of Bataraza, which allows RTN to mine limestone in Sitio
Gotok. Limestone being mined by RTN pursuant to this second MPSA is being sold to CBNC
for the latter’s Coral Bay HPAL plant and to a third party.

Under both MPSAs, RTN pays a 2% excise tax on gross revenues as provided in the
Philippine National International Revenue Code as the Government’s share in its output. Both
MPSAs are valid for twenty-five (25) years from issuance and renewable for another term of
not more than twenty-five (25) years at the option of RTN, with approval from the
Government.

On June 20, 2003, RTN submitted an Application for MPSA covering previously approved
Mining Lease Contracts over an area of 4,274 hectares within the Municipalities of Bataraza
and Rizal. Most of the contract area is within the core zone and the application is pending.

On May 30, 2008, the PCSD issued a resolution interposing no objections to the revision by
the Municipality of Bataraza of its Environmentally Critical Areas Network map that, among
others, seeks to reclassify the core zone within the contract area into a mineral development
area. The reclassification was approved by the Municipal Development Council of the
Municipality of Bataraza on November 18, 2009, and subsequently approved by the Provincial
Board on January 5, 2010.

On September 1, 2015, the Strategic Environmental Plan clearance was issued by PCSD to
RTN which is a requirement in obtaining ECC approval from DENR. The processing of the
Application for MPSA by the MGB is consequently under way.

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HMC
Taganaan Nickel Project
On July 25, 2008, the Government approved the conversion of HMC’s Mining Lease Contract
into an MPSA, which allows HMC to explore, develop and continue mining operations for
nickel ore within the contract area covering 773.77 hectares in the Municipality of Taganaan,
Surigao del Norte. Under the MPSA, HMC pays the Government a 2% excise tax and a 5%
royalty on gross revenues, as the contract area is within the Surigao Mineral Reservation. The
MPSA is valid for twenty-five (25) years from issuance and renewable at the option of HMC,
with approval from the Government.

Manicani Nickel Project

On August 13, 1992, HMC and the Government entered into an MPSA, which allows HMC to
explore, develop and mine nickel ore within the contract area covering 1,165 hectares in
Manicani Island, Municipality of Guiuan, Eastern Samar. Under the MPSA, HMC shall pay
the Government a 2% excise tax, a 1% royalty and 10% of its net revenues, defined as gross
revenues less all cost items that are deductible for income tax purposes. The MPSA is valid
for twenty-five (25) years from issuance and renewable at the option of HMC, with approval
from the Government.

On August 2, 2004, the Regional Panel of Arbitrators of the MGB recommended the
cancellation of the MPSA as a result of allegations by third parties against the operations of
HMC. On September 4, 2009, the Mines and Adjudication Board of the DENR issued a
decision setting aside the decision of the Panel of Arbitrators. Hence, the MPSA remains in
effect. HMC is currently not conducting mining operations in Manicani.

On May 23, 2016, HMC applied for the renewal of its MPSA in Manicani which expired on
August 13, 2017. HMC is yet to receive the confirmation from DENR.

TMC
On July 28, 2008, the Government approved the conversion of TMC’s Operating Contract into
an MPSA, which allows TMC to explore, develop and continue mining operations for nickel
ore within the contract area covering 4,584.51 hectares in the Municipality of Claver, Surigao
del Norte. On June 18, 2009, the MPSA was amended, increasing the contract area to
4,862.71 hectares. The MPSA is valid until July 28, 2033.

Under the MPSA, TMC pays the Government a 2% excise tax and a 5% royalty, as the
contract area is within the Surigao Mineral Reservation. The MPSA is valid for twenty-five
(25) years from issuance and renewable at the option of TMC, with approval from the
Government.

Geogen
On July 30, 2007, the Platinum Group Metals Corporation (PGMC) and the Government
entered into an MPSA, which allows PGMC to explore, develop and mine nickel ore within
the contract area covering 2,392 hectares in the Municipality of Dinapigue, Province of
Isabela.

On January 6, 2009, PGMC and Geogen executed a Deed of Assignment transferring to

Geogen all the rights, title and interest in and into the MPSA over the contract area.

Under the MPSA, Geogen shall pay the Government a 2% excise tax. The MPSA is valid for
twenty-five (25) years from issuance and renewable at the option of Geogen, with approval
from the Government.

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ii. Operating Agreements

TMC
La Salle
On December 18, 2006, TMC entered into an Operating Agreement with La Salle, the holder
of an Application for MPSA covering 6,824 hectares in the Municipality of Gigaquit, Surigao
del Norte. The Operating Agreement allows TMC to explore, develop and mine nickel ore
and limestone once the MPSA is approved, and obliges it to assist La Salle in obtaining the
MPSA and to comply with the terms thereof once issued.

The Operating Agreement specifies a royalty to La Salle of 5% for nickel ore and = P10.00 per
metric ton for limestone. Upon signing of the Operating Agreement, TMC made an advance
royalty payment of P=1.0 million repayable by deductions from future royalties at a rate of 25%
per year over a period of four (4) years. As at December 31, 2017, the MPSA remains
pending.

On January 11, 2016, TMC issued a Notice of Exclusion of the limestone deposit from the
Operating Agreement to La Salle. In 2017, 2016 and 2015, TMC has written-off the deferred
charges relating to the limestone development and exploration amounting to nil, =
P1.5 million
and =
P5.5 million, respectively (see Note 31).

Kepha
On February 14, 2007, TMC entered into an Operating Agreement with Kepha, the holder of
MPSA No. 284-2009-XII-SMR covering 6,980.75 hectares in the Municipality of Claver,
Surigao del Norte. The Operating Agreement allows TMC to explore, develop and mine
nickel ore and limestone and obliges it to comply with the terms of the MPSA.

The Operating Agreement specifies a royalty to Kepha of 5% for nickel ore and
=10.00 per metric ton for limestone. Upon signing of the Operating Agreement, TMC made
P
an advance royalty payment of US$1.0 million and = P6.3 million, repayable by deductions
from future royalties at a rate of 10% per year over a period of ten (10) years.

On June 19, 2009, the MPSA was issued to Kepha. Under the terms thereof, upon the start of
mining operations, TMC shall pay the Government a 2% excise tax and a 5% royalty, as the
contract area is within the Surigao Mineral Reservation. The MPSA is valid for twenty-five
(25) years from issuance and renewable at the option of Kepha, with approval from the
Government. There were no drilling activities related to the Kepha project in 2017 and 2016.

On February 13, 2017, the DENR issued a show cause order directing Kepha to explain why
its MPSA should not be cancelled for being allegedly within a watershed, which is protected
under the Philippine Mining Act of 1995 and other existing applicable laws, rules and
regulations. On February 24, 2017, Kepha replied to the letter stating that based on the MGB
Region XIII’s downloadable tenement map, the MPSA area is outside of any existing legally
proclaimed watershed.

Ludgoron
On August 28, 2007, TMC entered into an Operating Agreement with Ludgoron, the holder of
an MPSA with Government issued on July 27, 2007 covering a contract area of 3,248 hectares
in the Municipality of Carrascal, Surigao del Sur. The Operating Agreement allows TMC to
explore, develop and mine nickel ore and obliges it to comply with the terms of the MPSA.

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Under the MPSA, upon the start of mining operations, TMC shall pay the Government a
2% excise tax and a 5% royalty, as the contract area is within the Surigao Mineral
Reservation. The MPSA is valid for twenty-five (25) years from issuance and renewable at
the option of Ludgoron, with approval from the Government.

Under the Operating Agreement, TMC shall pay Ludgoron a royalty of 5%. Upon signing of
the Operating Agreement, TMC made an advance royalty payment of US$1.0 million,
repayable by deductions from future royalties at a rate of 10% per year over a period of ten
(10) years. In 2009, an additional advances against royalties amounting to P
=10.0 million was
made in order to allow Ludgoron to settle a claims conflict.

On October 10, 2014, TMC rescinded and terminated the Operating Agreement with
Ludgoron. Ludgoron is obliged to return to TMC the amount of = P66.8 million which
represent advances to claimowners. Ludgoron already paid TMC an amount of P =10.0 million
and will pay additional P
=23.4 million upon approval of MGB of the transfer of the Operating
Agreement to Kafugan Mining Incorporated. The remaining balance will be assumed and
settled by Kepha as its own valid and legal obligation in due time.

On January 20, 2016, Ludgoron paid an additional P

=23.4 million in relation to the termination
of the Operating Agreement with TMC.

CMC
East Coast
On November 19, 1997, CMC entered into a Memorandum of Agreement (MOA) with East
Coast, the holder of an MPSA with the Government issued on the same date covering a
contract area of 697.05 hectares in the Municipality of Cagdianao, Dinagat Islands. The MOA
allows CMC to explore, develop and mine nickel ore and obliges it to comply with the terms
of the MPSA.

The MOA expired on November 19, 2007 and was renewed for a period of ten (10) years. In
consideration, East Coast was paid =
P100.0 million upon signing of the extension which was
recorded as advances to claimowners, repayable over a ten (10) year period at a rate of
=
P10.0 million per year. The MPSA is valid for twenty-five (25) years from issuance and
renewable at the option of East Coast, with approval from the Government.

Under the MPSA, CMC pays the Government a 2% excise tax and a 5% royalty, as the
contract area is within the Surigao Mineral Reservation.

On July 29, 2013, East Coast and CMC agreed to reduce for one (1) year period the marketing
and royalty fees. Royalty payment to East Coast was reduced from 7% (net of withholding
taxes) to 5% during the period. Advances against future royalties, to which the royalty
payment shall be credited was also reduced from =
P10.0 million per year to P=3.6 million and
=6.4 million in 2013 and 2014, respectively. The repayment of advances at =
P P10.0 million per
year resumed in 2015 up to 2018.

Further, on December 18, 2015, CMC and East Coast executed a Supplemental Agreement to
provide for the automatic renewal of the term of the MOA for another twenty-five (25) years
after its expiration, or from 2022 to 2047. The MOA has not been terminated and continues to
be in full force and effect subject to the supplemental terms agreed by CMC and East Coast.
In consideration of the new term as well as the other conditions contained in the Supplemental

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Agreement, CMC agreed to lend East Coast a loan of up to P =1,000.0 million upon fulfillment
of certain conditions and pay additional royalties amounting to P=150.0 million (see Note 39a).
Thereafter, CMC shall pay East Coast commission and royalties as follows:
∂ Commission equivalent to 3.5% on the gross sales amount of all nickel ore;
∂ Royalties equivalent to either 7% or 8.75% on the gross sales amount of all nickel ore
depending on the monthly average LME nickel settlement price; and
∂ Additional royalty ranging from = P10.0 million to =
P50.0 million depending on CMC’s
audited net income after tax less the additional royalty amount.

The commission expense related to East Coast that is reported under “Marketing” amounted to
=78.7 million, P
P =74.6 million and =
P98.6 million in 2017, 2016 and 2015, respectively.

BOA Exploration Agreement

On October 12, 2004, CMC executed a MOA with Norweah Metals and Minerals Company,
Inc. (Norweah) for the exclusive rights to explore, develop, exploit and operate the mineral
property subject of MPSA No. 241-2007 covering an area of 226.0235 hectares situated in
Boa, Municipality of Cagdianao, Province of Dinagat Islands, Surigao del Norte. The MOA is
effective for a ten (10) year period commencing on July 12, 2007, the date the MPSA was
approved.

On October 5, 2016, CMC and Norweah entered into a Mutual Rescission of the MOA
wherein the parties agreed to free each other from any and all of their respective obligations
under the said MOA effective August 31, 2016. As a result, deferred mine exploration costs
of =
P5.8 million (P
=5.0 million of which was already provided with an allowance for impairment
losses) was written off resulting in a loss of =
P0.8 million. Further, advances to claimowners
related to the MOA amounting to = P5.4 million was also written off (see Note 31).

Geogen
Geogen and NiHAO Mineral Resources International Inc. (NiHAO) entered into an Operating
Agreement on June 13, 2012, under which NiHAO shall have the exclusive right to explore,
operate, mine, develop and process minerals found within Geogen’s mineral property.

Pursuant to the agreement, Geogen shall pay NiHAO an amount equivalent to 90% of the
invoice value of the nickel ore sold by Geogen to third parties in consideration of the services
to be performed by NiHAO. This agreement superseded the General Contractor Agreement
entered into by NIHAO with Geogen on March 5, 2012. The General Contractor Agreement
was executed to appoint NiHAO as Geogen’s general contractor for the Isabela Nickel Project.

In connection to the acquisition of Geogen by NAC, NiHAO’s operating rights over the
Isabela Nickel Project will be converted into preferred shares of Geogen, which shares shall be
entitled to dividends corresponding to 20% of operating income, net of income tax, subject to
Shareholder’s Agreement to be executed between NiHAO and Geogen. As at
December 31, 2017, the Shareholder’s Agreement is not yet executed.

f. Loan Guarantee/Substitution Agreement

RTN
Under a loan guarantee service agreement dated October 22, 2002 between RTN and SMM,
the latter agreed to satisfy RTN’s CBNC loan obligations in consideration of the payment by

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RTN to SMM of an annual fee equal to 1% of the relevant outstanding amount.

The fee is payable every February 21 and August 20 of each year. In case of default, such
loan guarantee service agreement will be terminated and RTN shall provide loans to CBNC or
guarantee the repayment of CBNC’s loans payable. Failure to provide such loans or guarantee
shall be considered a default under the CBNC Stockholder Agreement. The loan guarantee
service agreement has ended last August 20, 2015 due to full payment of the related loan
obligation.

The loan guarantee service fee amounting to nil in 2017 and 2016 and P
=0.2 million in 2015 is
recorded under “Finance expenses” in the consolidated statements of income (see Note 30).

NAC
Under a loan guarantee/substitution agreement dated December 9, 2011 between the Parent
Company and SMM, the latter agreed to substitute for the Parent Company to make loans or
guarantee the repayment of THNC pursuant to the Stockholders Agreement dated
September 15, 2010.

In consideration of the loans and guarantee made by SMM, the Parent Company shall pay to
SMM an annual fee equal to 1% of the relevant outstanding amount, which is payable every
February 21 and August 21 of each year.

On January 26, 2015, December 18 and December 3, 2013, the Parent Company and SMM
entered into another loan guarantee/substitution agreement with respect to the new loan
agreement made and entered by THNC and SMM on August 4, 2014, December 3 and
January 31, 2013, respectively. The annual fee is also equal to 1% of the relevant outstanding
amount, which is payable every March 21 and September 21 of each year.

In case of default, such loan guarantee/substitution agreements will be terminated and the
Parent Company shall provide loans to THNC or guarantee the repayment of THNC’s loans
payable. Failure to provide such loans or guarantee shall be considered a default under the
Stockholders’ Agreement.

The loan guarantee service fee amounting to P=66.7 million, P

=100.0 million and P
=124.0 million
in 2017, 2016 and 2015, respectively, is recorded under “Finance expenses” in the
consolidated statements of income (see Note 30).

g. Power Supply Agreements (PSAs)

Surigao Del Norte Electric Cooperative, Inc. (SURNECO)

On October 31, 2013, the Parent Company and SURNECO signed a fifteen (15) year PSA.
Under the terms of the PSA, the Parent Company has agreed to construct, operate, and
maintain a 10 MW bunker-fired diesel power station under build-operate-transfer scheme and
to supply electricity to SURNECO.

The total estimated cost to construct the 10 MW bunker-fired diesel power station is about
=1,000.0 million, which was appropriated from its retained earnings (see Note 18).
P

The power plant underwent endurance test and commissioning from September 26 to
October 12, 2016 to determine its readiness to operate and dispatch power to SURNECO
through the grid’s 69KV power system. Minor modifications were identified and incorporated

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into the plant design. The impact of the earthquake in February 2017 in Surigao City partially
affected the installation at the connection asset, hence, repairs were done. The power plant
was finally re-connected to the grid in April 2017 and is awaiting for the Certificate of
Compliance (COC) from the ERC.

However, while the application for COC is on process, ERC issued the PAO for six months
from July 10, 2017 to January 9, 2018 and subsequently extended for another six months from
January 10, 2018 to July 9, 2018.

As of this date, negotiation as to the date of commercial operations is ongoing.

Total income from and cost of power generation during testing and commissioning period
amounted to =P6.6 million and =
P18.2 million, respectively, in 2016 and nil in 2017 and 2015
(see Note 31).

Palawan Electric Cooperative (PALECO)

Bunker Supply
In July 2015, EPI and PALECO entered into a PSA for the supply of electricity, which will be
generated from modular and land-based bunker-fired power stations, collectively the “Bunker
Power Stations”, with a contracted capacity of 15 MW up to 25 MW.

Under the PSA, EPI shall design, develop, construct, complete, test and commission, operate
and maintain the Bunker Power Stations, as well as all activities related or incidental thereto.
Commencing on the completion date and continuing up to the 20th year from effective date, as
defined in the PSA, PALECO shall pay EPI an amount equal to the summation of the Bunker
Power Costs of the Generating Units plus Reserve Power Costs, plus any VAT and any other
applicable taxes, fees, and charges. PALECO shall also pay EPI a payment security, as
defined in the PSA. As at December 31, 2017, construction of the sub-transmission facility
has yet to be approved by the ERC.

Solar Supply
In 2015, EPI entered in a PSA with PALECO for the construction and development of a
10 MW AC Solar Photovoltaic Power Station (the “Solar PV Power Station”). Under the
PSA, EPI shall design, engineer, develop, construct, complete, test, commission, finance,
operate and maintain the Solar PV Power Station and all activities related or incidental thereto
of PALECO. All costs in connection with the building of the Solar PV Power Station shall be
borne by EPI, and shall be responsible for arranging all necessary funding including any
available preferential credit. During the commissioning date, PALECO shall put up, a
commissioning output at a rate equivalent to the adjusted operation and maintenance
component plus any VAT and any other applicable taxes, fees, and charges. Following the
commercial operation date and continuing up to the 20th year from effective date, as defined
in the PSA, PALECO shall pay EPI monthly fees equal to the capital recovery fee of the Solar
PV Power Station plus fixed operations and maintenance fee and any VAT and any other
applicable taxes. As at December 31, 2017, construction of the sub-transmission facility has
yet to be approved by the ERC.

Oriental Mindoro Electric Cooperative (ORMECO) and Occidental Mindoro Electric

Cooperative (OMECO)
In February 2014, EPI entered into separate PSAs with ORMECO and OMECO. Under the
terms of the PSAs, EPI is committed to sell and deliver approximately 20 MW each of
geothermal power from the project to ORMECO and OMECO for a period of twenty-five (25)

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years. The PSAs are renewable upon the agreement of the parties and approval of the ERC.

On November 3, 2014 and December 1, 2014, EPI was granted by the ERC of the Final
Authorities on the PSAs with OMECO and ORMECO, respectively. On November 24, 2014,
EPI and MGPC entered into a Deed of Assignment for the transfer of EPI’s rights and
obligations under GRESC No. 2010-02-013 to MGPC.

On December 5, 2014, EPI requested from the DOE the approval of the transfer of GRESC
No. 2010-02-013 or the Montelago Geothermal Energy Project to MGPC. On
February 16, 2016, the DOE approved the said transfer.

In connection with the assignment of the service contract to MGPC, the refundable deposits
pertaining to compliance with the PSAs with OMECO and ORMECO were transferred by EPI
to MGPC being the Project Entity.

TeaM (Philippines) Energy Corporation (TPEC)

On December 28, 2016, MEI entered into an interim supply agreement with TPEC for the
supply and delivery up to the Sual Plant Gate, the interim energy requirement of 3.0 MW at
100% load factor for MEI and to its contestable customers. MEI shall pay the amount billed
on a monthly basis. The contract is from February 26, 2017 until February 25, 2019. On
February 6, 2017, TPEC agreed to a reduction of contract capacity from 3.0 MW to 1.5 MW,
subject to the payment of unwinding costs in the amount of $53,000 or = P2.6 million. MEI
purchased power from TPEC amounting to = P21.4 million in 2017 and nil in 2016 and 2015
which was wheeled and conveyed to the facilities of the MEI’s customers (see Note 23).

h. Service Contracts

Solar Energy Service Contract No. 2015-01-099

On January 20, 2015, EPI entered into a SESC No. 2015-01-099 with the DOE which grant
EPI the right to explore, develop and utilize the solar energy resources within the contract area
of 324 hectares in the province of Pili, Camarines Sur.

Under the SESC, EPI assumes all the technical and financial risks without any guarantee from
the Philippine Government and shall not be entitled to reimbursement for any expense
incurred in connection with the SESC.

The SESC carries a non-extendible two (2) year period of pre-development stage, which
involves the preliminary assessment and feasibility study. The SESC shall remain in force for
the remainder of twenty-five (25) years from date of effectivity if the solar energy resources
are discovered to be in commercial quantities. If EPI has not been in default of any material
obligations under the SESC, the DOE may grant EPI an extension of the SESC for another
twenty-five (25) years. The full recovery of the project development costs incurred in
connection with the SESC is dependent upon the discovery of solar energy resources in
commercial quantities from the contract area and the success of future development thereof.
EPI has not yet started the exploration and pre-development activities.

Solar Energy Service Contract No. 2013-10-039

On October 31, 2013, Jobin entered into a SESC with the DOE. The SESC covers an area
of approximately 2,997 hectares in the municipalities of Morong and Hermosa, in the province
of Bataan. The SESC is for a period of twenty-five (25) years, inclusive of a two (2) year pre-

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development stage, and renewable for another twenty-five (25) years. The government share
under the SESC shall be 1% of the gross income from the sale of electricity generated from
the solar energy operations.

On August 28, 2015, Jobin was granted a Certificate of Confirmation of Commerciality by the
DOE for its 100.44 MW Sta. Rita Solar Power Project located in Mt. Sta Rita, SBFZ. The
certificate converts the project’s SESC from exploration/pre-development stage to the
development/commercial stage.

On March 11, 2016, Jobin’s Certificate of Confirmation of Commerciality originally rated for
the 100.44 MW was amended by DOE to 7.14 MW and 92.86 MW Sta. Rita Solar Power
Project Phase I and II, respectively.

Wind Energy Service Contract No. 2013-10-062

On October 31, 2013, Jobin entered into a WESC with the DOE. The WESC covers an area
of approximately 2,997 hectares in the municipalities of Morong and Hermosa, in the province
of Bataan. The WESC is for a period of twenty-five (25) years, inclusive of a three (3) year
pre-development stage, and renewable for another twenty-five (25) years. The government
share under the WESC shall be 1% of the gross income from the sale of electricity in the wind
project.

Geothermal Renewable Energy Service Contract No. 2014-02-054

GRESC No. 2010-02-013, which covers an approximate area of 3,914 hectares in the three
barangays of Montelago, Montemayor and Melgar-B in Oriental Mindoro, involves the
development of geothermal well clusters and a power plant. The steam extracted from the
geothermal wells will power a geothermal power station with an output capacity of at least
20 MW. Once completed, the addition of geothermal power into the present mix of Mindoro’s
electricity sources will have a stabilizing effect on the grid where the entire island is located.

The Project is in the exploration stage as at December 31, 2017.

As RE Developer, EPI undertakes to provide financial, technical, or other forms of assistance

with the DOE, and agrees to furnish the necessary services, technology, and financing for the
geothermal operations. EPI shall assume all financial risks such that if no geothermal
resources in commercial quantity is discovered and produced, EPI shall not be entitled to
reimbursement for any expenses incurred in connection with the GRESC.

Certificate of Registration No. 2014-02-054 shall remain in force for the remainder of twenty-
five (25) years from date of effectivity if geothermal resources in commercial quantity are
discovered during the pre-development stage, or any extension thereof. Moreover, if EPI has
not been in default in its obligations under the GRESC, the DOE may grant an additional
extension of twenty-five (25) years, provided that the total term is not to exceed fifty (50)
years from the date of effectivity.

On November 24, 2014, EPI and MGPC entered into a Deed of Assignment for the
assignment of EPI’s rights and obligations under the GRESC to MGPC. On
December 5, 2014, EPI applied with the DOE to transfer the GRESC to MGPC. The DOE
approved EPI’s application on February 16, 2016 under Certificate of Registration No. 2016-
02-060.

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Geothermal Renewable Energy Service Contract No. 2010-02-010

By virtue of RA 9513 known as the Renewable Energy Act of 2008, on February 1, 2010, the
DOE issued to BGI GRESC No. 2010-02-010, converting its Geothermal Services Contract
(GSC-09) issued on July 10, 2008 for the exploration, development and exploitation of
geothermal resources covering the geothermal field in Biliran Province (previously a
municipality of Leyte). By virtue of such agreement, BGI is entitled to enjoy an income tax
holiday for a period of seven (7) years from the start of its commercial operation, duty free
importation of machinery for ten (10) years, and 0% VAT, among others.

Geothermal Renewable Energy Service Contract No. 2017-03-056

This GRESC is a spin-off of the above BGI GRESC, issued by the DOE, and delineates the
northern area of the island province of Biliran as a separate BGI exclusive development zone with
a greenfield status.

i. Sub-transmission Service Agreement (SSA) with PALECO

In 2015, EPI entered into a SSA with PALECO for the installation of 69kV sub-transmission
facilities and associated components (substations), and the connection of said facilities to
PALECO’s distribution system for the delivery of reliable power supply to the municipalities
of El Nido, Taytay, San Vicente and Roxas (the “Municipalities”). Under the SSA, EPI shall
develop, design, construct, install, test and commission, and finance the sub-transmission lines
and substations in the Municipalities. Commencing on the completion date and continuing up
to the 20th year from effective date, as defined in the SSA, PALECO shall pay monthly fees
as defined in the SSA, plus any VAT and any other applicable taxes, fees and charges.
PALECO shall also pay EPI a payment security equivalent to one month fee, which shall be in
the form of a thirty (30)-day revolving letter of credit from a financial institution and with a
maturity of three hundred sixty five (365) days. As at December 31, 2017, ERC approval of
the sub-transmission facility has not yet been acquired.

j. Assignment of GRESC from Constellation Energy Corp. (CEC) to EPI

On January 18, 2013, EPI entered into a MOA with CEC wherein the parties agreed that the
former, eventually through a Project Company, shall develop and undertake the 20 MW
Geothermal Power Plant Project (Project) initially developed by CEC by virtue of the
GRESC No. 2010-02-013 granted by the DOE. On the same date, the parties entered into a
Deed of Assignment for the assignment of CEC’s rights and obligations under the GRESC to
EPI.

In compliance with provisions of the MOA and Deed of Assignment:

∂ On January 25, 2013, EPI applied with the DOE to officially register EPI as RE Developer
and effectively recognize EPI’s ownership of the GRESC. The DOE approved EPI’s
application on February 14, 2014.
∂ On February 3, 2014, EPI was awarded the bid from and has signed the PSA with
ORMECO. In the same period, the amount of US$750,000 was paid to CEC.
∂ On November 3, 2014 and December 1, 2014, EPI was granted by the ERC Final
Authority on the PSAs with OMECO and ORMECO, respectively. However, EPI filed a
Motion because certain terms are not acceptable to EPI. As at December 31, 2017, the
Motion is still pending with the ERC.
∂ On May 7, 2014, EPI incorporated MGPC as the Project Company.
∂ On September 21, 2015, EPI made an additional advance payment of US$350,000 to CEC
and the remaining balance as at December 31, 2016 is US$1,400,000.

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∂ On June 23, 2017, EPI, MGPC and CEC executed a MOA transferring to MGPC the
obligation to pay the fees to CEC. Accordingly, of the remaining amount of
US$1,400,000, MGPC paid US$525,000 to CEC in 2017 and the balance of US$875,000
remains unpaid as at December 31, 2017.

k. Participation and Shareholder’s Agreement

In May 2011, the Parent Company and SMM signed a Participation and Shareholder’s
Agreement containing terms of SMM’s expected equity participation in CExCI. Under the
terms of the Agreement, SMM will invest US$1.5 million in CExCI for 25% equity. Once
such funds have been exhausted, SMM has the option to invest US$2.8 million for an
additional 15% equity which would bring its total equity in CExCI to 40%. SMM did not
exercise its option to make the additional investment and the said agreement was terminated.

CExCI has identified a new property for exploration and development in the province of
Zambales under Newminco, which is prospective for gold and copper. In relation to this,
SMM will put up an additional US$2.8 million to increase its ownership from 25% to 40%.

On November 24, 2015, the shareholders of CExCI agreed to enter into a new Participation
and Shareholder’s Agreement to set out the rights and obligations of the shareholders in
relation to the conduct of the business of CExCI. The new agreement also causes CExCI to
convert the existing advances from shareholders amounting to P =37.2 million into equity, based
on the initial equity proportion of shareholders, by issuing shares out of the unissued
authorized capital stock of CExCI at a premium. CExCI has filed the application for the
conversion of advances into equity with the SEC. As at December 31, 2017, CExCI is still
waiting for the SEC’s approval of the conversion of advances into equity.

On December 18, 2015, the BOD of CExCI approved the increase in authorized capital stock
of the latter. Upon approval of the SEC of the application for increase in authorized capital
stock of CExCI, the additional investment of SMM amounting to US$2.8 million, which is
equivalent to =P131.9 million, will be converted into equity. After the conversion, the Parent
Company and SMM’s equity in CExCI shall be 57% and 40%, respectively.

l. Marketing Agreement with Mitsubishi

RTN, TMC and HMC entered into a Marketing Agreement with Mitsubishi, wherein the latter
will provide the services set forth below:
a) To use its reasonable endeavors in collecting, studying and analyzing the market
information related to nickel ore, iron ore, nickel pig iron, and stainless steel;
b) To periodically report market information defined in the marketing agreement;
c) To make efforts to introduce customers to RTN, TMC and HMC and provide support to
the Group in negotiating the price and terms and conditions of sales contracts of the
products by and between the Group and customers; and
d) To monitor and assess trends of customers and support RTN, TMC and HMC to create
an effective pricing strategy and marketing plan.

Marketing fees of 3.5% shall be charged to RTN, TMC and HMC based on the total amount
of revenue on free-on-board price stated in the invoices issued by RTN, TMC and HMC to
each customer.

Marketing fees charged by Mitsubishi amounted to P =17.8 million, =

P21.3 million and
=31.6 million in 2017, 2016 and 2015, respectively.
P

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m. Lease Agreements

Lease of Project Area from SBMA

On April 29, 2015, Jobin entered into a fifty (50) year lease agreement with SBMA for the use
of the 800 hectares project area of the solar and wind projects at Mt. Sta. Rita in Subic on a
monthly lease payment amounting to = P34,000 per MW installed on the leased area based on
the allocation approved by the DOE.

Jobin also agreed to various investment and social commitments as follows:

∂ infuse an investment at around US$200.0 million on the leased areas in the form of the
lessee’s machineries, equipment, parts, construction, labor and supplies within three (3)
years from approval of capacity by the DOE or from October 29, 2015.
∂ introduce developments on the leased areas based on the annual work program
approved by DOE.
∂ install utility post for the transmission lines from the leased areas to service substation of
National Commission for Indigenous Peoples (NCIP) in coordination with Subic
Enerzone Corp.
∂ compensate the Indigenous Cultural Community of Aeta for its share amounting to 5% of
the monthly rental per MW installed by the lessee.
∂ build an access road from the leased area to the public road and renewable energy park for
education and tourism.

On June 9, 2016, the agreement was amended and additional terms were added such as upon
execution of member/affidavit of waiver and quitclaim of trees planted in the leased property,
Jobin shall advance the amount of ₱7.02 million as compensation for the trees planted by the
farmers/members of the Mabiga Community Farmers Association Inc. (MCFAI) within the
initial 256 hectares of land in the leased property affected by the wind and solar project,
wherein the amount paid in advance shall be considered as advanced rental payment and shall
be deducted from Jobin’s rental obligation in the future.

On March 21, 2017, the agreement was amended and additional conditions were added such
as upon execution of member/affidavit of waiver and quitclaim of trees planted in the leased
property, Jobin shall advance the amount of ₱2.7 million as compensation for the trees planted
by the farmers/members of the MCFAI occupying the six (6) farm lots with a total area of
71.45 hectares in the leased property affected by the solar and wind project, wherein the said
amount paid shall be considered advanced rental payment and shall be deducted from its rental
obligation in the future

Lease of NGCP Facility

On September 18, 2015, Jobin entered into a fifty (50) year lease agreement with SBMA for
the use of a 280 square meter (sq. m.) building and 2,300 sq. m. lot located near the NGCP
Facility, Subic Gateway Park, SBFZ on a monthly rental of ₱0.03 million and ₱0.22 million,
respectively.

The lease agreement are also subject to the following terms and condition:
∂ in addition to the monthly rental, Jobin shall pay 5% of the appraised value of the leased
property as share of the Aeta Community for areas covered by Certificate of Ancestral
Domain Title;
∂ Jobin is given a grace period of two (2) years (free of rent) between the period
September 12, 2015 to September 11, 2017; and

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∂ the lease agreement is subject to a 6% percent annual escalation beginning on the

second year of the lease and imposable annually thereafter.

The future minimum rent payable under non-cancellable operating lease are as follows:

2017 2016
One (1) year P
=3,109 =1,016
P
After one (1) year but not more than five (5) years 18,578 17,527
More than five (5) years 759,365 763,525
P
=781,052 =782,068
P

Lease Agreement with THNC

On October 31, 2013, TMC and THNC executed a lease agreement wherein TMC will lease
the land within the TSEZ to the lessee. The TSEZ leased area of approximately 675 hectares
is located at Barangays Taganito and Hayanggabon, Claver, Surigao del Norte. The duration
of the lease agreement shall be for a period of twenty (20) years starting January 1, 2013,
however, rental rate shall be annually agreed by both parties. TMC’s rental income from the
said lease amounted to P=6.7 million in 2017, 2016 and 2015 (see Notes 31 and 34).

In the above lease agreement, it was agreed by TMC and THNC that the option fee of
=83.8 million received in 2010 shall be treated as advance rental and deducted from the annual
P
rental fee. The same shall be equally applied to each year of the lease term or P
=4.2 million
each year of the twenty (20) year lease term.

As at December 31, 2017 and 2016, the carrying value of deferred income - net of current
portion amounted to =
P58.7 million and =
P62.8 million, respectively.

Lease Contract with the DENR

TMC is a party to a lease contract dated April 10, 2003 with the DENR over a tract of
foreshore land located at the Taganito mine comprising an area of approximately
12,000 sq. m. The foreshore lease has a term of twenty-five (25) years from the date of issue,
unless terminated earlier. The DENR may renew the foreshore lease for another twenty-five
(25) years, at its option. In accordance with the foreshore lease, TMC constructed permanent
improvements appropriate for the wharf to facilitate the barging of mine ore to customers’
vessels. Under the terms of the lease, if TMC uses or attempts to use the premises for other
purposes, all rights and interests, including the improvements, will be forfeited in favor of the
Government. Upon the termination of the lease or any extension, all improvements made by
TMC will become the property of the Government.

n. PEZA and Board of Investments (BOI) Registration

Registration with PEZA - TMC

On December 21, 2009, Presidential Proclamation No. 1966 was issued creating and
establishing the 680 hectare area situated in Taganito, Municipality of Claver, Province of
Surigao Del Norte to be known as TSEZ. TMC is a PEZA-registered operator/developer of
the economic zone as per Certificate of Registration No. EZ 10-01. The certificate of
registration was signed on January 7, 2010.

Pursuant to TMC’s registration with PEZA as an economic zone developer/operator, TMC is

entitled to certain incentives in accordance with the provisions of RA No. 7916, otherwise
known as “the Special Economic Zone Act of 1995”, as amended.

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Under PEZA Board Resolution No. 11-08 dated March 1, 2011, its directors approved TMC’s
application for extension of its existing TSEZ. On July 28, 2011, pursuant to the resolution,
the Government issued Proclamation No. 211 designating parcels of land with an aggregate
area of 7.5 hectares located at Barangay Taganito, municipality of Claver, Province of Surigao
del Norte, for inclusion to the existing TSEZ.

On January 23, 2013, PEZA issued a Letter of Authority No. 13-0426 allowing TMC to
allocate 1 hectare lot within the TSEZ located at Barangay Taganito, Claver, Surigao del Norte
as relocation site for the residents along Hayanggabon River, Barangay Hayanggabon, Claver,
Surigao del Norte.

On December 27, 2016, PEZA issued a certification entitling TMC qualification for the
purpose of VAT zero-rating of its transactions with local suppliers of goods, properties and
services and exemption from all national and local taxes and licenses except real property
taxes on land owned by TMC and those required to be paid under the MPSA dated
July 28, 2008. In lieu thereof, TMC shall pay 5% final tax on gross income. The certification
is valid from January 1 to December 31, 2017 and renewable annually, unless otherwise
revoked or suspended by PEZA prior to expiration of said period.

Registration with PEZA - RTN

On December 13, 2002, RTN registered with the PEZA as the developer/operator of Rio Tuba
Processing Zone, located in Barangay Rio Tuba, Municipality of Bataraza, Palawan. The
PEZA-registered activities are entitled to certain tax and nontax incentives. Starting 2003,
such activities are already subject to 5% tax based on GIT in lieu of national and local taxes
and licenses except those required to be paid under the MPSA dated June 4, 1998 executed by
and between the DENR and RTN.

Registration with SBMA - Jobin

On January 20, 2011, Jobin was registered with the SBMA as a Subic Bay Freeport
Enterprise, primarily to promote and undertake research, development, utilization,
manufacture, sale, marketing, distribution and commercial application of new, renewable,
non-conventional and environment-friendly energy sources and system at Mt. Sta. Rita, SBFZ.
The SBMA-registered activities are entitled to certain tax and non-tax incentives. In lieu of
paying the regular taxes, Jobin pays 5% final tax on gross income earned, subject to the
condition that Jobin’s income from sources within the Custom Territory should not exceed
30% of its total income from all sources. Otherwise, Jobin shall be subject to the income tax
laws of the Custom Territory.

BOI Certifications
TMC, RTN, HMC and CMC received BOI certifications pursuant to Revenue Memorandum
Order No. 9-2000 entitled “Tax Treatment of Sales of Goods, Properties and Services made by
VAT-registered Suppliers to BOI registered Manufacturers-Exporters with 100% Export
Sales”. The certifications are valid from January 1 to December 31, 2017 and renewable
annually, unless sooner revoked by the BOI Governing Board.

On April 29, 2014, BGI was registered with the BOI in accordance with the provision of the
Omnibus Investment Code of 1987, as amended as a new RE developer of geothermal energy
resources.

On August 27, 2014, MGPC was registered with the BOI as a RE developer of geothermal
energy resources. The BOI has issued the certificate of registration of MGPC on
October 7, 2016.

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o. SPA with SMM

On September 15, 2016, the Parent Company and SMM executed a SPA wherein the latter
agreed to purchase the Parent Company’s 511,875,000 shares in THNC, representing 12.5%
of the outstanding capital stock of THNC, at a purchase price of US$42.0 million, which is
equivalent to =
P2,037.2 million (see Note 10). The sale and purchase of the shares was
consummated upon the written consent of Japan Bank for International Cooperation.

The SPA also provides that for a period of eighteen (18) years but no earlier than three (3)
years from the execution of the SPA, the Parent Company shall have the right to repurchase
from SMM such number of shares of THNC equivalent to 12.5% equity ownership therein at
the time when the right is exercised. The repurchase right can only be exercised once.
The Parent Company received the full payment of the purchase price on October 17, 2016.

MOA with SMM

Pursuant to the SPA with SMM, the Parent Company and SMM also agreed on
September 15, 2016 that effective July 1, 2016, their responsibility to provide loans and
guarantee obligations of THNC shall be 10% and 75%, respectively.

p. Retail Supply Contracts

Manta
On November 11, 2016, MEI entered into a contract with Manta for the supply of electricity to
meet Manta’s full power requirements for the NAC Tower. The contract is for a period of two
(2) years commencing on December 26, 2016, and may be extended upon mutual consent of
both parties. In each billing month throughout the term of the contract, Manta shall take and
pay MEI’s minimum energy quantity of 255,000 kilowatt-hour (kWh). Manta shall also pay a
security deposit amounting to P=2.9 million, which shall stand as security for the faithful and
proper compliance by Manta of its obligations under the contract. MEI recognized revenue
amounting to P=28.2 million, =P0.2 million and nil from this contract in 2017, 2016 and 2015,
respectively (see Note 34).

Lide Management Corporation (LMC)

On January 9, 2017, MEI entered into a contract with LMC for the supply of electricity to
meet its full electricity requirement. The contract is for a period of two (2) years commencing
on February 26, 2017, and may be extended upon mutual consent of both parties. The
contracted capacity is 2.5 MW during the term of the contract, of which 1.4 MW is under a
take-or-pay basis. MEI’s revenue from this contract amounted to P =35.0 million in 2017.

q. Other Agreements

Joint Undertaking with NCIP

On December 8, 2009, TMC and NCIP entered into a Joint Undertaking, which confirmed that
a 1% royalty on annual gross revenues of TMC is payable to the Mamanwa Tribe pursuant to
a MOA dated July 18, 2006 between TMC, the NCIP and the Tribe and a Certificate of
Ancestral Domain Title issued to the Tribe, within which area TMC’s mining operation is
located.

Agreement with Local Government Units

RTN together with RTN Foundation, Inc. and CBNC entered into Agreements with the
barangay councils and community residents covered in the SDMP as required by law and as
one of the conditions of ECC. The Agreement stipulated that RTN and CBNC should meet

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the changing needs and demands of the communities and shall submit the SDMP every five
(5) years to the MGB Region IV for approval. In addition, as part of the process of securing
the consent of affected communities, the program must be prepared in consultation and in
partnership with the project proponent and neighboring communities. On January 7, 2014,
SDMP No. MGB-IVB-2013-003 III was approved by the MGB covering the period of five (5)
years from 2014 to 2018. RTN incurred royalty payments to indigenous people amounting to
=45.9 million in 2017, =
P P41.3 million in 2016 and P
=50.6 million in 2015, in accordance with
the SDMP.

Suretyship Agreement with SBC

On August 4, 2015, the Parent Company entered into a Suretyship Agreement with SBC to
guarantee and warrant the prompt and full payment and performance of the guaranteed
obligations, including increases, renewals, roll-overs, extensions, restructuring, conversions,
amendments or novations, of EPI to SBC amounting to = P3,000.0 million. The agreement shall
remain in full force and effect until full payment of the guaranteed obligations is made.

In September 2017, EPI partially repaid its loan to SBC reducing the principal from
=3,000.0 million to P
P =1,500.0 million (see Note 15).

MOA with DOE

On December 3, 2014, the Parent Company and DOE agreed in accordance with RA 9136 or
the “Electric Power Industry Reform Act of 2001” which requires all energy generation
companies and/or energy resource developers to provide financial benefits equivalent to
=
P0.01/kilowatt-hour (kWh) of the total electricity sales of the generation facility to its
customer/off-taker to the region, province, city or municipality and barangay that host the
generation facility, and to establish the corresponding trust accounts which should be
administered by the DOE. The = P0.01 financial benefits shall be allocated as follows:
=0.005/kWh for Electrification Fund, =
P P0.0025/kWh for Development and Livelihood Fund
and P=0.0025/kWh for Reforestation, Watershed Management, Health and/or Environment
Enhancement Fund.

Investment Agreement
On August 24, 2015, an Investment Agreement was executed by and among BGI, OGI, BGHI,
EPI, and BHI. The said agreement sets out that BHI shall invest in BGI and its operations.
Accordingly, BGI shall increase its authorized capital stock by 1,845,000 common shares,
with par value of =
P1 per share, and BHI shall subscribe to the said increased authorized capital
stock. However, before effecting the said agreement, BGI shall first undergo quasi-
reorganization to apply its additional paid-in capital against its deficit and to convert all its
issued and outstanding preferred stock into common stock and BGHI shall purchase from
Filtech Energy Drilling Corporation (FedCo) the 738,000 common shares of FedCo
representing 60% of the total issued capital stock of BGI. In addition, BGHI and BHI shall
agree that they shall each maintain their respective shareholding percentages in BGI’s equity
capital at 40% and 60%, respectively, of the outstanding capital stock of BGI, unless
otherwise agreed in writing.

On October 17, 2015, the BOD of BGI approved the increase in its authorized capital stock
from =P1,230,000, divided into 738,000 common shares and 492,000 preferred share each both
with par value of =
P1 per share, to =
P3,075,000, divided into 2,583,000 common shares and
492,000 preferred shares both with par value of P
=1 per share. The increase in authorized
capital stock was approved by the Philippine SEC on December 17, 2015.

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On October 22, 2015, 1,845,000 common shares were subscribed to and paid by BHI at par
value following the increase in the authorized capital stock. With the change in the ownership
structure, BHI became the immediate parent of BGI.

On March 2, 2016, FedCo sold 737,997 common stock to BGHI.

On February 28, 2017, SEC approved the application of BGI for the reclassification of its
preferred shares into common shares.

Distribution Wheeling Service Agreements (DWSA)

MEI entered into DWSAs with Meralco and LEYECO V on November 14, 2016 and
February 3, 2017, respectively, for the conveyance of electricity through Meralco’s and
LEYECO V’s distribution systems in order to meet the power requirements of the facilities of
Manta and LMC, respectively.

Based on the agreements, MEI shall pass on all applicable distribution service and wheeling
charges, transmission and ancillary charges, taxes and others charged as billed by Meralco and
LEYECO V to MEI. The sale of power includes passed-on distribution and transmission
charges amounting to =P19.5 million in 2017 and nil in 2016 and 2015 (see Note 23).

Market Participation Agreement

On December 5, 2016, MEI entered into a market participation agreement with Philippine
Electricity Market Corporation (PEMC) to be a member of the WESM. With this agreement,
MEI will be able to purchase through the WESM in case its contracted suppliers fail to deliver
sufficient capacity. MEI purchased power from the WESM amounting to = P9.9 million,
=
P0.1 million and nil in 2017, 2016 and 2015, respectively, which was wheeled and conveyed
to the facilities of MEI’s customers.

40. Events after the End of the Financial Reporting Period

Dividend Declaration
On March 14, 2018, the Parent Company’s BOD declared cash dividends amounting to P =0.12 per
share to stockholders of record as at March 28, 2018 which will be paid on April 10, 2018.

TRAIN
The TRAIN Act was signed into law on December 19, 2017 and took effect January 1, 2018,
making the new tax law enacted as at the end of the financial reporting period. Although the
TRAIN changes existing tax law and includes several provisions that will generally affect
businesses on a prospective basis, the management assessed that the same will not have any
significant impact on the consolidated financial statement balances as of the end of the financial
reporting period. The amendments made on Section 151 of Tax Code which pertain to the
increase in excise tax rate from 2% to 4% on all metallic minerals based on the market value of the
gross output thereof at the time of the removal are expected to have significant impact on the
consolidated financial statement balances of the Group in the succeeding financial reporting
periods.

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41. Supplemental Disclosure to Consolidated Statements of Cash Flows

Noncash Investing Activities

2017 2016
Application of 50% commission and royalties
payable, net of withholding taxes and
interest, against loan receivable from East
Coast (see Note 5) P
=68,715 =71,325
P
Adjustment for capitalized cost of mine
rehabilitation and decommissioning
(see Notes 9 and 16) 69,820 263,616

Changes in Liabilities Arising from Financing Activities

Foreign
January 1, exchange December 31,
2017 Cash flows movement Reclassification Others 2017
Current
Withholding taxes payable
(included under trade
and other payables) =39,458
P (P
=37,313) =
P– =
P– =73,906
P =76,051
P
Interest payable, gross of
final withholding tax
(see Note 14) 30,511 (188,840) (9,195) – 179,057 11,533
Dividends payable, gross
of final withholding tax
(see Note 14) 325,187 (1,763,925) – – 2,075,188 636,450
Short-term debt
(see Note 15) 180,000 (180,000) – – – –
Current portion of:
Long-term debts
(see Note 15) 148,274 (128,463) (3,069) 1,610,615 7,821 1,635,178
Long-term payable
(see Note 17) 5,000 (5,000) – 5,000 – 5,000

Noncurrent
Long-term debts
(see Note 15) 4,468,059 (1,500,000) (8,608) (1,610,615) 375 1,349,211
Deferred income 62,849 (4,190) – – – 58,659
Long-term payable
(see Note 17) 23,846 – – (5,000) 1,322 20,168
Total liabilities from
(used in) financing
activities =5,283,184
P (P
=3,807,731) (P
=20,872) =–
P =2,337,669
P =3,792,250
P

Others include the effect of accrual of dividends, including those that were not yet paid at year-
end, effect of accrued but not yet paid interest on interest-bearing loans, accretion of interest on
long-term payable, and amortization of debt issue cost.

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42. Business Segment Information

The Group’s operating businesses are organized and managed separately according to the nature
of the products and services provided, with each segment representing a strategic business unit
that offers different products and serves different markets.

The mining segment is engaged in the mining and exploration of nickel saprolite and limonite ore
and limestone.

The services segment is engaged in the chartering out of LCT, construction and rendering of
services to CBNC, THNC and other parties.

The power segment is engaged in power generation and exploration for geothermal resources.

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The Group’s identified reportable segments below are consistent with the segments reported to the BOD, which is the Chief Operating Decision Maker of the Group.

Financial information on the operation of the various business segments are as follows:

December 31, 2017

Mining Power Services

HMC CMC TMC RTN Geogen EPI NAC RTN/TMC HMC Others Eliminations Total
External customers = 2,326,086
P = 2,248,439
P = 5,728,026
P = 4,594,530
P =–
P = 212,152
P =–
P = 630,063
P P–
= =–
P =–
P = 15,739,296
P
Inter-segment revenues – – – – – – – – 3,976 550,635 (554,611) –
Total revenues (see Notes 34 and 39) 2,326,086 2,248,439 5,728,026 4,594,530 – 212,152 – 630,063 3,976 550,635 (554,611) 15,739,296
Cost of sale of ore 931,522 846,174 2,184,112 2,071,433 – – – – – – – 6,033,241
Cost of services – – – – – – – 351,339 – – – 351,339
Cost of power generation – – – – – 257,276 – – – – – 257,276
Shipping and loading costs 447,781 379,990 505,921 283,205 – – – – 9,513 – – 1,626,410
Excise taxes and royalties 162,826 344,781 458,242 137,837 – – – – – – – 1,103,686
Marketing 4,272 78,695 8,748 4,749 – – – – – – – 96,464
Segment operating earnings = 779,685
P = 598,799
P = 2,571,003
P = 2,097,306
P =–
P (P
= 45,124) =–
P = 278,724
P (P
= 5,537) = 550,635
P (P
= 554,611) = 6,270,880
P

General and administrative P

= 87,442 P
= 36,480 P
= 125,379 P
= 59,073 P
= 69,898 P
= 117,647 P
= 27,400 =
P– =
P– P
= 339,834 =
P– P
= 863,153
Finance income P
= 5,978 P
= 30,574 P
= 34,594 P
= 31,398 P
= 85 P
= 903 =
P– =
P– =
P– P
= 212,771 =
P– P
= 316,303
Finance expenses P
= 2,757 P
= 5,531 P
= 13,014 P
= 9,956 P
= 1,067 P
= 143,142 =
P– =
P– =
P– P
= 71,148 =
P– P
= 246,615
Provision for (benefit from) income tax P
= 146,220 P
= 140,563 P
= 721,040 P
= 611,662 P
= 15,258 (P
= 11,646) =
P– =
P– (P
= 2,854) P
= 116,613 =
P– P
= 1,736,856
Net income (loss) attributable to equity holders
of the parent P
= 500,093 P
= 416,018 P
= 1,328,377 P
= 1,019,140 (P
= 86,635) (P
= 193,171) (P
= 27,398) =
P– =
P– (P
= 185,656) =
P– P
= 2,770,768
Segment assets P
= 1,615,725 P
= 2,278,744 P
= 9,305,400 P
= 4,760,082 P
= 1,209,246 P
= 11,816,229 P
= 836,478 =
P– P
= 33,592 P
= 13,548,509 =
P– P
= 45,404,005
Deferred income tax assets 47,738 32,692 85,256 63,429 52,108 – – – – 51,871 – 333,094
Total assets = 1,663,463
P = 2,311,436
P = 9,390,656
P = 4,823,511
P = 1,261,354
P = 11,816,229
P = 836,478
P =–
P = 33,592
P = 13,600,380
P =–
P = 45,737,099
P

Segment liabilities P
= 264,974 P
= 386,564 P
= 2,221,117 P
= 1,004,573 P
= 121,480 P
= 7,340,591 P
= 7,790 =
P– =
P– P
= 404,948 =
P– P
= 11,752,037
Deferred income tax liabilities - net 3,839 5,542 15,412 218,451 193,679 112,826 – – 20,415 196,710 – 766,874
Total liabilities = 268,813
P = 392,106
P = 2,236,529
P = 1,223,024
P = 315,159
P = 7,453,417
P = 7,790
P =–
P = 20,415
P = 601,658
P =–
P = 12,518,911
P

Capital expenditures P
= 80,245 P
= 210,998 P
= 341,973 P
= 86,517 P
= 81,642 P
= 637,543 P
= 27,607 =
P– =
P– P
= 27,933 =
P– P
= 1,494,458
Depreciation, amortization and depletion P
= 265,899 P
= 150,875 P
= 549,083 P
= 310,915 P
= 7,866 P
= 161,027 P
= 2,472 =
P– P
= 9,513 P
= 22,395 =
P– P
= 1,480,045

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December 31, 2016

Mining Power Services

HMC CMC TMC RTN Geogen EPI NAC RTN/TMC HMC Others Eliminations Total
External customers P
=2,280,144 P
=2,131,692 P
=5,035,283 P
=4,127,264 =
P– P
=18,010 =
P– P
=530,274 =
P– =
P– =
P– P
=14,122,667
Inter-segment revenues – – – – – – – – 2,243 510,192 (512,435) –
Total revenues (see Notes 34 and 39) 2,280,144 2,131,692 5,035,283 4,127,264 – 18,010 – 530,274 2,243 510,192 (512,435) 14,122,667
Cost of sale of ore 930,548 764,478 2,051,128 2,161,095 – – – – – – – 5,907,249
Cost of services – – – – – – – 328,457 – – – 328,457
Cost of power generation – – – – – 38,295 – – – – – 38,295
Shipping and loading costs 533,574 361,964 634,714 293,297 – – – – – – – 1,823,549
Excise taxes and royalties 151,634 328,437 402,823 123,818 – – – – – – – 1,006,712
Marketing 8,380 74,574 12,915 – – – – – – – – 95,869
Segment operating earnings P
=656,008 P
=602,239 P
=1,933,703 P
=1,549,054 =
P– (P
= 20,285) =
P– P
=201,817 P
=2,243 P
=510,192 (P
= 512,435) P
=4,922,536

General and administrative P

=97,164 P
=29,505 P
=107,478 P
=67,041 P
=86,479 P
=148,510 =
P– =
P– =
P– P
=314,074 =
P– P
=850,251
Finance income P
=2,551 P
=31,573 P
=25,056 P
=14,333 P
=98 P
=1,873 =
P– =
P– =
P– P
=152,946 =
P– P
=228,430
Finance expenses P
=2,682 P
=5,707 P
=9,219 P
=5,542 =
P– P
=81,344 =
P– =
P– =
P– P
=115,439 =
P– P
=219,933
Provision for (benefit from) income tax P
=125,509 P
=157,175 P
=586,400 P
=447,992 (P
= 29,208) P
=32,930 =
P– =
P– (P
= 2,854) P
=131,534 =
P– P
=1,449,478
Net income (loss) attributable to equity holders
of the parent P
=431,102 P
=444,639 P
=1,051,393 P
=769,697 (P
= 57,839) (P
= 193,634) (P
= 11,671) =
P– =
P– (P
= 467,580) =
P– P
=1,966,107
Segment assets P
=1,642,678 P
=2,025,461 P
=9,316,316 P
=5,078,962 P
=1,056,496 P
=11,972,765 P
=795,102 =
P– P
=19,239 P
=13,074,445 =
P– P
=44,981,464
Deferred income tax assets 51,645 45,301 91,647 80,721 44,994 – – – – 55,744 – 370,052
Total assets P
=1,694,323 P
=2,070,762 P
=9,407,963 P
=5,159,683 P
=1,101,490 P
=11,972,765 P
=795,102 =
P– P
=19,239 P
=13,130,189 =
P– P
=45,351,516

Segment liabilities P
=263,564 P
=376,084 P
=2,121,770 P
=999,023 P
=68,006 P
=9,099,296 P
=1,111 =
P– =
P– P
=346,542 =
P– P
=13,275,396
Deferred income tax liabilities - net 13,165 18,608 56,071 287,323 171,342 124,801 – – 23,268 181,889 – 876,467
Total liabilities P
=276,729 P
=394,692 P
=2,177,841 P
=1,286,346 P
=239,348 P
=9,224,097 P
=1,111 =
P– P
=23,268 P
=528,431 =
P– P
=14,151,863

Capital expenditures P
=79,707 P
=65,344 P
=459,023 P
=155,350 P
=42,301 P
=2,418,621 P
=109,439 =
P– =
P– P
=19,965 =
P– P
=3,349,750
Depreciation, amortization and depletion P
=283,703 P
=132,653 P
=593,872 P
=415,237 P
=3,502 P
=64,337 P
=73 =
P– =
P– P
=21,892 =
P– P
=1,515,269

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December 31, 2015

Mining Power Services

HMC CMC TMC RTN Geogen EPI NAC RTN/TMC HMC Others Eliminations Total
External customers P
=2,314,823 P
=2,350,200 P
=5,069,801 P
=5,060,825 =
P– =
P– =
P– P
=635,997 =
P– =
P– =
P– P
=15,431,646
Inter-segment revenues – – – – – – – – 2,070 521,882 (523,952) –
Total revenues (see Notes 34 and 39) 2,314,823 2,350,200 5,069,801 5,060,825 – – – 635,997 2,070 521,882 (523,952) 15,431,646
Cost of sale of ore 896,657 720,815 2,063,434 2,598,342 – – – – – – – 6,279,248
Cost of services – – – – – – – – – 357,917 – 357,917
Shipping and loading costs 460,172 421,561 519,322 370,101 – – – – (13,213) – – 1,757,943
Excise taxes and royalties 162,037 370,157 405,584 151,825 – – – – – – – 1,089,603
Marketing 16,925 98,579 10,529 4,133 – – – – – – – 130,166
Segment operating earnings P
=779,032 P
=739,088 P
=2,070,932 P
=1,936,424 =
P– =
P– =
P– P
=635,997 P
=15,283 P
=163,965 (P
= 523,952) P
=5,816,769

General and administrative P

=144,602 P
=54,081 P
=146,846 P
=89,035 P
=18,786 P
=45,476 =
P– =
P– P
=904 P
=413,124 =
P– P
=912,854
Finance income P
=5,222 P
=9,261 P
=29,469 P
=15,942 P
=43 P
=425 =
P– =
P– =
P– P
=244,750 =
P– P
=305,112
Finance expenses P
=3,553 P
=5,893 P
=8,691 P
=5,080 =
P– P
=42,400 =
P– =
P– =
P– P
=113,508 =
P– P
=179,125
Provision for (benefit from) income tax P
=179,561 P
=205,122 P
=613,832 P
=577,027 (P
= 8,529) P
=7,618 =
P– =
P– (P
= 2,854) P
=95,509 =
P– P
=1,667,286
Net income (loss) attributable to equity holders
of the parent P
=544,067 P
=530,239 P
=1,088,960 P
=975,978 (P
= 12,152) (P
= 48,981) =
P– =
P– =
P– (P
= 1,042,968) =
P– P
=2,035,143
Segment assets P
=1,912,697 P
=2,151,931 P
=9,429,793 P
=4,703,869 P
=979,448 P
=8,781,557 P
=671,055 =
P– P
=87,074 P
=12,775,524 =
P– P
=41,492,948
Deferred income tax assets 52,899 20,708 61,957 16,926 8,549 – – – – 76,368 – 237,407
Total assets P
=1,965,596 P
=2,172,639 P
=9,491,750 P
=4,720,795 P
=987,997 P
=8,781,557 P
=671,055 =
P– P
=87,074 P
=12,851,892 =
P– P
=41,730,355

Segment liabilities P
=303,119 P
=327,646 P
=2,170,079 P
=829,079 P
=43,071 P
=7,590,638 =
P– =
P– =
P– P
=322,017 =
P– P
=11,585,649
Deferred income tax liabilities - net 9,088 2,113 21,911 306,581 164,262 92,009 – – 26,122 109,432 – 731,518
Total liabilities P
=312,207 P
=329,759 P
=2,191,990 P
=1,135,660 P
=207,333 P
=7,682,647 =
P– =
P– P
=26,122 P
=431,449 =
P– P
=12,317,167

Capital expenditures P
=370,825 P
=155,302 P
=1,013,364 P
=202,918 P
=12,378 P
=1,706,353 P
=450,191 =
P– =
P– P
=10,768 =
P– P
=3,922,099
Depreciation, amortization and depletion P
=224,263 P
=112,660 P
=565,772 P
=466,697 P
=638 P
=1,716 =
P– =
P– P
=9,513 P
=58,728 =
P– P
=1,439,987

Inter-segment revenues are eliminated upon consolidation.

*SGVFS027977*
 - 131 -

The Group has revenues from external customers as follows:

Country of Domicile 2017 2016 2015

China P
=9,391,331 =9,084,745
P =8,629,266
P
Local 3,867,539 2,635,127 3,238,705
Japan 2,480,426 2,333,894 3,292,681
Australia – 68,901 270,994
P
=15,739,296 =14,122,667
P =15,431,646
P

The revenue information above is based on the location of the customer.

Revenue from two key customers for the sale of ores amounted to =P8,059.0 million,
=7,248.4 million and =
P P5,569.5 million in 2017, 2016 and 2015, respectively.

*SGVFS027977*
 SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 December 14, 2015, valid until December 31, 2018
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-4 (Group A),
Philippines November 10, 2015, valid until November 9, 2018

INDEPENDENT AUDITOR’S REPORT

ON SUPPLEMENTARY SCHEDULES

The Board of Directors and Stockholders

Nickel Asia Corporation and Subsidiaries
28th Floor NAC Tower, 32nd Street
Bonifacio Global City, Taguig City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of Nickel Asia Corporation and its subsidiaries as at December 31, 2017 and 2016, and for
each of the three years in the period ended December 31, 2017 included in this Form 17-A, and have
issued our report thereon dated March 14, 2018. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The schedules listed in the Index
to the Consolidated Financial Statements and Supplementary Schedules are the responsibility of the
Parent Company’s management. These schedules are presented for purposes of complying with
Securities Regulation Code Rule 68, As Amended (2011) and are not part of the basic consolidated
financial statements. These schedules have been subjected to the auditing procedures applied in the audit
of the basic consolidated financial statements and, in our opinion, fairly state, in all material respects, the
information required to be set forth therein in relation to the basic consolidated financial statements taken
as a whole.

SYCIP GORRES VELAYO & CO.

Jaime F. del Rosario

Partner
CPA Certificate No. 56915
SEC Accreditation No. 0076-AR-4 (Group A),
May 1, 2016, valid until May 1, 2019
Tax Identification No. 102-096-009
BIR Accreditation No. 08-001998-72-2018,
February 14, 2018, valid until February 13, 2021
PTR No. 6621247, January 9, 2018, Makati City

March 14, 2018

*SGVFS027977*
A member firm of Ernst & Young Global Limited
NICKEL ASIA CORPORATION AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 2017

Schedule

Reconciliation of Retained Earnings Available for Dividend Declaration I

Schedule of All Effective Standards and Interpretations Under the PFRS II

Supplementary Schedules under Annex 68 - E III

A. Financial Assets

B. Amounts Receivable from Directors, Officers, Employees, Related

Parties and Principal Stockholders (Other than Affiliates)

C. Amounts Receivable from Related Parties which are Eliminated in

the Consolidated Financial Statements

D. Intangible Assets - Other Assets

E. Long-Term Debts

F. Indebtedness to Affiliates and Related Parties

(Short-term and Long-Term Debts with Related Companies)

G. Guarantees of Securities of Other Issuers

H. Capital Stock

A Map Showing the Relationships Between and Among the Company and its
Ultimate Parent Company, Middle Parent, Subsidiaries, Co-Subsidiaries
and Associates IV

Schedule Showing Financial Soundness V

 SCHEDULE I

NICKEL ASIA CORPORATION

RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR
DIVIDEND DECLARATION
PURSUANT TO SEC MEMORANDUM CIRCULAR NO.11
DECEMBER 31, 2017

Unappropriated retained earnings as at December 31, 2016, as reflected

in audited financial statements =11,264,658,713
P
Unrealized foreign exchange gains - net except those
attributable to cash and cash equivalents (180,659,290)
Amount of recognized deferred income tax asset that reduced the
amount of income tax expense and increased the net income and
retained earnings, until realized (42,042,767)
Unappropriated retained earnings, as adjusted to available for dividend
distribution, beginning 11,041,956,656
Add: Net income actually earned/realized during the period
Net income during the period closed to retained earnings 3,655,172,420
Less: Non-actual/unrealized income net of tax
Unrealized foreign exchange gains - net (except those
attributable to cash and cash equivalents) (1,458,226)

Net income actually earned during the period 3,653,714,194

Less: Dividend declarations during the period (608,738,316)
TOTAL RETAINED EARNINGS AVAILABLE FOR
DIVIDEND DISTRIBUTION AS AT DECEMBER 31, 2017 P
=14,086,932,534
das ds a

SCHEDULE II

NICKEL ASIA CORPORATION AND SUBSIDIARIES

TABULAR SCHEDULE OF EFFECTIVE STANDARDS
AND INTERPRETATIONS UNDER THE PFRS
PURSUANT TO SRC RULE 68, AS AMENDED
DECEMBER 31, 2017

List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs,

Philippine Accounting Standards (PASs) and Philippine Interpretations] effective as at
December 31, 2017:

Not
PHILIPPINE FINANCIAL REPORTING STANDARDS
Adopted/ Not
AND INTERPRETATIONS Adopted
Not Early Applicable
Effective as at December 31, 2017
Adopted
Framework for the Preparation and Presentation of Financial
Statements

Conceptual Framework Phase A: Objectives and qualitative
characteristics
PFRSs Practice Statement Management Commentary 
Philippine Financial Reporting Standards
PFRS 1 First-time Adoption of Philippine Financial Reporting

(Revised) Standards
Amendments to PFRS 1 and PAS 27: Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or 
Associate
Amendments to PFRS 1: Additional Exemptions for

First-time Adopters
Amendment to PFRS 1: Limited Exemption from
Comparative PFRS 7 Disclosures for First-time 
Adopters
Amendments to PFRS 1: Severe Hyperinflation and

Removal of Fixed Date for First-time Adopters
Amendments to PFRS 1: Government Loans 
PFRS 2 Share-based Payment 
Amendments to PFRS 2: Vesting Conditions and

Cancellations
Amendments to PFRS 2: Group Cash-settled Share-

based Payment Transactions
PFRS 3 Business Combinations

(Revised)
PFRS 4 Insurance Contracts 
Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts
PFRS 5 Non-current Assets Held for Sale and Discontinued

Operations
PFRS 6 Exploration for and Evaluation of Mineral Resources 
 -2-

Not
PHILIPPINE FINANCIAL REPORTING STANDARDS
Adopted/ Not
AND INTERPRETATIONS Adopted
Not Early Applicable
Effective as at December 31, 2017
Adopted
PFRS 7 Financial Instruments: Disclosures 
Amendments to PFRS 7: Transition 
Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets - Effective Date and Transition
Amendments to PFRS 7: Improving Disclosures about

Financial Instruments
Amendments to PFRS 7: Disclosures - Transfers of

Financial Assets
Amendments to PFRS 7: Disclosures - Offsetting

Financial Assets and Financial Liabilities
Amendments to PFRS 7: Mandatory Effective Date of

PFRS 9 and Transition Disclosures
PFRS 8 Operating Segments 
PFRS 9 Financial Instruments 
Amendments to PFRS 9: Mandatory Effective Date of

PFRS 9 and Transition Disclosures
PFRS 10 Consolidated Financial Statements 
PFRS 11 Joint Arrangements 
PFRS 12 Disclosure of Interests in Other Entities 
PFRS 13 Fair Value Measurement 
Philippine Accounting Standards
PAS 1 Presentation of Financial Statements 
(Revised)
Amendment to PAS 1: Capital Disclosures 
Amendments to PAS 32 and PAS 1: Puttable Financial

Instruments and Obligations Arising on Liquidation
Amendments to PAS 1: Presentation of Items of Other

Comprehensive Income
PAS 2 Inventories 
PAS 7 Statement of Cash Flows 
PAS 8 Accounting Policies, Changes in Accounting Estimates

and Errors
PAS 10 Events after the Balance Sheet Date 
PAS 11 Construction Contracts 
 -3-

Not
PHILIPPINE FINANCIAL REPORTING STANDARDS
Adopted/ Not
AND INTERPRETATIONS Adopted
Not Early Applicable
Effective as at December 31, 2017
Adopted
PAS 12 Income Taxes 
Amendment to PAS 12 - Deferred Tax: Recovery of

Underlying Assets
PAS 16 Property, Plant and Equipment 
PAS 17 Leases 
PAS 18 Revenue 
PAS 19 Employee Benefits

(Amended)
Amendments to PAS 19: Actuarial Gains and Losses,

Group Plans and Disclosures
Amendments to PAS 19: Defined Benefit Plans:

Employee Contributions
PAS 20 Accounting for Government Grants and Disclosure of

Government Assistance
PAS 21 The Effects of Changes in Foreign Exchange Rates 
Amendment: Net Investment in a Foreign Operation 
PAS 23 Borrowing Costs

(Revised)
PAS 24 Related Party Disclosures

(Revised)
PAS 26 Accounting and Reporting by Retirement Benefit Plans 
PAS 27 Separate Financial Statements

(Amended)
PAS 28 Investments in Associates and Joint Ventures

(Amended)
PAS 29 Financial Reporting in Hyperinflationary Economies 
PAS 31 Interests in Joint Ventures 
PAS 32 Financial Instruments: Disclosure and Presentation 
Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation 

Amendment to PAS 32: Classification of Rights Issues 

Amendments to PAS 32: Offsetting Financial Assets

and Financial Liabilities
PAS 33 Earnings per Share 
PAS 34 Interim Financial Reporting 
PAS 36 Impairment of Assets 
PAS 37 Provisions, Contingent Liabilities and Contingent

Assets
 -4-

Not
PHILIPPINE FINANCIAL REPORTING STANDARDS
Adopted/ Not
AND INTERPRETATIONS Adopted
Not Early Applicable
Effective as at December 31, 2017
Adopted
PAS 38 Intangible Assets 
PAS 39 Financial Instruments: Recognition and Measurement 
Amendments to PAS 39: Transition and Initial
Recognition of Financial Assets and Financial 
Liabilities
Amendments to PAS 39: Cash Flow Hedge Accounting

of Forecast Intragroup Transactions
Amendments to PAS 39: The Fair Value Option 
Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts
Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets - Effective Date and Transition
Amendments to Philippine Interpretation IFRIC 9 and

PAS 39: Embedded Derivatives
Amendment to PAS 39: Eligible Hedged Items 
PAS 40 Investment Property 
PAS 41 Agriculture 
Philippine Interpretations
IFRIC 1 Changes in Existing Decommissioning, Restoration

and Similar Liabilities
IFRIC 2 Members' Share in Co-operative Entities and Similar

Instruments
IFRIC 4 Determining Whether an Arrangement Contains a

Lease
IFRIC 5 Rights to Interests arising from Decommissioning,

Restoration and Environmental Rehabilitation Funds
IFRIC 6 Liabilities arising from Participating in a Specific

Market - Waste Electrical and Electronic Equipment
IFRIC 7 Applying the Restatement Approach under PAS 29

Financial Reporting in Hyperinflationary Economies
IFRIC 9 Reassessment of Embedded Derivatives 
Amendments to Philippine Interpretation IFRIC 9 and

PAS 39: Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment 
IFRIC 12 Service Concession Arrangements 
IFRIC 13 Customer Loyalty Programmes 
 -5-

Not
PHILIPPINE FINANCIAL REPORTING STANDARDS
Adopted/ Not
AND INTERPRETATIONS Adopted
Not Early Applicable
Effective as at December 31, 2017
Adopted
IFRIC 14 The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction
Amendments to Philippine Interpretations IFRIC 14,

Prepayments of a Minimum Funding Requirement
IFRIC 16 Hedges of a Net Investment in a Foreign Operation 
IFRIC 17 Distributions of Non-cash Assets to Owners 
IFRIC 18 Transfers of Assets from Customers 
IFRIC 19 Extinguishing Financial Liabilities with Equity

Instruments
IFRIC 20 Stripping Costs in the Production Phase of a Surface

Mine
SIC-7 Introduction of the Euro 
SIC-10 Government Assistance - No Specific Relation to

Operating Activities
SIC-12 Consolidation - Special Purpose Entities 
Amendment to SIC-12: Scope of SIC-12 
SIC-13 Jointly Controlled Entities - Non-Monetary

Contributions by Venturers
SIC-15 Operating Leases - Incentives 
SIC-25 Income Taxes - Changes in the Tax Status of an Entity

or its Shareholders
SIC-27 Evaluating the Substance of Transactions Involving the

Legal Form of a Lease
SIC-29 Service Concession Arrangements: Disclosures 
SIC-31 Revenue - Barter Transactions Involving Advertising

Services
Amendments to Philippine Interpretations IFRIC 14,

Prepayments of a Minimum Funding Requirement
SIC-32 Intangible Assets - Web Site Costs 

The Company has not early adopted any PFRSs, PAS and Philippine Interpretations effective
January 1, 2018 onwards.
das ds a

SCHEDULE III
NICKEL ASIA CORPORATION AND SUBSIDIARIES
Schedule A. Financial Assets
December 31, 2017

Number of Shares or Value Based on Market

Name of Issuing Entity and Principal Amount of Bonds Amount Shown in the Quotations at End of Income Received and
Description of Each Issue and Notes Statement of Financial Position Reporting Date Accrued

In Thousands

Cash on hand and with banks N/A P955,114

= P955,114
=
Cash under managed funds N/A 177,014 177,014 =137,499
P
Short-term cash investments N/A 8,513,804 8,513,804
Cash and cash equivalents 9,645,932 9,645,932 137,499

Trade N/A 619,731 619,731 –

Current portion of loan receivable N/A 94,203 94,203 2,914
Interest receivable N/A 53,619 53,619 –
Receivable from CBNC N/A 40,679 40,679 –
Amounts owed by related parties N/A 7,351 7,351 –
Others N/A 40,820 40,820 –
Trade and other receivables 856,403 856,403 2,914

(Forward)
 -2-
NICKEL ASIA CORPORATION AND SUBSIDIARIES
Schedule A. Financial Assets
December 31, 2017

Number of Shares or Value Based on Market

Name of Issuing Entity and Principal Amount of Bonds Amount Shown in the Quotations at End of Income Received and
Description of Each Issue and Notes Statement of Financial Position Reporting Date Accrued

In Thousands
Manila Golf and Country Club 1 share P42,000
= P42,000
= =
P–
Wack-Wack Golf and Country Club 1 share 24,000 24,000 –
Valle Verde Country Club 1 share 120 120 –
Camp John Hay Country Club 1 share 180 180 –
Ayala Land, Inc. =115,000
P 116,353 116,353 4,437
Retail Treasury Bond =100,000
P 100,000 100,000 2,523
Aboitiz Equity Ventures, Inc. =50,000
P 49,568 49,568 1,765
SM Prime Holdings, Inc. =25,000
P 25,870 25,870 638
Philippine Long Distance and Telephone Company =20,000
P 20,443 20,443 836
ABS-CBN Corporation =20,000
P 20,516 20,516 854
JG Summit Corporation =20,000
P 20,529 20,529 837
Globe Telecom Inc. =10,000
P 9,918 9,918 1,311
DoubleDragon Properties Corporation =10,000
P 9,167 9,167 215
Security Bank Corporation - Tier II Funds =40,000
P 40,000 40,000 1,720
NiHao Mineral Resources International, Inc. 101,000,000 shares 152,510 152,510 –
Eurasian Consolidated Minerals Pty. Ltd. 13,250,000 shares 79,828 79,828 –
Philippine Long Distance and Telephone Company 25,000 shares 37,000 37,000 1,900
Security Bank Corporation 58,027 shares 14,588 14,588 100
Eagle Cement Corporation 666,600 shares 9,852 9,852 –
Philippine Long Distance and Telephone Company – 217 217 34
Security Bank Corporation - Money Market Fund 39,796,443 units 51,760 51,760 –
BPI Asset Management - Money Market Fund 50,599 units 11,985 11,985 –
BDO Institutional Cash Reserve Fund 9,264 units 1,051 1,051 –
ATR Kim Eng Capital Partners, Inc. - Equity Opportunity Fund 25,479,005 shares 117,018 117,018 –
ATR Kim Eng Capital Partners, Inc. - Alpha Opportunity Fund 14,541,224 shares 23,219 23,219 –
Keyland Ayala Properties Inc. (formerly Security Land 3,056,198 shares 126,758 126,758 15,281
Corporation)

(Forward)
 -3-
NICKEL ASIA CORPORATION AND SUBSIDIARIES
Schedule A. Financial Assets
December 31, 2017

Number of Shares or Value Based on Market

Name of Issuing Entity and Principal Amount of Bonds Amount Shown in the Quotations at End of Income Received and
Description of Each Issue and Notes Statement of Financial Position Reporting Date Accrued

In Thousands
Credit Suisse AG - debt and equity securities various P1,137,699
= P1,137,699
= P26,411
=
BNP Paribas Wealth Management - debt and equity securities various 1,106,588 1,106,588 21,232
BPI Asset Management - debt securities various 769,881 769,881 21,459
BDO Unibank, Inc. - debt and equity securities various 616,134 616,134 12,616
Security Bank Corporation - debt and equity securities various 607,444 607,444 18,482
DBS Private Bank - debt and equity securities various 505,889 505,889 19,167
Maybank ATR Kim Eng Capital Partners, Inc. - debt and equity various 449,095 449,095 11,182
securities
Philam Asset Management Inc. - debt and equity securities various 361,240 361,240 9,524
AFS financial assets 6,658,420 6,658,420 172,524

Loan receivable - net of current portion N/A 767,641 767,641 24,231

Long-term negotiable instruments N/A 40,000 40,000 1,305
Other noncurrent assets 807,641 807,641 25,536
Total =17,968,396
P =17,968,396
P =338,473
P
das ds a

NICKEL ASIA CORPORATION AND SUBSIDIARIES

Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Affiliates)
December 31, 2017

Deductions
Beginning Amount Amount Written- Ending
Name and Designation of Debtor Balance Additions Collected Off Current Noncurrent Balance

There are no receivables from Directors, Officers, Employees, Related Parties and Principal Stockholders
other than subject to usual terms, for ordinary travel and expense advances, and for other such items
arising in the ordinary course of business, and eliminated in consolidation.
NICKEL ASIA CORPORATION
Schedule C. Amounts Receivable from Related Parties which are Eliminated in the Consolidated Financial Statements
December 31, 2017

Balance
At January 1, Amounts Amounts Amount
Name of Subsidiary 2017 Additions collected Reclassification Written Off Current Noncurrent Eliminated
In Thousands
Geogen Corporation =370,424
P =185,148
P P–
= =–
P P–
= =555,572
P P–
= =555,572
P
Cordillera Exploration Co., Inc. 97,585 42,374 – (92,050) – 47,909 – 47,909
Rio Tuba Nickel Mining Corporation 2,931 2,273 (2,256) – – 2,948 – 2,948
Hinatuan Mining Corporation (2,454) 2,134 (2,237) – – (2,557) – (2,557)
Taganito Mining Corporation 435 2,447 (2,473) – – 409 – 409
Cagdianao Mining Corporation 312 2,097 (2,059) – – 350 – 350
=469,233
P =236,473
P (P
=9,025) (P
=92,050) =–
P =604,631
P =–
P =604,631
P
NICKEL ASIA CORPORATION AND SUBSIDIARIES
Schedule D. Intangible Assets - Other Assets
December 31, 2017

Deductions Other Changes -

January 1, Additions Charged to Costs Charged to Other Additions December 31,
Description 2017 At Cost and Expenses Accounts (Deductions) 2017

In Thousands

Geothermal exploration and evaluation =1,775,799

P =21,776
P =–
P =–
P (P
=13,392) =1,784,183
P
assets (a)

Other Noncurrent Assets (b)

Deferred mine exploration costs 1,218,332 12,333 (1,233) – – 1,229,432
Project development costs 22,687 89,983 – – – 112,670

=3,016,818
P =124,092
P (P
=1,233) =–
P (P
=13,392) =3,126,285
P

(a) Disclosed in Note 11 to the Consolidated Financial Statements

(b) Disclosed in Note 13 to the Consolidated Financial Statements
NICKEL ASIA CORPORATION AND SUBSIDIARIES
Schedule E. Long-term Debts
December 31, 2017

Name of Issuer and Amount Amount Amount

Type of Obligation Authorized by Indenture Shown as Current Shown as Long-term Remarks

In Thousands
Long-term Debts
Security Bank Corporation =–
P =1,498,159
P =–
P A
Taganito HPAL Nickel Corporation – 87,377 1,092,219 B
Land Bank of the Philippines – 27,273 256,992 C
Sumitomo Metal Mining Co. Ltd. – 22,369 – D

Deferred Income
Taganito HPAL Nickel Corporation – 4,483 58,659 E

Total =–
P =1,639,661
P =1,407,870
P

Remarks:
A. Interest rate ranges from 4.6% to 5.0%; principal is payable on or before the end of the third year following the date of drawdown.
B. Interest rate is based on prevailing 180-day LIBOR plus 2% spread; principal is payable in semi-annual installments of US$875,000, payable in April and October until
April 10, 2031.
C. Annual floating interest rate is at least 4.75%; payable in forty-four equal quarterly payments starting at the end of the fifth quarter from the date of the initial loan.
D. Interest rate is based on prevailing 180-day British Banker Associate LIBOR plus 2% spread; principal is payable in semi-annual installments of US$448,000, payable in
February and August until February 28, 2018.
E. The obligation is covered by a Lease Agreement with THNC.
das ds a

NICKEL ASIA CORPORATION AND SUBSIDIARIES

Schedule F. Indebtedness to Affiliates and Related Parties (Short-term and Long-term Debts
with Related Companies)
December 31, 2017

January 1, December 31,

Name of Affiliate 2017 2017
In Thousands

Short-term Debt
Manta Equities Inc. =180,000
P =–
P

Long-term Debts
Taganito HPAL Nickel Corporation 1,261,645 1,179,596
Sumitomo Metal Mining Co. Ltd. 66,824 22,369
1,328,469 1,201,965

Deferred Income
Taganito HPAL Nickel Corporation 67,383 63,142
=1,575,852
P =1,265,107
P
NICKEL ASIA CORPORATION AND SUBSIDIARIES
Schedule G. Guarantees of Securities of Other Issuers
December 31, 2017

Name of Issuing Entity Amount Owned by

of Securities Guaranteed Title of Issue of Each Total Amount the Company for
by the Company for which Class of Securities Guaranteed and which Statement Nature of
Statement is Filed Guaranteed Outstanding is Filed Guarantee

- Not applicable-
NICKEL ASIA CORPORATION AND SUBSIDIARIES
Schedule H . Capital Stock
December 31, 2017

Number of Shares Number of Shares Held By

Reserved for
Number of Shares Options, Warrants, Directors,
Number of Shares Issued and Conversions and Officers and
Title of Issue Authorized Outstanding Other Rights Affiliates Employees Others

Common Stock 19,265,000,000 7,602,928,954 70,294,846 5,190,336,286 1,002,245,604 1,410,347,064

Preferred Stock 720,000,000 720,000,000 – 720,000,000 – –

das ds a

SCHEDULE IV

NICKEL ASIA CORPORATION AND SUBSIDIARIES

A MAP SHOWING THE RELATIONSHIPS BETWEEN AND AMONG THE COMPANY AND ITS
ULTIMATE PARENT COMPANY, MIDDLE PARENT, SUBSIDIARIES, CO-SUBSIDIARIES AND ASSOCIATES
PURSUANT TO SRC RULE 68, AS AMENDED
DECEMBER 31, 2017

Note: There is no pyramid ownership structure and/or cross holding structure.

 SCHEDULE V

NICKEL ASIA CORPORATION AND SUBSIDIARIES

SCHEDULE SHOWING FINANCIAL SOUNDNESS
PURSUANT TO SRC RULE 68, AS AMENDED
DECEMBER 31, 2017

2017 2016
A. Liquidity ratios
Current ratio 2.17 2.58
Quick ratio 1.71 2.06
Solvency ratio 3.65 3.20

B. Financial leverage ratios

Debt ratio 0.27 0.31
Debt-to-equity ratio 0.38 0.45
Interest coverage 28.54 31.65
Asset-to-equity ratios 1.38 1.45

C. Profitability ratios
Net profit margin analysis 0.24 0.19
Return on assets 0.08 0.06
Return on equity 0.12 0.09
Gross profit margin 0.58 0.55
Price/earnings ratio 17.58 30.69