Narra Nickel Mining and Dev’t Corp., et al. v.

Redmont Consolidated Mines

Corp., G.R. No. 195580, 21 April 2014
[VELASCO, JR., J.]

FACTS: Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators
(POA) of the DENR separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro
and Mining and Development, Inc. (Tesoro), and Narra Nickel Mining and Development
Corporation (Narra) applications Mineral Production Sharing Agreement (MPSA) on the ground
that they are not “qualified persons” and thus disqualified from engaging in mining activities
through MPSAs reserved only for Filipino citizens.

McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation

(Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning
3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining
Corporation;

Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining,
Inc. (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian)
owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie
Mining, Inc.;

Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia
Louise Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and
MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396
out of 10,000 shares of Patricia Louise Mining & Development Corporation;

ISSUES:

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS:

(1) YES. The instant case presents a situation which exhibits a scheme employed by stockholders
to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the
actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC
Rules which states, “but if the percentage of Filipino ownership in the corporation or partnership
is less than 60%, only the number of shares corresponding to such percentage shall be counted as
of Philippine nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined totals
in the Investing Corporation and the Investee Corporation must be traced (i.e., “grandfathered”)
to determine the total percentage of Filipino ownership.
(2) NO. [P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived
from grandfathering petitioners’ corporate owners. xxx Noticeably, the ownership of the
“layered” corporations boils down to xxx group wherein MBMI has joint venture agreements
with, practically exercising majority control over the corporations mentioned. In effect, whether
looking at the capital structure or the underlying relationships between and among the
corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60%
or more of their capital stocks or equity interests are owned by MBMI.