MANILA, June 11 (Reuters) - A unit of global miner Xstrata (XTA.L) vowed on Friday to proceed with public discussions and technical studies on a $5.2 billion copper-gold project in the southern Philippines despite the risk of a ban on the venture.
Manila has ambitious plans to pull the mining sector from its current moribund state by luring billions of dollars of foreign investment for development, but analysts warn the ban could prove a major test case of its policies, and derail such moves.
The Tampakan mine, considered Southeast Asia's largest undeveloped copper-gold prospect, was opposed by local residents who feared the open pit mining method to be used by Xstrata's Philippine affiliate Sagittarius Mines Inc would pollute a major river irrigating farms. Mine production is set to start in 2016.
"We will continue with our engagements and with whatever studies," said John Arnaldo, spokesman of Sagittarius Mines.
"Of course, our shareholders are concerned," he told Reuters. "We will respect whatever decision the provincial board and the governor may have and we will take it a step at a time."
Xstrata could continue its pre-development work on the mine because the ban has yet to take effect, state agency the Mines and Geosciences Bureau (MGB) said.
The agency also said it may question the ban with the courts as a last resort, adding the measure could hinder investment in the mining sector.
On Wednesday, the legislative council of South Cotabato province in the southern Philippines passed a law banning open pit mining due to environmental concerns, a move that directly hits the Tampakan mine project of Xstrata -- the world's fourth largest copper producer.
Provincial governor Daisy Avance-Fuentes had told Reuters she was likely to approve the measure because of its wide local support, adding the ban could take effect before local officials step down on June 30.
The government would use all means to assure residents all necessary safety and environmental safeguards would be in place around the Tampakan mine, MGB director Edwin Domingo said. He added that Manila was hopeful the new local government taking over by the end of June would reconsider and amend the ban.
"There's still the legal process because we sincerely think that national laws are superior over local laws. As much as possible, we don't want to go into that angle," Domingo told Reuters on Friday.
"We would rather exert and maximise all available efforts to really discuss further with the stakeholders their various issues and concerns.
"This is going to have a negative impact on our future investors. A lot of our copper and gold deposits can be technically and viably developed only through open pit mining."
Analysts criticised the local government's action, saying it ran counter to the Philippines' policies and national interests.
"It's very bad," Peter Wallace, head of investment consulting firm Wallace Business Forum, told Reuters. "To impose a restriction, it's short-sighted."
"You can write mining off because Xstrata has gone a long way and is now well known in the mining community," he said. "People are watching that. What is happening here is an indicator of the acceptability of other companies coming in as well. So it's a major test case."
Xstrata has completed a feasibility study of Tampakan, which has an estimated resource of 2.2 billion tonnes containing 12.8 million tonnes of copper and 15.2 million ounces of gold at a 0.3 percent copper cut-off grade.
Other analysts say the Philippine measure could prompt other countries to take similarly stringent action to protect the environment.
Australia's Indophil Resources NL (IRN.AX) has a 34 percent stake in the Tampakan venture. The mine, discovered in 1991, never left the drawing board because it was dogged by environmental woes, communist insurgencies, and political instability.