Philippines' black market is China's golden connection

diwalwal mining-01-smFilipino miners push a cart containing sacks of mineral muck ore in the gold mining town of Diwalwal on Wednesday.From: Reuters

MOUNT DIWATA, PHILIPPINES (Reuters) - Erich Mulato walked out of a dingy workshop in this mountain village and into a gold shop next door, clutching a handful of shiny warm nuggets newly refined from the ore he had brought in.

The 53-year-old father of six had come off a 24-hour shift at one of the hundreds of small-scale mines in this region of southern Philippines. He sold the 5.49 grams of gold in his hand - his share of the day's output - for 8,260 pesos ($200). That's more than 16 times what a manual laborer earns daily in Manila.

"Here, we can easily make money," Mulato said, blowing smoke from a cigarette as he waited for his money at the gold shop. "Whatever we want to buy, we can buy ... Making a living is better here."

Better for Mulato, but not for the Philippine government.

Smuggled Gold

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In all likelihood, Mulato's gold will find its way through middlemen and into the luggage of a tourist or the black market in Manila - not to its only legal destination, the Bangko Sentral ng Pilipinas or the central bank.

Up to 90 percent of small-scale Philippine gold production is being smuggled out of the Southeast Asian country, according to estimates from officials and traders, much of it to China.

The potential revenue being lost is considerable: The Philippines, the world's 18th largest gold miner, produced just over 1 million troy ounces of gold in 2011, worth $1.6 billion at current prices. About 56 percent of that came from small-scale miners, data from the Bureau of Mines showed.

A top central bank official told Reuters new taxes on gold sales imposed last year appear to be a key factor in the alarming rise in gold smuggling. But the head of the revenue agency said in an interview the 7 percent tax on gold sales will not be rolled back and suggested better policing of the borders instead.

The Customs Department, however, told Reuters the problem has become so overwhelming it can do little about the smuggling of gold and other minerals out of the archipelago of more than 7,100 islands.