Apex Mining Co., Inc. v. Southeast Mindanao Gold Mining Corp.

(2006)

Facts:
The case involves the “Diwalwal Gold Rush Area” (Diwalwal), a rich tract of mineral land
located inside the Agusan-Davao-Surigao Forest Reserve in Davao del Norte and
Davao Oriental. Since the early 1980s, Diwalwal has been stormed by conflicts brought
about by numerous mining claims over it.On March 10, 1986, Marcopper Mining
Corporation (MMC) was granted an Exploration Permit(EP 133) by the Bureau of
Mines and Geo-Sciences (BMG). A long battle ensued between Apex an dMMC with the
latter seeking the cancellation of the mining claims of Apex on the ground that such
mining claims were within a forest reservation (Agusan-Davao-Surigao Forest Reserve)
and thus the acquisition on mining rights should have been through an application for a
permit to prospect with the BFD and not through registration of a DOL with the BMG.
When it reached the SC in 1991, the Court ruled against Apex holding that the area is a
forest reserve and thus it should have applied for a permit to prospect with the BFD .On
February 16 1994, MMC assigned all its rights to EP 133 to Southeast Mindanao
Gold Mining Corporation (SEM), a domestic corporation which is alleged to be a
100%-owned subsidiary of MMC. Subsequently, BMG registered SEM’s Mineral
Production Sharing Agreement (MPSA)application and the Deed of Assignment. Several
oppositions were filed. The Panel of Arbitrators created by the DENR upheld the validity
of EP 133. During the pendency of the case, DENR AO No. 2002-18 was issued
declaring an emergency situation in the Diwalwal Gold Rush Area and ordering the
stoppage of all mining operations therein.

Issues:

1. W/N EP 133 and its subsequent transfer to SEM is valid.

2. W/N the DENR Secretary has authority to issue DAO 66 declaring 729 hectares
of the areascovered by the Agusan-Davao-Surigao Forest Reserve as non-forest
lands and open to small-scale mining purposes.

3. Who (among petitioners Apex and Balite) has priority right over Diwalwal?
Held/Ratio:1.

INVALID. One of the terms and conditions of EP 133 is: “That this permit
shall be for the exclusive use and benefit of the permittee or his duly authorized
agents and shall be used for mineral exploration purposes only and for no other
purpose.” While it may be true that SEM is a100% subsidiary corporation of MMC, there
is no showing that the former is the duly authorizedagent of the latter. As such, the
assignment is null and void as it directly contravenes the termsand conditions of
the grant of EP 133.

a.The Deed of Assignment was a total abdication of MMC’s rights over the permit.
It is not amere grant of authority to SEM as agent.
b. Reason for the stipulation.
Exploration permits are strictly granted to entities or
individuals possessing the resources and capability to undertake mining operations.
Without such acondition, non-qualified entities or individuals could circumvent the strict
requirements under the law by the simple expediency of acquiring the permit from the
original permittee.

c.Separate personality.
The fact that SEM is a 100% subsidiary of MMC does not automatically make it
an agent of MMC. A corporation is an artificial being invested by lawwith a personality
separate and distinct from persons composing it as well as from that of anyother legal
entity to which it may be related. Absent any clear proof to the contrary, SEM is
aseparate and distinct entity from MMC.

d. Doctrine of piercing the corporate veil inapplicable.

Only in cases where the corporatefiction was used as a shield for fraud, illegality or
inequity may the veil be pierced andremoved. The doctrine of piercing the corporate veil
cannot therefore be used as a vehicle tocommit prohibited acts. The assignment of the
permit in favor of SEM is utilized tocircumvent the condition of nontransferability of the
exploration permit. To allow SEM to avail itself of this doctrine and to approve the
validity of the assignment is tantamount tosanctioning an illegal act which is what the
doctrine precisely seeks to forestall.

e. PD 463 requires approval of Secretary of DENR. Also, PD 463 (Mineral

ResourcesDevelopment Decree), which is the governing law when the assignment
was executed,explicitly requires that the transfer or assignment of mining rights,
including the right toexplore a mining area, must be with the prior approval of the
Secretary of DENR. Such is not present in this case.

f. EP 133 expired by non-renewal. Although EP 133 was extended for 12 months until
July 6,1994, MMC never renewed its permit prior and after its expiration.With the
expiration of EP 133 on July 6, 1994, MMC lost any right to the Diwalwal
Gold RushArea. SEM, on the other hand, has not acquired any right to the said area
because the transfer of EP 133 in its favor is invalid. Hence, both MMC and SEM have
not acquired any vested rightover the area covered by EP 133.

2. NO. The DENR Secretary has no power to convert forest reserves into non-forest
reserves. Such power is
vested with the President. The DENR Secretary may only recommend to the Presidentw
hich forest reservations are to be withdrawn from the coverage thereof. Thus, DAO No.
66 isnull and void for having been issued in excess of the DENR Secretary’s authority.
3. (Since it’s been held that neither MMC nor SEM has any right over Diwalwal, it
is thusnecessary to make a determination of the existing right of the remaining
claimants, petitioners Apex and Balite, in the dispute.)

The issue on who has priority right over Diwalwal is deemedovertaken by the issuance
of Proclamation 297 and DAO No. 2002-18, both beingconstitutionally-sanctioned acts
of the Executive Branch. Mining operations in the DiwalwalMineral
Reservation are now, therefore, within the full control of the State
through theexecutive branch. Pursuant to Sec. 5 of RA 7942, the State can either:
(1) directly undertake theexploration, development and utilization of the area or (2) opt
to award mining operations in themineral reservation to private entities including
petitioners Apex and Balite, if it wishes. Theexercise of this prerogative lies with the
Executive Department over which courts will notinterfere.