Villar copper

The Villar family is considering the acquisition of the Philippine Associated Smelting and Refining Corp. (PASAR), the country’s first copper smelter and refinery located in Leyte. This facility, established during the Marcos administration, is currently inactive due to unfavorable global market conditions. The Villar family’s interest in PASAR involves calculated risks, but these appear strategic, given their existing investments in mining.

PASAR was established in 1976, although its smelting and refining operations commenced only in 1983 during the Marcos government, at a cost of approximately $300 million. When it began operations, PASAR was the first and only copper smelter and refinery in Southeast Asia. Privatized under President Joseph Estrada in 1999, PASAR has since been controlled and managed by the global commodities trading giant Glencore, which has operated the facility for over 25 years.

However, since February, PASAR has been placed on “care and maintenance” status due to pressures from the global market and shortages in raw materials, resulting in the displacement of around 3,000 workers. Historically, the plant processed around 1.2 million metric tons of copper concentrate annually, producing approximately 200,000 tons of copper cathode for export. Under Glencore’s management, PASAR consistently ranked among the Philippines’ top exporters.

The PASAR sale, however, remains uncertain, with no definitive agreement yet announced between the Villar family and Glencore. From an external perspective, the potential sale appears mutually beneficial. Glencore seems eager to divest from PASAR to refocus on its core trading activities, while the Villar family, potentially holding negotiating leverage, could gain significant strategic advantages from the purchase.

For the Villars, acquiring PASAR makes strategic sense. Their ownership of PASAR would complement operations at their St. Augustine Mining, providing a local processor for mined copper and gold. This vertical integration would significantly reduce logistical costs and mitigate risks associated with export restrictions.

Additionally, the Villar family has the option to strategically delay restarting PASAR until global market conditions improve. This could involve waiting for margins to increase, restructuring operational costs, or allowing their mining operations sufficient time to produce adequate raw materials for PASAR’s large processing capacity.

The immediate risk is the potential for short-term financial losses, given current global market conditions. Nonetheless, long-term prospects appear favorable, driven by growing global demand for copper, particularly from renewable energy and electric vehicle (EV) sectors.

Further demand is expected from ongoing production in electronics, mobile phones, computers, data centers, and artificial intelligence.

If St. Augustine Mining and other Villar-owned mining investments can supply consistent raw materials to PASAR, the smelter under Villar ownership could achieve stable and sustainable operations. Ensuring a reliable local ore supply — the very issue Glencore struggled with — is crucial. Additionally, the potential development of the Tampakan mine project could significantly enhance PASAR’s operational sustainability.

Glencore’s divestment from PASAR was driven by persistently low smelting fees and a strategic decision to realign their focus toward commodities trading and mining, rather than refining operations. Given that Glencore’s mining operations are located outside the Philippines, maximizing PASAR’s capacity required significant logistical expenses. The scenario might have been different had PASAR had access to local mining operations.

Another important consideration is the quality of local mining output and its suitability for PASAR’s refining standards. Processing substandard or low-quality ore would result in poor product quality and higher operational and maintenance costs. It is reasonable to assume the Villars have thoroughly assessed the quality of ore from their mines prior to pursuing the acquisition of PASAR.

The Tampakan project, recognized as the country’s largest undeveloped copper-gold resource, holds substantial importance. If Tampakan becomes operational, it could significantly enhance PASAR’s capacity utilization rates, provided an agreement between PASAR and Tampakan’s owners materializes. Transporting ore domestically from South Cotabato to Leyte would also be cost-effective compared to overseas shipping.

Nevertheless, Tampakan’s operational status remains uncertain. Assuming its eventual development between now and 2028, PASAR’s strategic link with Tampakan and other domestic mines would considerably strengthen the Villar family’s market position by ensuring steady ore supplies.

A potential government policy banning raw ore exports could also significantly boost domestic demand for local processing facilities like PASAR. Such a policy shift, whether initiated by the executive branch or Congress, would benefit integrated operations like the St. Augustine-PASAR model. It is worth noting that the Romualdez family, another player in the local mining industry, could similarly benefit from such policy changes.

The national push toward local ore processing aligns with global trends emphasizing domestic value addition. Implementing mandates for local processing before export would substantially enhance PASAR’s business prospects, creating local jobs and generating income. Such policy adjustments could incentivize local and international miners to invest further in domestic smelting and refining infrastructure, potentially leading to expansion at PASAR or construction of additional facilities. This development would significantly advantage the Villar family.

Currently, copper smelters in China and Japan dominate the global market due to scale, advanced technology, and lower operational costs — at times even offering negative processing fees because of intense competition. China’s extensive global mining network further amplifies its competitive advantage. However, PASAR would not necessarily have to directly compete if local mining output sufficiently covers its processing needs.

Over the past five years, copper industry growth has been limited by oversupply and declining smelting fees, creating profitability challenges for facilities such as PASAR. Nevertheless, a robust surge in copper demand is anticipated annually through 2035, driven by EVs, renewable energy infrastructure, data centers, and advanced electronics.

Moreover, global copper prices could increase due to aging mines, decreasing ore grades, and reduced investments in new mining ventures. Continued constraints on copper supply could consequently drive prices higher, significantly benefiting integrated operators such as St. Augustine.

When comparing the export of raw ore versus refined copper cathodes processed by PASAR, cathodes offer higher profit margins, greater economic value, and reduced regulatory risks. This underscores the economic advantage of integrating PASAR with the Villar family’s existing mining operations.

Ultimately, the Villar family’s successful acquisition of PASAR will depend on securing additional reliable local ore sources and advocating for policies supportive of domestic refining. If strategically managed, PASAR could position the Villar family advantageously within a progressively tightening global copper market.