MESSAGE FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER 

In November 2008, First Pacific acquired 20% of the total issued shares of  Philex Mining Corporation and thus  has now become part of the First Pacific Group.  In December 2009, First Pacific added to its holdings and today, its economic interest in Philex amounts to 46.5%. As Managing Director and Chief Executive Officer of First Pacific, we welcome the inclusion of Philex into the First Pacific family.

I wish to take this opportunity to introduce  First Pacific to those who may not be familiar with it. First Pacific is a Hong Kong-based investment and management company listed in Hong Kong and also in the  United States through American Depositary Receipts.  Its principal business interests relate to telecommunications, infrastructure, consumer food products and natural resources. In addition to Philex, its investments and economic interests as at March 31, 2010 (shown in brackets) are in Indofood (50.1%), PLDT (26.5%) and Metro Pacific Investments Corporation (MPIC) (55.6%). MPIC holds the group’s interests in the following Philippine companies: Maynilad Water Services, Metro Pacific Tollways, Meralco, Makati Medical Hospital, Cardinal Santos Hospital, Davao Doctors Hospital and the Manila North Harbour (port terminal operations). As you can see from this list, First Pacific is involved in almost all aspects of day-to-day life in the Philippines.

First Pacific decided to go into natural resources because we strongly believe that the Philippine mining industry has tremendous potential for growth given the country’s known but still largely undeveloped mineral deposits. First Pacific has chosen Philex to be the key company in its entry into this sector because of Philex’s reputation in the industry as a responsible and profitable operator, with “mature” mining assets that are close to being operational to secure its future and, of course, a market price that was well below its real value.  

My vision is for Philex to become the dominant gold and copper producer in the region within the next decade whilst maintaining its core values as a responsible corporate citizen fully cognizant of and committed to the welfare of its employees, the community, the environment and, of course, its shareholders. This rather lofty goal will entail an active acquisition program to bring other mineral deposits, even other companies if necessary, into Philex.  On this matter, I would like to reassure you that it can depend on First Pacific’s financial resources, proven management skills and extensive business network to make this vision a reality. 

In April 2010, Philex completed a tender offer for the minority shares of Philex Gold Inc., heretofore an 81%-owned subsidiary, thereby giving Philex full ownership of the Silangan Project. In the medium term, technical and financial resources will be devoted primarily to bringing this project into production as soon as practicable. In the energy sector, the upgrading of Geophysical Survey Exploration Contract (GSEC) 101 to Service Contract (SC) 72, otherwise known as the Sampaguita natural gas deposit under Philex Petroleum Corporation, implies a bigger commitment on our part in the energy sector. 

As we train our sights on the future, we reinforce our faith in the management and staff of Philex. I also wish to thank the Company’s officers and employees for their hard work and dedication, and to the directors and our shareholders for their loyalty and support. 

  MANUEL V.  PANGILINAN
  Chairman & Chief Executive Officer


  OPERATING REPORT FROM THE PRESIDENT AND CHIEF OPERATING OFFICER

In 2009, the Company benefitted by the rise in metal prices from the lows seen the previous year.  During the year, gold market price per ounce averaged $974, reaching  a high of $1,214 in December 2009, up from last year’s average of $872 where the lowest level of $703 was registered in October 2008.  Copper market price per pound also rallied towards the latter half of 2009, reaching a high of $3.33 in December 2009 from the low of $1.26 a year ago, although averaging lower at $2.34 for the year from $3.15 in 2008. 

The Padcal mine, however, had an unusually high rate of operating setbacks during the year, such as the entry of watery and clayey material that not only diluted ore grades but also caused problems in the conveyor belt, frequently interrupting the 2.3 kilometer-long conveyor that feeds the mill. Consequently, the tonnage milled declined to 8.2 million tonnes from the 8.9 million tonnes milled in 2008.  The copper in mill feed averaged 0.228% copper, the lowest in five years and 11% below the 2008 average. In terms of metals, production in 2009 of gold was 119 thousand ounces compared to 145 thousand ounces in 2008, while copper  was 33.8 million pounds versus 41.2 million pounds in 2008.  Nevertheless, the higher metal prices realized this year at the average of $946 per ounce for gold and $2.24 per pound for copper from $788 and $2.22 last year, respectively, helped enable the mine to generate net operating income of P2.6 billion this year. While this is lower than in 2008, still it is the fourth highest in the Padcal mine’s 52 years of operations.

Since acquiring control of the Silangan Project from Anglo American in February 2009, the Company has drilled 66 in-fill holes totaling  45,611 meters for resource definitions in 2009.  This activity continues to this writing as the Company is still to define the boundaries of the Bayugo deposit. Meantime, the Company is doing the prerequisite studies, such as metallurgical tests,  engineering design and the optimum location of surface infrastructures as part of the prefeasibility preparatory to the definitive or bankable feasibility study of the project. In 2009, the Company recognized   a non-recurrent negative goodwill of P766 million from the 50% interest it acquired in the project as required under generally accepted accounting rules.

Over in Zamboanga Sibugay,  work in the coal project under the Company’s wholly-owned subsidiary,  Brixton Energy & Mining Corporation, continues in full steam. Hopefully, Brixton would put this coal mine into commercial production by 2010 with an initial capacity of  100 tonnes per day, eventually ramping up to 500 tonnes per day.

In October 2009, the Company preterminated its outstanding gold hedge collars given the unprecedented rise in gold prices. This allows the Company to recognize in full the current gold prices for the hedged volume up to 2011 which would have been limited to $800 per ounce. To protect its 2010 revenues from any excessive downsizing in prices, the Company purchased put options at the strike prices averaging $848 per ounce for gold and $3.00 per pound for copper for substantially all of its production for the year.

One of our long standing operating goals has been to maintain Padcal production cost at levels well below the global average for mine production. We are glad to report that Padcal’s 2009 operating cost of $404 per ounce net of copper revenue credits in producing gold  is lower than the average global cash cost of $478 per ounce as published in the GFMS Gold Survey 2010. The Padcal mine is indeed blessed with this combination of gold, copper and silver minerals from its ore reserves. We are mindful though that as the mine continues over its remaining life, previously from 2014 but now officially declared to be up to 2017, the grades would gradually decline.  Hopefully, before then, the Silangan Project would have already been put in place and delivering ore as second source of revenue for the Company.

JOSE ERNESTO C. VILLALUNA, JR.
President & Chief Operating Officer