Section 44. Mining Lease Rights. —

A mining lease contract shall grant to the lessee, his heirs, successors and assigns, the right to extract all mineral deposits found on or underneath the surface of his mining claims covered by the lease, continued vertically downward, to remove, process and otherwise utilize the mineral deposits for his own benefit and to use the lands covered by the lease for the purpose or purposes specified therein: Provided, That the Minister shall reserve the right to grant and use easements in, over, through or upon the said claims as may be needed by other lessees for right-of-way to enable them to have access to and/or facilitate the operation of their mining claims: Provided, further, That in case of conflict of interest between the lessees for this purpose, the Director is hereby authorized to mediate: Provided, furthermore, That in granting any lease under this Decree, the Government reserves the right to lease or otherwise dispose of the surface of the lands embraced within such lease which is not needed by the lessee in extracting and removing the mineral deposits from his mining claims or in the benefication of the ores extracted therefrom: Provided, finally, That a lessee may on his own or through the Government, enter into a service contract with a qualified domestic and/or foreign contractor for the exploration, development and exploitation of his claims and the processing and marketing of the products thereof, subject to such rules and regulations that shall be promulgated by the Director with the approval of the Minister.

Service contracts entered into pursuant to this Section shall contain among others, the following salient features to wit:

1. A stipulation that the foreign service contractor shall not be entitled to any other fee except a service fee which shall in no case exceed forty per cent (40%) of the net proceeds of the operations, before tax, the actual rate to be determined by the economics of each project; and in case the foreign service contractor or another foreign company holds an equity in the local mining corporation involved in a service contract, the equity participation including the service fee shall in no case exceed forty per cent (40%) of the net proceeds of the operations before tax;

2. The financing, technical, management and other services committed to be rendered under the service contract, specifying a minimum amount of expenditures, which should be over and above the minimum work organizations of the lease and acceptable to the Minister as recommended by the Director;

3. Repayment scheme of operating costs which shall include, among others, all fees and taxes except income tax;

4. Scheme for the repayment of service fees and repayment of advances which may include the following:

   1. Foreign exchange payments duly approved by the Central Bank;

   2. Except for repayment of preproduction expenses which shall adhere as closely as possible of international practice, a provision that the interest charged on the fair value of the services rendered and actual funds advanced by the foreign entity shall not be more than the prevailing international interest rates charged for similar types of transaction; and

   3. A stipulation allowing payment of service fees in cash or in allotment of production which may be exported subject to domestic requirements of the country, or in equity which shall not exceed the Constitutional limits; Provided, That such stipulation shall not defeat the citizenship requirement of the Constitution in the exploration, development, exploitation, and utilization of the natural resources.

5. A stipulation that the foreign entity shall not acquire any title or interest in the leased area;

6. A commitment by the service contractor to pay the Government the amount which should have been spent, but was not, in direct prosecution of the approved work program;

7. A stipulation that the service contract shall be cancelled for repeated failure to comply with the terms and conditions thereof;

8. A preference for Filipinos in employment in all phases of operations for which they are qualified;

9. A stipulation that alien employees shall be limited to technologists and executives requiring highly specialized training and long experience, and whose employment shall be subject to the required approval under existing decrees, laws and regulations on the matter; and

10. In every case where foreign technologists and executives are employed, an effective program of training of understudies.

Service contracts shall be approved by the Minister upon recommendation of the Director.