Monthly Archives: May 2018

Highlands Pacific to increase its stake in Ramu mine

Poor workmanship and construction has hampered the Ramu nickel mine

Highlands’ ownership of Ramu will increase to 11.3 percent from 8.56 percent”

Cobalt 27 agrees to streaming finance deal with Australian miner

Nicole Mordant | Reuters | 23 May 2018

Canada’s Cobalt 27 Capital Corp said on Tuesday it has agreed to the world’s first cobalt-nickel streaming finance deal on a producing mine with an Australian miner as the industry looks to bolster supplies of the key battery metal.

Streaming is a type of alternative finance that allows an investor to make an upfront payment in exchange for future production at a discounted price. The transaction is the world’s first cobalt-nickel streaming deal on a producing mine, Cobalt 27 said in a statement.

The transaction comes as Brazilian miner Vale SA was seeking to sell cobalt from its Voisey’s Bay mine in eastern Canada in a streaming deal worth around $500 million, Reuters reported in January.

Prices of cobalt, a critical component in rechargeable lithium-ion batteries for electric vehicles, have soared fourfold over the past two years to close to $100,000 a tonne on concerns of a shortfall as demand is forecast to spike.

Cobalt 27 said it had reached a C$145 million ($113.33 million) deal with Highlands Pacific Ltd to buy cobalt and nickel from a Papua New Guinea mine that the Australian miner has a stake in.

Cobalt 27, a small buyer of physical cobalt, is also in advanced talks with other owners of the Ramu mine on Papua New Guinea’s north coast for a further $87 million stream, it said. Both transactions can be funded from cash or a new debt facility.

Under the transaction with Highlands, Cobalt 27 will purchase 55 percent of Highlands’ share of cobalt production and 27.5 percent of its share of nickel output from the mine.

That will result in Cobalt 27 receiving an estimated 450,000 pounds of cobalt and 2.25 million pounds of nickel in concentrate a year from Ramu.

As a result of the deal, Highlands’ ownership of Ramu will increase to 11.3 percent from 8.56 percent. The mine is majority-owned and operated by Metallurgical Corporation of China Ltd. Other shareholders include the Papua New Guinea government, landowners and other Chinese investors.

Cobalt 27 has also agreed to buy a 13 percent stake in Highlands, a Papua New Guinea-focused mining explorer, developer and producer.

Advertisements

Leave a comment

Filed under Financial returns, Papua New Guinea

Mining industry scrambling to find new ways to spin its benefits

Wafi Golpu’s Craig Jones. Source: BAI

“Papua New Guinea currently receives more income tax from resource company employees than it does from the companies themselves”

Wafi Golpu mine would be good for the wider Papua New Guinea economy, says executive

 David James | Business Advantage | 22 May 2018

The proposed Wafi Golpu mine will contribute to the diversification of Papua New Guinea’s economy, according to Craig Jones, Executive General Manager Wafi Golpu at Newcrest Mining. He told the Australia Papua New Guinea Business Forum in Brisbane that, if the project gets the go-ahead, it will help local agriculture.

Jones’ comments reflect a growing inclination among resources companies to present their operations as being good for the overall economy, not just good business.

‘There are many opportunities for the mining industry to contribute to the diversification of the Papua New Guinea economy through smart and sustainable development,’ Jones said.

‘Wafi Golpu is a case in point, as the development of the mine’s infrastructure paves the way for a substantial agricultural industry.’

Jones pointed to proposed new roads that will ‘open up’ the region, from the Highlands Highway to the Bulolo Highway.

New infrastructure for the Wafi Golpu mine, a joint venture project between Newcrest and Harmony Gold, could create the opportunity for up to 10,000 hectares of land in the Watut River valley to be used for agricultural purposes.

‘The joint venture has a strong focus on unlocking Morobe’s agribusiness potential.’

Diversification

Jones’ emphasis on stimulating local, non-resource industry benefits may be designed to counter critics within PNG who argue that extractive companies do not pay sufficient tax and that the tax laws should be changed.

As the Executive Director of the Institute of National Affairs, Paul Barker, noted in the forum, according to the Extractive Industries Transparency Initiative, the State currently receives more income tax from resource company employees than it does from the companies themselves.

The emphasis on economic diversification also appears to be a response to statements by PNG leaders, including Prime Minister Peter O’Neill and central bank Governor Loi Bakani, that PNG urgently needs to diversify its economic base to withstand the boom and bust cycles that routinely occur with resource industry projects.

Jones said, however that the extractive industries are ‘likely to remain critical to the future’ while such economic diversification is being undertaken.

He said the extractive industries account for 84 per cent of the total exports of PNG, with 45 per cent from oil and gas, and 39 per cent from mining in 2016.

Exports

Jones said Newcrest’s Lihir gold mine contributed about K3.5 billion in export revenue in 2016.

‘If it proceeds, the potential annual revenue from Wafi Golpu is expected to exceed even Lihir when it reaches peak production, with average free cash flows projected to be around US$900 (K2.92 billion) per annum.

‘This goes on for about the first 10 years after the beginning of commercial production.

‘It would make Harmony and Newcrest very significant contributors to the growth of the Papua New Guinean economy.’

Policy

Jones noted that the Wafi Golpu project requires very significant upfront investment and has very long lead times for its return on investment.

He said there will be K16.7 billion (US$5.14 billion) invested over the life of the mine if it gets the go-ahead.

‘This is why a stable investment and legislative environment is so crucial for the development of Wafi Golpu and other mineral projects.

‘There are currently policy issues that remain a concern for our industry.

‘Apart from the highly debated contributions made by resource companies in company tax there are many other contributions that resource companies make and many of them are voluntary.

‘These benefits have a direct impact on the lives of Papua New Guineans.’

Multiplier effect

Jones pointed to Lihir’s investment in infrastructure, including schools, roads, bridges, Lihir airport, Lihir medical centre, water and sanitation projects.

He said K23 million was channeled through the PNG government’s tax credit scheme ‘which has been an effective vehicle’ for delivering rural value in New Ireland Province.

‘On top of royalties we paid K82 million to landowners and local and provincial governments, PNG employees earn K189 million in wages and one of the most substantial economic flows from the mine is the almost K1 billion paid to local businesses and suppliers to support the mine’s operation.

‘These are the economic drivers that have a multiplier effect on the economy.’

Leave a comment

Filed under Financial returns, Papua New Guinea

Another ‘world class’ mining company in a corruption scandal

Glencore shares drop nearly 7% on report of SFO probe

Henry Sanderson | Financial Times | May 18, 2018

Shares in Glencore fell by their most in almost two years on Friday after a report said the miner may face a bribery probe by the UK’s Serious Fraud Office over its ties to Israeli billionaire Dan Gertler in the Democratic Republic of Congo. 

The SFO is planning to seek formal approval for a probe into Glencore’s dealings in the country with its former business partner Mr Gertler, Bloomberg News reported. Mr Gertler was sanctioned by the US in December for his “opaque and corrupt mining and oil deals,” in DRC. 

Mr Gertler previously owned stakes in Glencore’s two key projects in the resource-rich country, before Glencore bought him out for $960m in 2017. 

Glencore shares fell 6.8% per cent to 370.75p after the news. 

The reported possible probe is the latest setback for FTSE 100 member Glencore over its activities in the DRC. Last month the country’s state-owned miner Gecamines launched legal action against the company seeking to dissolve its joint venture Katanga copper mine, saying Glencore had drained it of money. 

Mr Gertler has also taken Glencore to court saying he is owed almost $3bn in royalties from its mining projects under previously agreed contracts. 

The SFO said it could neither confirm or deny the Bloomberg report. Glencore declined to comment. 

Leave a comment

Filed under Corruption

Group questions Namatanai MP’s stance on seabed mining

Carmella Gware | Loop PNG | May 19, 2018

recent response by the Namatanai MP on Radio New Zealand over the experimental seabed mining has not gone down well with some locals.

In the May 16th article, Walter Schnaubelt was reported to have said though  too much remained unknown about the environmental impacts of seabed mining, ‘that doesn’t mean that we just shut the door’.

Schnaubelt further said he was keeping an open mind on potential seabed mining, and he would maintain a neutral stand until adequate information on the benefits of the Solwara 1 project are made available to him.

Following his statement, the Alliance of Solwara Warriors said as an educated elite, Schnaubelt has to come out clear on his stance, as being neutral only indicates two reasons:

  • The benefits of seabed mining to support his election promises
  • And to swing when people react as it will have a political implication

Furthermore, they said the shark calling culture is also under threat, hence why preach tourism when our action is contradictory.

“We lose our culture and we lose our identity.”

“The Morgado Square, which is the breeding ground for tuna, is also under threat. Fisheries is a sustainable and renewable resource, the local and national economy will be affected,” said the Alliance.

Topaio Landowners Association Public Relations Officer, Towaira Manget, challenges the MP to look into sustainable development project rather than focus on the benefits of experimental seabed mining.

He commended the Alliance of Solwara Warriors for taking the fight and speaking for the silent local majority.

Apart from the vocal Alliance of Solwara Warriors, environmental experts, churches and NGOs have also protested against the first-of-its-kind seabed mining.

Leave a comment

Filed under Environmental impact, Human rights, Papua New Guinea

MRA Act changes ‘create uncertainty’ as mineral prices rise

Cedric Patjole | Loop PNG | May 19, 2018

Changes to the Mineral Resources Act 1992 have created uncertainty in the mining industry, especially with rising mineral prices.

Former executive director and now advisor to the PNG Chamber of Mines and Petroleum, Greg Anderson, said this during the Resources Sector Media Workshop.

He said the uncertainty created will determine exploration activity as well as whether mineral projects are developed.

Anderson gave a detailed presentation on the impact of the MRA Act changes. Positives included:

  • The extension of Exploration License term from 2 years to 5 years, and maximum size o shore increased to 10,000km2
  • Documentation required for a Mining License application now prescribed. This includes:
  • Community engagement plan, LIS, social mapping study
  • Employment and training plan, goods and services procurement plan, business development assistance plan
  • Rehabilitation and mine closure plan
  • Feasibility study and mine waste management plan
  • Resettlement action plan
  • Timelines set for a decision on the State equity participation option linked to the application process for a Mining License (as per Kumul Minerals Authorisation Act)
  • A party to a Community Development Agreement (CDA) (MOA) that fails to sign cannot delay or ‘hold to ransom’ the approval process for the CDA

However he said the negatives significantly outweighed the positives. They included:

  • The State given the right to compulsory acquire (on ‘commercial terms’) any project upon the expiry of the 25th year of the first term of the ML or thereafter (expropriation)
  • Royalty increased to 3 percent (bringing it to 3.5 percent with the increased Production Levy in the revised MRA Act )
  • Limiting of the un-recouped sunk costs for State equity participation to: Only 50 percent of the accumulated exploration costs; and for he current tenement holder only, and for no more than 20 years prior to ML grant
  • Agreements to include a provision on the protection of minority shareholder rights including when and how dividends will be determined, declared and paid
  • There are no “grandfathering” provisions – existing operations are required to comply with all aspects of the new Act within 12 months (social disruption)
  • Very significant increase in reporting requirements; will increase costs and bureaucratic load on the MRA, MAC and explorer/developer. Are these additional plans and reports justified, how are they to be reviewed in a meaningful way, can they be combined or better managed?
  • Any changes to Government policy take precedence over the MDC (totally annuls the sanctity of the MDC). MDC subject to five year reviews
  • There is only one tenement for mining, the ML (SML abolished; one size ts all) & the MAC now approves all tenements (Minister formally grants tenement but has to abide by decision of MAC). Industry endorses MAC’s role in approval of ELs & smaller mining projects but believes direct NEC approval & grant of ML needed for larger projects
  • International FIFO banned under an ML (also financial impact)
  • Unworkable obligation to commence development and maintain production leading to cancellation of ML “Reservation of Land from Mining” provision that does not protect the right of:  existing EL applicants for grant or renewal (they are terminated); existing ML holder to renew when a reservation is in place (cannot lodge an application which could result in the forced closure of a mine)
  • Unsatisfactory conditions for ELs: maximum size of onshore EL reduced 50% to 1,250km2; requirement for year 3 external audit, at renewal (MAC), or anytime by MD fee of K5,000 to surrender an EL; no consolidation of ELs
  • Unsatisfactory Compensation Agreement that must take into account “possible changes in the landholder structure”
  • Powers and duties of authorising o cers excessive and in some cases open to abuse.
  • Penalties are excessive and punitive, eg. A person, engaging in FIFO (not defined) can be locked up for 15 years;
    not a tenement holder, can be locked up for 2 years for not providing information the MD deems “useful for the enforcement of this Act”
  • The definition of “offshore” will lead to confusion with existing projects that are onshore/onshore and the application of the “CAB” needs to be clarified
  • Impractical “Transparency Initiative Publications” – IRC, PG, developer, LOA must submit quarterly benefits report or CEO/chairman ned K25,000

“The Mining Sector is strongly opposed to the revised mining act of which I have just outlined. It is internationally uncompetitive, extremely so, especially with all the tax changes that have gone on as well. It will be a strong deterrent to any future mining projects and a serious impediment to the operations of the current mines,” Anderson said.

Anderson said currently mineral prices were on the rise as witnesses five years ago before a slump. And the uncertainty created by the legislative changes affected exploration and mine development.

“This present all of us with a serious dilemma. We’ve got a rise in commodity prices, the cycle was recovering and coming back in our favour like it did in 2003 and we captured it beautifully.

“Now we’ve got all these uncertainties facing us; how are we going to capture this rise in commodity prices, build new projects and expand our exploration sector?”

He said the PNG Chamber of Mines had done two independent reviews and had encouraged the Government to carry out its own review to authenticate the veracity of those reports and recommendations.

Anderson said the Government must renew discussions with a multi-disciplinary team drawn from all relevant key government organisations, with all meetings chaired by an eminent, independent chairman.

Leave a comment

Filed under Financial returns, Papua New Guinea

Community Organizations of Northern Haiti Reject Mining

‘YES TO LIFE, NO TO MINING’ 

Centre for Human Rights and Justice | May 17, 2018

Today, residents of Morne Pele in the North of Haiti and members of the Kolektif Jistis Min (Mining Justice Collective or KJM) held a press conference to share their message, Wi ak Lavi, NON ak eksplwatasyon min (yes to life, no to mining). Last month, thirteen community organizations from Morne Pele signed an open letter to local and national government authorities. The organizations represent a broad cross-section of society, including the local health center, religious groups, schools, government authorities, workers’ rights organizations, and farmers’ groups. Morne Pele, also called Morne Bossa, is the site of one of three gold mining exploitation permits in Haiti.

The letter, available below in English, Kreyòl, and Spanish, states that agriculture is fundamental to the livelihood of Haitian people, and that the proposed gold mining project in Morne Pele threatens agriculture and the environment as a whole. The letter states that mining for gold may violate Haiti’s Constitution, which provides special protections for the degraded environment and guarantees the right to access to information. To date, mining projects have been characterized by a total lack of transparency or, as Haitian leaders have often said, an “information blackout.”

The signatory organizations request agricultural reform, education, reforestation, and potable water. The letter concludes: “In order for us to win this struggle, we seek national and international solidarity, with people who believe that life is more meaningful than making money.”

Read the letter in EnglishKreyòl, and Spanish.

Morne Pele is the site of the right to water study that the Clinic is conducting with KJM and scientists from Penn State University.  For more on the study, see our March 22, 2018 press release.

1 Comment

Filed under Environmental impact, Financial returns

Natural gas project that promised economic boom leaves PNG in ‘worse state’: report

Isabel Esterman | Mongabay | 17 May 2018

  • Proponents of PNG LNP, an ExxonMobil-led natural gas project in Papua New Guinea, predicted it would bring massive economic benefits to landowners and to the country as a whole.
  • According to two recent reports by the Jubilee Australia Research Centre, PNG’s economy is worse off than it would have been without the project.
  • Jubilee Australia also links the PNG LNG project to an upswing of violence in the areas around the plant.

In 2008, when a consortium led by ExxonMobil was drumming up support for a $19 billion natural gas extraction and processing project in Papua New Guinea, proponents of the development predicted it would underpin the country’s economy for decades.

Production began in 2014, and now reaches approximately 7.9 million tonnes of liquefied natural gas per year. However, according to two recent reports by advocacy group Jubilee Australia Research Centre, the PNG LNG project has not only exacerbated conflict and inequality in the Papua New Guinea highlands, it has also failed to produce the promised benefits. According to Jubilee Australia’s analysis, PNG’s economy would be better off if the gas had been left in the ground.

Predicted economic impacts of the PNG LNG project compared to actual impacts (based on Jubilee Australia’s analysis of underlying economic trends). While exports have exceeded expectations, GDP growth has been slower than forecast and income, employment and government spending have dropped. Image courtesy of Jubilee Australia.

Big promises

When pitching the project, developers made big promises about the economic and social benefits the megaproject would bring to the country.

One influential 2008 study, an economic impact analysis commissioned by ExxonMobil and authored by Australian consultants ACIL-Tasman (now ACIL-Allen), predicted the project would bring a tremendous windfall not only to shareholders, but also to the people of PNG. It forecast the overall size of the country’s economy would nearly double, household incomes would rise by 84 percent, and employment increase by 42 percent.

Backers of the project argued that these anticipated benefits would more than compensate for any adverse environmental or social impacts a giant natural gas facility might bring in its wake.

Instead, says Jubilee Australia, PNG is today worse off than it would have been if the country’s economy had simply continued developing at the same pace as prior to the launch of the project.

“Currently, on almost all economic indicators, the people of PNG would have been better off had the project not happened at all,” report co-author Paul Flanagen, who has served as a senior adviser to the Australian government and the PNG treasury, said in a press statement.

Jubilee Australia’s analysis found that instead of the 97 percent increase anticipated by ACIL-Tasman, PNG’s economy in 2016 was just 10 percent larger than its pre-LNG growth path would have predicted — most of that concentrated in the largely foreign-owned extractive sector. Instead of rising by 84 percent, household incomes fell by 6 percent in the same period, while employment fell by 27 percent.

Even with the moderate increase in the size of the economy, government expenditure to support better education, health, law and order, and infrastructure fell below the baseline by 32 percent, rather than the 85 percent increase anticipated by the ACIL-Tasman report.

Significantly, these decreases came even though production at the facility has exceeded expectations — an increase Jubilee Australia contends was more than sufficient to compensate for the impacts of falling gas prices.

The Tari Gap in Hela Province in the Papua New Guinea Highlands. Photographed in 2003 before the arrival of the PNG LNG project. Image by Ron Knight via Flickr, CC-BY

Falling short

The authors point to several factors.  First, they cite “serious flaws” in the economic impact analysis, describing the forecasts as “extraordinarily over-optimistic.”

Government revenue has also fallen short of expectations due to a combination of generous tax concessions offered to the project, and what the report describes as “aggressive tax avoidance” by the companies involved.

“Exxon and Oil Search” — the second-largest stakeholder in the joint venture — “should be paying half a billion [Australian] dollars [$377 million] to the PNG government every year, since the gas started to flow in 2014,” Jubilee Australia executive director Luke Fletcher said in a press statement. “Instead, they are paying a fraction of this amount, partly because of their use of tax havens in the Netherlands and the Bahamas.”

Drawing on an analysis by the Extractive Industries Transparency Initiative, the authors note that the PNG government received more money from personal income taxes paid by ExxonMobil employees than it did from corporate tax from the company.

Further, the report points to “poor policy decisions made by the PNG government in response to the gas boom.” Exuberant spending in the early years of the project led to debt and deficit when the anticipated revenue failed to flow into government coffers.

Landowners, too, have not received the royalties they expected, a problem Jubilee Australia attributes largely to a failure to vet and identify beneficiaries before production began. Clan boundaries were mapped, but the individuals entitled to payments were not specified as part of the original agreement. This, the reports argues, has been an ongoing source of conflict and uncertainty and has fed into violent unrest in the territories around the project.

“During the construction phase of the project landowners had jobs, families had money, and conflict between clans was minimal,” report co-author and anthropologist Michael Main said in a press statement“When construction ended and people lost their jobs, money stopped flowing, frustrations built up and violent conflict escalated to catastrophic levels.”

A Huli Wigman and youth. The majority of landowners around the PNG LNG site in Hela Province are from the Huli ethnic group. Image by Ron Knight via Flickr CC-BY

‘Utter nonsense’

PNG Prime Minister Peter O’Neill has challenged Jubilee Australia’s conclusions, as have ExxonMobil and Oil Search.

During a May 2 speech in Brisbane, Australia, O’Neill denounced the first of the Jubilee Australia reports as “fake news” and “utter nonsense.” He said he had not read the paper, but accused its authors of aligning themselves with his political opponents.

ExxonMobil and Oil Search, meanwhile, pointed to their royalty payment agreements as well as their corporate social responsibility initiatives, and noted it was the government, and not them, who was responsible for relaying payments to landowners.

“PNG LNG royalty payments due to the government began, and have continued, since the start of production operations in 2014. Payment and distribution of royalties and other benefits due to landowners in the Project is the responsibility of the PNG government and is based upon benefits sharing agreements previously executed between the government and Project area landowners,” ExxonMobil said in a statement to the Business and Human Rights Resource Centre. The company also pointed to its social investment program and its support for humanitarian relief in the aftermath of an earthquake that struck the project area in February.

Oil Search said royalty payments were distributed to the PNG LNG plant site and to traditional landholders in 2017, although it added that “significant payments” were still outstanding. “[W]hat is good for Oil Search is good for PNG. We have a strategic interest in ensuring that we maintain a stable operating environment based on strong and enduring relationships with local communities,” the company said.

Leave a comment

Filed under Financial returns, Human rights, Papua New Guinea