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.


1 Comment

Filed under Financial returns, Papua New Guinea

One response to “MRA Act changes ‘create uncertainty’ as mineral prices rise

  1. John Heugh

    Several key elements of the proposed new Act are unacceptable IMHO and will result in outcomes not wanted; PNG desperately needs foreign investment and this overwhelming need has resulted in an unseemly and ill advised set of revisions to the Mining Act which will have the opposite effect to that desired :

    1. A ban on FIFO will result in a gigantic and speculative boom in housing and infrastructure from the private sector until the next downturn in the commodity cycle which will then result in a cataclysmic “bust”- leaving many speculators and local communities bascially bankrupt. This is what happend in Western Australia. A better approach would be to provide ongoing tax incentives to companies prepared to support well managed sustainable local employment and housing.

    2. A 50/50 business equity relationship is never a good idea-many such structures will be doomed to self extinguish; one party must have dominant control or endless committee style squabbles will simply choke a project to death.

    3. They payment of 50% of sunk costs to attain a 50/50 or indeed any other equity match in a project by the government rather than paying fair market value is simply unacceptable-reminiscent of a communist dictatorship rather than the democratic private enterprise business model which PNG ought aspire to obtain.

    The way to encourage and inspire foreign investment into PNG is not the way proposed in the new Mining Act. Perhaps the government might consider business models more in line with Western democracies to encourage business investement by foreign companies. I can see that the Chinese may just work within such a system but this will result in locking out other nations and result in many projects being put on ice until such times that the Chinese government chooses to proceed. PNG will then eventually become a de-facto puppet state of the Chinese government.

    John Heugh

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