Author Archives: ramunickel

PNG resource extraction law at stake

“The truth is that our country is at a crisis point. If we do not correct some very serious faults and failures in how we approach the extraction of resources such as minerals, gas and oil we will not only continue to fail to deliver progress to our people, we will put the very survival of our country at peril.”

Editorial | The Sunday Bulletin | 2 December 2018

THIS week Papua New Guinea’s expanding resources industry will be showcased at a three-day PNG Mining and Petroleum Investment Conference.

Widely regarded as the nation’s premier international conference, will be held from 3 to 5 December 2018 at Sydney’s Hilton Hotel in Australia.

We understand that speakers will include the PNG Prime Minister, Peter O’Neill, along with a number of government ministers who will provide delegates with insights into the government’s policies in areas such as energy and environmental protection.

The PNG Chamber of Mines & Petroleum in its media release hinted that an important project that will be featured during the conference is the country’s upcoming Papua LNG project, of which a Memorandum of Understanding on this project was signed by the project’s joint venture partners Oil Search, Total and ExxonMobil and the PNG Government during the summit.

The Wafi-Golpu project, a 50-50 joint venture project owned by Australian-owned Newcrest Mining, and South African mining giant Harmony Gold which early works is expected to start in a few years will be a main draw-card for conference delegates.

While the current focus is showcasing our vast mining and petroleum potential to prospecting investors, there is a real need to correct PNG’s mining laws.

The review of mining legislation (The Mining Act 1992) is long overdue in Papua New Guinea. There have been some attempts made in recent times but nothing is forthcoming. How serious Government is about this review? It seems to have been carried out with very little urgency.

We have seen very little in the way of radical suggestions for changes in the way mining is done in Papua New Guinea.

For the truth is that our country is at a crisis point. If we do not correct some very serious faults and failures in how we approach the extraction of resources such as minerals, gas and oil we will not only continue to fail to deliver progress to our people, we will put the very survival of our country at peril.

We need a new vision for resource extraction. We need to make some hard decisions, not just make little changes around the edges. For example, we need to decide that the people own the resources. Not the government. Not outsiders. It’s the people. And we need to ensure that there is an equitable distribution of the benefits – not only to landowners, the affected areas, provinces and government, but to the entire nation. This is what our country cries for today, and this is what we must provide.

But to develop a strategy of sustainable prosperity, we must first understand the mistakes we have made in the past and continue to make. Someone must tell this story or we will never correct our mistakes.

The Mining Act 1992. That Act declares: ‘All minerals existing on, in or below the surface of any land in Papua New Guinea, including any minerals contained in any water lying on any land in Papua New Guinea, are the property of the State’.

The Oil and Gas Act 1998 makes a similar declaration in respect of oil and gas reserves throughout PNG.

The State has unilaterally wrested ownership of all wealth on or below the ground from the people who owned those resources for 40,000 years.

What we need now is for the government to change the much talked about Mining Act 1992 so that our resource owners get a fair share of the resource wealth that’s derived from their land.

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A high-profile deep-sea mining company is struggling

Nautilus has multiple problems, including the loss of an expensive ship

The Economist | December 5 2018

AFTER LISTING on the Toronto stock exchange in 2006 Nautilus Minerals became the public face of a daring new industry: deep-sea mining. It planned to pursue riches on the ocean floor, mining metals such as gold, zinc and copper, desired respectively for lustre, alloys and electronics. Robotic machines would cut, grind and gather volcanic rock at a site called Solwara 1, located 1,600 metres beneath the surface of the Bismarck Sea near Papua New Guinea (PNG). The resultant rocky slurry would be pumped up to a support vessel, then shipped to a site at which the metals could be extracted. Investors were convinced; Nautilus’s shares doubled from their initial price of C$2 ($1.80) in a few months.

Today a Nautilus share is worth just a few Canadian cents. Three problems have changed sentiment. First, the firm has had substantial contractual trouble with the government of PNG, in whose territorial waters Solwara sits. The two sides wrangled for years over payments that the government owed for its equity stake in the project. The government eventually stumped up, but the row slowed progress.

Second, the idea of using Nautilus’s vast machines to carve and crush underwater volcanoes does not sit well with environmental groups in PNG and around the world. That may have unnerved investors.

Third, uncertainty after the financial crisis of 2008-09 made it harder for Nautilus to fund its untested venture. That has left only two big shareholders: MB Holding, an Omani conglomerate, and Metalloinvest, a Russian steel and mining firm.

Timetables have slipped badly as a result. The firm states only that mining at Solwara 1 will now be delayed “past” the third quarter of 2019, with no start date offered. Meanwhile, the firm’s finances are making a descent. Some $350m is required to get mining going. Nautilus has drawn down half of a $34m credit line that MB Holding and Metalloinvest extended to it in January in exchange for the rights to purchase more shares (an arrangement which coincided with the departure of some senior managers and Nautilus’s chairperson). The company is due to start repaying these loans in January but, as of September 30th, only had $200,000 of cash.

To add to these problems, Nautilus appears to have lost the specialised support vessel that it had planned to use. It had chartered a new ship through MAC Goliath, an Emirati shipowner and operator. The vessel was nearing completion at the docks of Fujian Mawei Shipbuilding in Fuzhou in southern China in December 2017 when MAC Goliath defaulted on a payment. Nautilus was given the option to step in and make the missing payment, but was unable to do so. In July the Chinese shipyard found a new firm to take over the contract, MDL Energy, an Indian shipowner that is planning to engage in deep-sea mining explorations for India’s government. Kulpreet Sahni, MDL’s chief executive, confirms that his firm now owns the ship.

On December 2nd Nautilus stated that it was “in negotiations with various parties” about ownership of the vessel; its shares surged in response. But Mr Sahni says his firm terminated negotiations about Nautilus’s continued use of the ship months ago. On December 3rd Mr Sahni wrote to Nautilus’s boss, John McCoach, warning that the firm’s statement was detrimental to MDL Energy, and to Nautilus’s own minority investors, and that it might contact the Toronto Stock Exchange or take legal steps if the matter was not clarified. (In an emailed statement to The Economist, Mr McCoach declined to comment on the specifics of this story but said that some of it was “not accurate from our perspective”.)

If the vessel is gone, that would be a huge blow for Nautilus, for it had been custom-built for the firm’s particular mining methods. It will be near-impossible to replace, especially given Nautilus’s beleaguered finances.

But Nautilus’s travails have offered lessons to the rest of the deep-sea mining industry. Gerard Barron, Nautilus’s first financial backer (who sold out of the company years ago), has hired some of Nautilus’s ex-employees for DeepGreen, a new deep-sea mining venture which focuses on harvesting metallic nodules that are scattered across the sea floor in the deep ocean. These contain metals such as cobalt and nickel needed for the batteries and wind turbines that power the clean economy. Having watched Nautilus’s progress, he reckons that hoovering up nodules will be easier than grinding volcanic rock, and that their uses lend such activities a more environmentally friendly sheen. Other firms have made a similar bet.

Although the water in the Clarion-Clipperton Zone, a patch of Pacific sea floor in which such firms will operate, is some three times deeper than that at Solwara, the location is out on the high seas. That means it is subject to a clearer set of rules for mining and exploration which is overseen by the United Nations, thereby reducing the scope for wrangling with national governments. Nautilus holds a concession there, too. But if the firm does not secure a fresh infusion of cash, its machines may never venture further than a dock in PNG.

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Nautilus setting JV to secure support vessels for Solwara 1 project

Nautilus’ floating base.

UPDATE: 6 Dec. Nautilus Minerals is reported to have been referred to the Toronto stock exchange for misleading investors over the fate of its mining vessel which it is claimed has already been sold to a third party despite Nautilus claims below that it is preparing to buy the ship.

Cecilia Jamasmie | Mining.com | 5 December 2018

Shares in Canada’s Nautilus Minerals (TSX:NUS), one of the world’s first seafloor miners, climbed more than 10% on Monday as the company disclosed is negotiating the terms of an agreement with arm’s length third parties that would involve the creation of a joint venture company.

The purpose of the new firm, Nautilus said, would be to fund the acquisition of the Production Support Vessel (PSV) that Nautilus had previously arranged to be procured through shipbuilder MAC Goliath.

In July, the Vancouver-based company announced that MAC Goliath Pte’s had failed to pay part of a contract with the owner of the shipyard where the Nautilus’s support vessel were being made.

Nautilus, which is in the last stages of developing its Solwara 1 gold, copper and silver project, off the coast of Papua Guinea, said the support ship would be used at that venture.

The miner, which also is developing another underwater project, off the coast of Mexico, secured in May $34 million from lender Deep Sea Mining Finance, to finish Solwara 1, which is set to become the world’s first commercial deep-sea mine.

However, it lost support from Anglo American’s (LON:AAL), which decided to divest its 4%-stake in Nautilus.

Environmental groups have criticized the project, which will use three robotic machines weighing up to 310 tonnes to mine copper and gold from extinct hydrothermal vents on the ocean floor.

Nautilus plans to then mix the ore with seawater to create a slurry, which can be drawn to the surface, stored and then put on other ships for transport. The extracted seawater is then pumped back to the seabed.

Nautilus’ shares were trading up 10% in Toronto at 0.5 Canadian cents by 11:35 am Toronto time.

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Bougainville’s tinderbox threatens to reignite

Bougainville Revolutionary Army fighters look down on the Panguna mine in 1996

An independence referendum and unresolved issues over the rich Panguna copper mine threaten to tilt Papua New Guinea’s tumultuous autonomous island back to civil war

Alan Boyd | Asia Times | December 4, 2018

Foreign mining companies are jostling for exploration rights on the Papua New Guinea island of Bougainville ahead of a crucial independence vote next year that some fear could revive tensions that sparked a civil war that killed 20,000 in the 1980’s.

The island will need mining royalties to maintain a viable economy if the referendum backs independence, but unresolved issues over the Panguna copper mine are still a sensitive point with traditional landowners. Villagers shut the pit down in 1989, triggering the previous lethal conflict.

The referendum is the culmination of the Bougainville Peace Agreement, which formally ended the decade-long bloody civil war. It will take place as the US and Australia aim to work closely with Papua New Guinea to develop its Lombrum Naval Base to counterbalance China’s growing maritime influence in the region.

In January, the Autonomous Bougainville Government (ABG) said that an indefinite moratorium had been imposed on work at Panguna, which was the world’s biggest open-cut copper mine when it was being operated by Bougainville Copper Limited (BCL), a unit of Anglo-Australian mining giant Rio Tinto.

Rio exited in 2016, transferring its 53.8% shareholding to the ABG and the Papua New Guinea government, but there has been speculation the mine could reopen. Papua New Guinea’s government gave its shareholding to traditional landowners in the Panguna area.

“If we went ahead now, you could be causing a total explosion of the situation again,” ABG president John Momis said after the moratorium was declared.

“As far as the people are concerned and as the government, we cannot allow foreign companies to be causing division and using a very emotional situation [on] the ground to cause another war.”

In 1972, there were suggestions of colonialism and commercial exploitation over a decision to grant a mining license to Rio Tinto after minimal consultation with local villagers. Bougainville was then being ruled by Australia under a United Nations mandate that ended with Papua New Guinea’s achievement of independence in 1974.

The Panguna mine effectively underwrote that process: at one point copper from the mine was contributing 45% of Papua New Guinea’s annual export earnings and generating more than US$740 million from tax income and dividends.

But little of this money reached tribal groups; instead, they complained that trailings from the mine were killing their fish and poisoning farmland. In 1989, the Nasioi people broke into the site and shut the mine down.

Autonomous Bougainville Government President John Momis. Photo: Youtube

When Papua New Guinea sent riot police and troops to the island, villagers formed the Bougainville Revolutionary Army, a rag-tag separatist group that plunged the region into a decade-long civil war that left most of its infrastructure in ruins.

A fragile peace was achieved in the late 1990s under monitoring groups led by Australia and New Zealand, but the wounds remain raw. Several tribes maintain “no-go” areas to keep foreign firms out, and the remnants of the BRA, known as the Me’ekamui group, only disarmed this October.

Bougainville, which has closer ethnic links to the Solomon Islands than Papua New Guinea, was granted a limited form of autonomy under a formal 2001 peace treaty. The referendum, tentatively scheduled for June 15 next year, will decide whether the island should become completely independent.

However, it will not happen unless the ANG can find some way to bridge the gap between developers and traditional landowners who fear a repeat of the Panguna fallout.

Rio Tinto left behind an environmental mess of sludge and rusting equipment that some analysts estimate could cost US$1 billion to put right. The firm contends that it has already complied with regulatory requirements.

Momis knows that without mining, Bougainville will stay part of Papua New Guinea, as the island managed to cover only 14% of its total expenditure of US$50 million last year from domestic sources — mostly sales of farm products. It is expected to need a budget three times bigger if it votes for independence.

Resistance fighters from the Bougainville Revolutionary Army (BRA) in a file photo. Photo: AFP/Torsten Blackwood

Leaving the door ajar, Momis has said that the moratorium only covers mining at Panguna, which is inaccessible in any case because of a “no-go” order. A new mining law passed in 2014 clarified the regulatory situation and has attracted interest from firms in Australia, China, Canada and elsewhere.

But there is a catch: the law gave traditional landowners control over minerals on their land and the right to participate in any development decisions that might affect their interests. So the fate of Bougainville’s separatist movement now rests with those who started it in the 1980s.

Landowners that do deals with mining companies will have to face the wrath of neighboring tribes that could bear the consequences of mining. There are strong risks that tensions could boil over even before the referendum.

The wild card in this game of chance is Papua New Guinea, which is not obliged to allow Bougainville to break away even if there is a “yes” vote.

Indeed, it may prefer to keep a tight rein on its renegade region, especially if predictions of a vast untapped treasure of copper, gold and other minerals are realized.

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Kainantu profitable and will have long mine life, says K92 CEO

A core from Kainantu’s Kora deposit Source: K92 Mining

David James | Business Advantage | 4 December 2018 

Canadian miner K92 has found new ore and is ramping up its operations at its Kainantu mine in Papua New Guinea’s Eastern Highlands Province. In this exclusive interview, Chief Executive John Lewins tells Business Advantage PNG that the company is now profitable and has an anticipated mine life of over 15 years.

New ore discoveries are at the heart of Kainantu’s current health. When the mine was bought by K92 from Barrick Gold in 2015, John Lewins says the focus was initially on restarting mining operations on the Irumafimpa ore body.

The expectation in the previous owners’ original design was that this would yield about 20 grams of gold per tonne, but it was closer to 8.5 grams.

‘It was still pretty good but, when you are expecting 20, it is not so good,’ he tells Business Advantage PNG.

‘It was recognised that this ore body was also relatively difficult mining, in terms of narrow veins, clay and other technical issues.

‘It was therefore the intent of K92 to bring the previously unmined Kora ore body into production.’

Kora and Kora North

In mid-2017, K92 drilled the first diamond drill hole from underground, looking for an extension. Attention then turned to the Kora ore body, closer to the existing underground workings, which proved to be more prospective—and ultimately profitable.

Lewins says the initial discovery hole had yields of 11.7 grams of gold per tonne, 25 grams per tonne of silver and 1.2 per cent copper.

‘We developed out to this extension area, designated “Kora North” and mined a bulk sample which was treated through the existing process plant in October 2018, achieving recoveries of 92 per cent copper and gold from that sample.

‘So, we switched our mining to basically focus on Kora and in January of this year we were 100 per cent Kora.

‘At the end of January, we declared commercial production and made a profit. The first quarter for us was profitable, the second quarter was profitable, and the third quarter is not out yet but it is definitely positive cash flow.

‘So, for the year we will make money.’

Costs

Lewins says K92’s cash costs are ‘running at around’ US$560 an ounce (the current gold price is US$1213 an ounce).

‘All in sustaining costs, bearing in mind that we are developing a brand new mine effectively underground below US$800 an ounce.

‘We are giving (production) guidance this year of 42,000-46,000 oz. We will make that.‘

Lewins says the original Kora deposit contained an estimated resource of at least 1.65 million ounces of gold, and an additional Kora North is expected to be over one million ounces.

‘We are looking at a 15-to-20 year life for an expanded operation, treating 400,000 tonnes per annum and producing over 100,000 ounces per annum. And (production of) 400,000 ounces per annum, not the current 200,000 per annum.

‘We are planning an expansion that will cost about US$15 million to double throughput,’ says Lewins.

‘We are continuing to drill the Kora and Kora North deposits from underground, with a target of doubling the resource. All of this has been underground drilling.

‘We have a third rig coming in to extend the drilling.’

Lewins says the company will conduct a preliminary economic assessment by the third quarter of next year, and expects to have an estimated total resource of five million ounces (including Irumafimpa). K92 is also planning further exploration of the Kora ore body outside the existing mine lease.

Share price

Lewins says K92’s share price has doubled in the past year.

‘A company like ourselves, having five million ounces at relatively high grades at 12 grams per tonne—and in production in a market where quality assets are in short supply—is an attractive investment.

‘From a shareholder perspective that is positive. We have started delivering.’

K92’s share register is 45 per cent institutional investors and 40-45 per cent retail investors, mainly out of Canada.

Lewins acknowledges PNG is a challenging environment.

‘We are in a better position than most. We have got grid power, for instance.

‘We have got a sealed road, a highway which runs from the port of Lae to about 8 kilometres from the site.

‘We have a government airstrip right next to the road as well. We have good infrastructure.’

Up in smoke?

One challenge is entirely unforeseen, however.

‘Something that is totally out of left field is the legalisation of marijuana,’ says Lewins.

‘This has created a massive marijuana boom in Canada.

‘Hundreds of millions of dollars are going into investment in marijuana and that money is coming out of the mining sector.

‘If you look at the TSX and the ASX (Australian Securities Exchange) over the last 18 months; for the first time in living memory, the ASX has actually been outperforming the TSX in terms of the junior mining sector.’

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Introduction Of Mining Bill Pushed To Next Year

Mining Minister Johnson Tuke

Post Courier | December 5, 2018

Mining Minister Johnson Tuke told the Mining and Petroleum Conference in Sydney that proposed amendments to the Mining Act (1992) will be made next year.
He said this despite previous indication of last month being the sitting that would introduce the proposed amendments.
Citing concerns from the industry and the need for independent review from within government circles, he said the amendment would still take place nonetheless citing an over 9 years consultative period.
“One of the principle priority for my ministry was to ensure the proposed mining bill is introduced in parliament in the November session in accordance with the NEC decision No 8 of 2018,’’ he said.
“The ministry had put together a working team comprising the Department of Mineral Policy and Geohazards Management, the Mineral Resources Authority, the Department of Treasury and the Office of the State Solicitor and the First Legislative Council under the oversight of the Chief Secretary to Government to prepare the mining bill for introduction in parliament, however, certain considerations have pushed the introduction of the mining bill to 2019.
“Let me say at this juncture that the mining bill and the new policies are necessary for the effective regulation of the mining industry in PNG.
“The review of the mining act was done by Papua New Guineans on both sides of the table who are well experienced in their respective fields of employment.
“The nine years of review, which three, specifically with the mining industry is testament to the scrutiny the review has undertaken.”
He also assured the industry and potential investors that the policy and legislative changes proposed by government intend to establish a foundation for growth and prosperity for the country in the years to come.
“The aspiration to protect the rights and interests of our investors is of paramount interest to the government,’’ Mr Tuke said.
“By the same token, the aspiration to ensure the rightful benefits are due to our people is also of paramount interest to the government.
“Finding the balance that best serves our collective interests and aspirations is what we have to do collectively in a responsible manner.
“While the industry has the duty to serve its respective boards, we as the leaders of the country also have the responsibility ultimately to serve our people.”

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Peter O’Neill: Government to Ensure Better Deal for Communities

Meriba Tulo | EMTV | 4 December 2018

Negotiating a better deal for Papua New Guinea will be the mantra for the National Government as it looks to finalizing some major projects within the Extractive Industries in the months ahead.

Prime Minister Peter O’Neill made these comments when speaking to EMTV News on Day one of the 2018 PNG Mining & Petroleum Investment Conference.

Addressing the opening session of the PNG Mining & Petroleum Investment Conference, Prime Minister Peter O’Neill elaborated on the efforts by his government in pushing for better deals for upcoming projects within the mining and gas space.

His comments on the back of concerns regarding the perceived unfair distribution of wealth from existing projects operating in PNG.

According to Mr O’Neill, the lessons from current projects will not be repeated, with the National Government aiming to ensure that the country receives a better deal, financially, but more importantly, socially, through respective project agreements.

A major aspect of upcoming projects that the government is keen to complete, is the all-important landowner and clan-vetting exercise, especially within the gas sector – which according to the Prime Minister was rushed during the country’s first LNG project.

The Prime Minister’s comments come at a time when the government is trying to finalise project agreements for the Papua LNG, and Wafi -Golpu Projects respectively.

An MoU between the State and Project developers was signed during the recent APEC Economic Leaders Week in Port Moresby, and according to the Prime Minister, an agreement a similar agreement is expected to be signed for the Wafi -Golpu Project at the conclusion of the Sydney Conference.

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