Alluvial Miners Concerned Over Lack Of Financial Backing

Government failing to support alluvial miners with access to loans

Benny Geteng | Post Courier | August 15, 2018

Concerns have been raised by alluvial miners on their inability to borrow money from financial companies to fund their operations.

They said when they approached banks or other financial institutions for assistance, they were usually turned down.

The Alluvial Mining Sector in 2017 generated over K300 million and that figure can double if good financial backing is provided for them to boost their operations.

Edward Buasin of EDHI Limited said they sometimes lacked financial capacity and borrowed from local loan sharks who ended up making huge returns on their finances significantly marginalizing the land or resource owners driving them below the poverty scales.

“Because the banks see us as an unpredictable source of income so we are usually left out to be funded when seeking loan assistance.

“I had been an illegal miner in the past, but now with the support of MRA have registered a fully recognised SME in alluvial mining and have a mining lease as well,” Mr Buasin said.

Mr Buasin highlighted several impediments that developers face in illegal mining:

  • Difficult to contain costs due to competition;
  • The exposure was great, could not take out insurance on equipment or personnel as there was no legitimate documentation to substantiate our activity;
  • Increased idle time due to ongoing complaints ranging from disputed boundaries to all sorts of social issues; and
  • For those who knew the Mining Act they were constantly on the guard.

Another leaseholder of Sandy Creek in Wau said he had tried to access a loan from a bank but was turned away.

“My brother a coffee farmer applied for a loan was approved, but me as an alluvial miner, I was rejected.

“My plea to the Government, is please put money where your mouth is as we the alluvial miners have the potential to make a significant contribution to our economy.

“Any policy change must start from ground zero which is the lease holders or through its Associations such as the Morobe Goldfields Small Scale Miners Association,” he said.

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Morobe Leaders Unite On Wafi-Golpu Project

Benny Geteng | Post Courier | August 15, 2018

Several Morobean MPs including Governor Ginson Saonu have taken a united stand in calling for more Morobean presence in the Wafi-Golpu Mine Project.

This is first time ever for Morobe leaders to come together to show their concerns on the technical advisory and spinoff benefits from negotiations, construction phase, and the development of the Wafi-Golpu Project located between Bulolo district and Huon Gulf district.

The MPs – Morobe Governor Ginson Saonu, Bulolo MP Sam Basil, Huon-Gulf MP Ross Seymour, Tewae-Siassi MP Dr Kobby Bomareo, Nawaeb MP Kennedy Wenge and Lae MP John Rosso.

The emerging Morobe position aims to address lessons from the Bougainville Copper Limited and the crisis it ignited, the Ok Tedi Mining environmental issues that fueled the exit of BHP Billiton, landowner issues affecting the PNG LNG Project and the Hidden Valley Mining Project including other mines that will all be captured in a memorandum of agreement.

They have called for disclosure of pertinent information and engagement instead of limiting Morobe Provincial Government and the landowners to positions on Extractive Industries Transparency Initiative, special support grants and cooperation and assistance to the State and the developer.

“As leaders and stakeholders, we need to have in-depth information and knowledge to formulate our positions on matters of equity, royalties, business development grants, employment and training, compensation payments and infrastructure developments.

“We also need to know the source and independent checks that formed the basis of the figures used in the financial model and benefits by Department of Treasury. Inclusion of future ore discovery prospects, its implications on mine life and related financial benefits,” the leaders said.

Governor Saonu has expressed further concern that the recent second Wafi-Golpu Mining Development Forum in Kokopo has sparked criticism from Morobeans and said that from now on all meetings will be held in either Lae or Morobe.

“If we hold meetings outside of Lae and or Morobe we will fuel unnecessary suspicions among Morobeans that we have things to hide.

“Mining Minister Johnson Tuke has already taken note of this matter and has told Mineral Resources Authority and the Department of Mineral Policy and Geohazards Management in Kokopo to take note and not hold Wafi Golpu Mining Project related meetings outside of Lae and Morobe,” he said.

The MPs have taken the strong stance that the MOA to be signed must be right, and that as stakeholders and host province they demand access to the draft mining development contract before it will be signed by the Head of State and developers.

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Alluvial Gold, Silver Production Up

Benny Geteng | Post Courier | August 15, 2018

The alluvial gold and silver production for the year 2017 achieved the second highest revenue figure of K356 million since the records were reviewed this year.

Mining Minister Johnson Tuke said this placed the alluvial sector in 5th place by revenue when compared to major mines operating within PNG.

“This is evidence of both the status and potential for the alluvial sector within PNG.”

Mr Tuke spoke to delegates during the 4th Alluvial Convention and Trade Show in Lae yesterday stressing that while it was unfortunate that the price of gold is ever reactive to world events, trade, and political influences such as the prospect of a full blown international trade war currently has dropped off its highs of the first six months of 2018.

“Despite this, production in the alluvial sector was recorded as 93,080 ounces of gold and will be exceeded and revenue forecasts suggest revenue over K400 million in a calendar year.”

Mr Tuke said last month the Mineral Resources Authority Act 2017 was gazetted.

He said amongst other policy changes this revised legislation has raised alluvial levy to 0.5 per cent from 0.25 per cent.

“The additional levy funds will enable further policy development within the sector and a wider reach for the small scale mining training.

“Every alluvial mining operation is a small or medium enterprise whether it be a simple panning and sluicing operation or a more complex and sophisticated mechanised development supported by an alluvial mining lease for alluvial purposes and a tribute agreement,” Mr Tuke said.

He further highlighted MRA shares his desire to see the mining SMEs grow and prosper and develop into productive business.

Mr Tuke said the mining advisory council at its last meeting in 2017 approved a trial of a newly established alluvial lease and tributer monitoring committee.

“This committee with additional funding available is to assist failing tenement holder and tributer joint venture arrangements to re-establish trust and confidence, provide fiscal advise and facilitate resolution of disputes.”

He said the outcome is hoped to be successful ventures which in turn lead to transparent, well managed, and productive operations with profits available for distribution in the communities supporting the alluvial venture.

“Furthermore the proposal for development and tribute agreement templates developed by MRA to assist alluvial miners to lodge an application have been reviewed this year.”

The process he said was undertaken to capture common issues faced by applicants and to give them greater control of their mining operation and fairer and more transparent commercial terms.

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Papua New Guinea’s disappearing resource revenues

Foreign owned mining companies are raping PNG – in 2017 the government received just K400m from exports worth K25 billion.

 Glenn BanksMartyn Namorong | Devpolicy Blog | August 15, 2018

Government revenues from Papua New Guinea’s mining, oil and gas sector have essentially dried up. With the ongoing effects of the devastating earthquake in Hela province, the eruption of election-related violence in the Southern Highlands, a significant budget shortfall, and a foreign exchange crisis driving business confidence down, the resources of the government are severely stretched… and the massively expensive APEC meeting looms in November.

In this context, the drop in government revenue from the resource sector is staggering, and accounts in significant part for the growing fiscal stress. Figure 1 shows the extent of the issue: in 2006-2008, according to BPNG figures, the government collected more than K2 billion annually from the sector by way of taxes and dividends, on mineral exports that had just topped K10 billion for the first time. In 2017, the figure is just K400 million on exports of K25 billion – a revenue reduction of more than 80% in the same time that exports have increase by 150%! Government dividends and corporate taxes made up just 1.6% of the value of exports in 2017 (and that was a significant increase over 2015 and 2016). If we take the long-term average share of the value of exports that the government has received (at a little over ten percent), this points to a potential ‘hole’ of at least K8 billion over the past four years, an amount that would go a long way to covering the current fiscal deficit.

Figure 1

Source: BPNG. Resource revenues are defined as “MRSF receipts,” that is, the receipts that used to go into the Mineral Resource Stabilisation fund. Even though the MRSF no longer exists, BPNG still records resource revenues, which include corporate tax and dividend payments from resource companies.

There are some precedents for the rapid drop in government revenues from the sector, as Figure 1 show. In 1990 and 1991 – just as the ‘resources boom’ triggered by the Porgera gold mine and oil production at the Kutubu oilfield began – revenues collapsed, largely due to the closure of the Bougainville copper mine in 1989; and again, briefly in 2009 due to the onset of the global financial crisis in 2008. But neither of these has been as deep or as sustained as the current hole.

A full explanation of the precipitous decline in resource revenues is beyond the scope of this analysis. Clearly, a number of factors are involved, including a fall in commodity prices, major construction and expansion costs (which attract accelerated depreciation provisions) and generous tax deals. The revenue dry-up of the past four years also reveals that the State bears a disproportionate share of the risks associated with resource projects and investments. If we go back to the original intent of the post-Independence mineral policy, it was to translate mineral wealth into broad-based development across the whole country:

‘…known mineral resources should be developed for the revenue they can provide to the Government’ (PNG Department of Finance 1977: 2).

This clearly has not happened in the last four years. And certainly the Treasurer can’t be critiqued for commissioning yet another fiscal review: this seems appropriate, although whether it effectively addresses broader issues of a ‘fair share’ of mineral wealth remaining in PNG remains to be seen.

While there is much less money coming from the resources sector, there is at least better data than there used to be. The Extractive Industries Transparency Initiative (EITI) is a global initiative begun in 2002 to give transparency to what were regarded as often opaque flows of resource revenues from multinational companies in the extractives sector (especially oil) to the state in the countries in which they were operating. It is a voluntary initiative in which countries (and companies) can elect to become a ‘candidate’ country, and so long as they are able to be compliant with EITI standards, they can be admitted as a full member of EITI. The key requirement is to be able to report in a reliable way (through third party audits) on the revenues paid by companies, and reconcile these with payments received by the different arms of the state. The involvement of all parties – companies, governments and civil society – and public communication around the event and its products is also seen as central to both transparency and raising awareness of the nature of resource revenues and their destination.

PNG initiated its involvement in EITI in 2012. Four annual EITI reports have so far been produced (for the years 2013 to 2016). These reports provide an increasingly rigorous and transparent set of data on flows from the sector to the government, and identify additional revenue streams to the government than what BPNG use (and have used for the past 40 years). When all the additional revenue streams that EITI identify are included, the total share of the value of mineral exports rises to around 6.5% for 2017, up from the 1.6% based on the BPNG data. EITI is not without its problems and the most recent PNG country report identifies areas where it needs to be strengthened in PNG, and a focus on companies rather than operations can lead to the obfuscation of total flows and payments from each mine, oil and gasfield. In the PNG context, an examination of the sub-national flows and audit trails is also significant, and an initial study into this is underway.

One surprising revelation from EITI is that the single largest revenue stream from the mining, oil and gas sector to the government for at least the last two years has been so-called “group taxes”: the taxes paid on the wages and salaries earned by employees in the sector (Figure 2). These were worth more than K500 million in both 2016 and 2017, and in 2016 represented 34% of the revenue streams from the sector to the government, as identified by EITI. This is significantly more than the K46-88 million in corporate income taxes, K200 million in dividends paid to the State, or the almost K200 million paid in royalties in 2017. These group taxes are likely to be a more stable revenue stream than taxes or dividends – the workforce is unlikely to expand and contract to the extent that it impacts on the taxes they pay (leaving aside construction phases), or at least not as much as global commodity prices and profitability. But – and here we come back to the issue of PNG securing a fair share of its mineral endowment – this is a tax on the labour used to extract the resource, not a means of necessarily securing a direct share of the value of the resource itself.

Figure 2

The second area where EITI has revealed some interesting questions is around the operation of the Infrastructure Tax Credits (ITC). ITC originated in the sector in 1992 when the Porgera Joint Venture negotiated with the state to use a portion of their taxable income to directly provide infrastructure for surrounding local and provincial governments in exchange for a tax credit on this spend. Over the years the value and the uses of the ITC have varied, including at times supporting various national projects, and has been the subject of debates in various reviews as to its value. In 2016, four companies reported expenditures of K135 million in tax credit projects to DNPM[i], a significant amount that could well have contributed significantly to local and provincial development aspirations… but we don’t really know given the relatively poor reporting of the outcomes of these expenditures. More significantly, though, it is difficult to reconcile the size of these expenditures with the actual taxes paid by the four companies, which come in at well under K100m in total. That tax credits have come to exceed tax payments should ring alarm bells, and would explain why the government has in fact put a temporary stop on them.

Going forward, we would suggest two additional areas of focus, based on the above analysis. This first is local procurement. What is clear from the EITI reports (and earlier work by Banks (1990) on BCL) is that extraction of minerals is an expensive process, and a significant amount of the value of the mineral resource is spent by the companies on the labour, machinery, fuel, food, and the multitude of other costs needed to extract and export the mineral resource. An analysis from the last year of the Bougainville Copper Ltd mine at Panguna revealed that an estimated two thirds of the value of the mine accumulated directly outside Papua New Guinea, and indirect or second round spending would increase this (Banks 1990: 108). Imported materials and services made up 23% of the total value of the gross revenue of the minerals exported, cost of sales (all spent offshore) another 13%, depreciation 8% and dividends to non-PNG shareholders 12%. Local content spend on materials and services sat at just 5.5%, less than a quarter of the equivalent imported costs, while in total local wages and salaries were around two-thirds of the expatriate salary costs, despite the much greater numbers of local employees.

A long-standing objective and challenge for the State has been to find ways to ensure a larger proportion of these capital and operating costs are spent on PNG-based labour and other inputs. Plans at most of the major operations have been successful in localising the workforce significantly, hence reducing imported labour (and costs) at operations over time, although foreign labour continues to be important during construction. In terms of the goods, services and materials used to construct and operate a mine though, there appears to be scope to increase the proportion that is spent and retained locally. In large part this is tied to corporate and state support for a stronger local small business sector that can effectively service these mines (and potentially service the growing extractives industry across the Pacific).

The second area to which attention needs to return is the Sovereign Wealth Fund (SWF). This Fund, which would serve the dual function of saving a component of the resource revenues and having a portion committed to developmental needs through the budget, is in place (in terms of the legislation for it) but has not yet been implemented by the government. This well-proven mechanism for translating immediate resource revenue into a long-term sustainable fund can play a critical role in reducing the volatility of flows to the government. Ironically it may be that the factor holding back the government from moving on its implementation is the dire need for all the resource revenues right now. But neither is it sensible to wait for revenues to return to high levels before initiating the SWF: it will almost be certain that political and bureaucratic processes would delay the first flow of revenue to such an extent that several years’ worth of revenues that could kick start the fund would be lost. In other words, in many ways this period of low revenue is an excellent time for the Fund to begin.

So, the answer to the question of where have all the resource revenues gone, is not a simple one. The EITI reports show that a range of factors at the different operations (accelerated depreciation, tax holidays, ITC and re-capitalisation in plant expansions etc), have impacted on the revenue flows to government. To this we can add global commodity price drops, a compromised fiscal regime and some less-than-transparent governance structures and processes. The fact remains though, that over the past four critical years in its development, Papua New Guinea has missed out on a ‘fair share’ of the value of its mineral resources that have been extracted.

[1] Although confusingly there are different figures recorded as tax credits claimed by the companies from IRC – where the total credit offset against tax from three of the four companies come to K54million.

References:

PNG Department of Finance (1977), Financial Policies Relating to Mining and Mining Tax Legislation: Statement of Intent. Waigani: October.

Banks, G. (1990), Minerals and Development in Papua New Guinea. Unpublished MSc Thesis, Department of Geography, University of Canterbury.

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Norway to Map Deep Sea Mineral Deposits

Maritime Executive | 12 August 2018

The Norwegian Petroleum Directorate is readying to map potential deep sea mineral deposits in the Norwegian Sea, with an expedition due to get underway this month.

The Directorate has engaged Swire Seabed, which partners with Ocean Floor Geophysics, to carry out mapping of potential sulfide minerals on the seabed over the Mohns Ridge in the western Norwegian Sea. This is a spreading ridge in the Atlantic Ocean that separates two oceanic plates, where potential valuable minerals have been formed through hot volcanic sources. The focus of the expedition is not the active hydraulic systems such as “black smokers,” but rather non-active extinct systems that are now left as mineral-rich piles of gravel on the seabed.

The mapping will be carried out using an autonomous underwater vehicle, a Kongsberg Hugin AUV, which will map the seabed using a bottom-penetrating echo sounder, multibeam bathymetry, synthetic aperture sonar data, magnetometry and spontaneous potential field data.

After the data is processed on board, mineral samples will be taken from the seabed where the data indicates the presence of deposits. Sampling will be carried out using an underwater remotely operated vehicle with a depth capability of 3,000 meters (9,800 feet).

Earlier studies by the Norwegian Research Council have indicated that the region could contain resources worth as much as $110 billion. Around 6.4 million tons of copper metal in addition to zinc (6.5 million tons), gold (170 tons) and silver (9,901 tons) have been estimated to be present in the region. 

Rising demand for minerals and metals, including for use in new technology, has sparked renewed interest in seabed mining. Since 2001, the International Seabed Authority has issued licenses to approximately 30 government and private organizations to explore 500,000 square miles of the deep sea outside national jurisdiction for minerals. 

This increasing interest in seafloor mining globally has drawn some criticism. Despite the term “mining,” much of the activity would involve extraction of minerals over very wide areas of the sea floor rather than digging down to any great depth, potentially leaving a vast footprint on the deep-sea habitats in which these mineral deposits occur. Earlier this year, a study by the University of Exeter and Greenpeace warned that mining on the ocean floor could do irreversible damage to deep sea ecosystems. The deep sea (depths below 200m) covers about half of the Earth’s surface and is home to a vast range of species. Little is known about these environments, and the researchers say mining could have “long-lasting and unforeseen consequences” not just at mining sites but also across much larger areas. 

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Mayur set to drill Feni Island

Field mapping at Matakangkaka Creek

PNG Industry News | 13 August 2018

MAYUR Resources says it is ready to mobilise a team do begin a drill program at its Feni Island copper-gold project in New Ireland Province.

This follows the completion of a detailed field mapping and sampling programme within the Matangkaka Creek area at Feni Islands EL2096.

The company says Matangkaka Creek is an eastern tributary of the Nanum River and is rated as one of the top three gold bearing streams in the Feni Island group. It is also near and upstream from the Kabang structure that hosts a 650,000 ounce gold resource.

“The trip was undertaken by Dr David Lindley, Mayur’s veteran expert geologist who has decades of experience on Feni,” Mayur said.

Mayur has correlated this new information with historical data to finalise a drilling programme of up to 2400m. The programme of up to seven holes is focusing on the gold mineralisation in structures beneath and along strike of the Matangkaka Creek.

Mayur managing director Paul Mulder said the company was essentially ready to mobilise and execute the drilling programme at Feni.

“This is particularly exciting as Feni Island sits between Lihir, one of the largest gold mines in the world, and Bougainville, one of the world’s great copper-deposits. You could not ask for a more prospective postcode location of the Feni prospect being the situated island between these two world-class giants.

“This, coupled with historic attractive copper and gold mineralisation from near surface (continuing at depth), provides an attractive backdrop to conduct a drilling campaign, which will be the first in many years on the island,” Mulder said.

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Papuan authorities shut mine over labour hiring dispute

Photo: Mark Agnor 2014

Radio New Zealand | 14 August 2018

Authorities have closed a gold mine in Korowai in the southern part of Indonesia’s Papua province, following uproar over the company hiring newcomers ahead of local tribe members.

The Jakarta Post reports the mine was closed on Friday by the Papua Governor Soedarmo, along with the police and military chiefs.

Two helicopters that were to be used to transport workers to the mine site, were sealed at the Tanah Merah airport in Boven Digoel regency.

The mine is understood to employ about 3000 workers..

Separately a Papua councillor, John Jose Gobay, said the mine should be managed by the local residents of Korowai, as stipulated in the 2014 law on local administrations.

He urged the Papua governor to propose to the Energy and Mineral Resources Ministry to hand the mining site over to the local tribe.

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