The streets of Sydney are paved with Papua New Guinea’s gold
Jewel Topsfield | Sydney Morning Herald | 17 July 2018
Major Australian mining companies face the prospect of higher royalties, tough restrictions on fly-in fly-out workers and the potential nationalisation of assets under reforms under consideration by the cash-strapped Papua New Guinea government.
The proposed law changes have sparked warnings from the country’s peak mining body that they would pose “significant deterrents” to investment in future projects and “threaten the existing operations of current mines”.
Several Australian Securities Exchange listed companies including Newcrest, Highlands Pacific and St Barbara Limited operate mines in Papua New Guinea, which has significant resources including gas, gold, copper, cobalt and nickel.
Mineral exploration in Papua New Guinea
The PNG Chamber of Mines and Petroleum says the proposed changes to the Mining Act could clamp down on international fly-in fly-out workers, impose a right for the state to compulsorily acquire mining projects (on commercial terms) after 24 years and result in an increase in royalties.
It says some of the proposed changes – which have been under discussion for years – would have “severe negative impacts in the immediate and long term on both existing operations and proposed projects”.
But the Resource Owners Federation of Papua New Guinea claims existing laws are “primitive, unjust and self-harming”, and mining companies continue to reap benefits while keeping the landowners and citizens who own the resources poor.
PNG Deputy Prime Minister Charles Abel told Fairfax Media the government was concerned about a number of factors including increasing the share of benefits to landowners.
The Papua New Guinea resource industry is responsible for just 20,000 jobs in nation of over 8 million people.
“Any proposed amendment must address the underlying concerns and keep PNG competitive as an investment destination,” he said.
New copper and gold projects inlcuding the Newcrest-led Wafi-Golpu mine and PanAust’s Frieda River mine are currently awaiting special mining leases from the PNG government.
At an update last month Mr Abel said the PNG government was bringing on Wafi-Golpu, the expansion of a ExxonMobil-operated PNG liquefied natural gas plant and Papua LNG “under an improved fiscal template”.
The Wafi-Golpu project, a joint venture between Newcrest and Harmony Gold, is a key part of Newcrest’s future and is considered the company’s top growth asset.
Newcrest’s Wafi-Golpu joint venture mine in PNG.
Australian company PanAust holds an 80 per cent interest in the Frieda River copper-gold project, which has an estimated initial mine life of 18 years.
PNG Chamber of Mines and Petroleum executive director Albert Mellam said some of the proposed changes had undermined investor confidence in PNG.
“We are concerned that some of the draft amendments are internationally uncompetitive, are a serious deterrent to investment in future mining projects in PNG and will threaten the existing operations of current mines in the country,” he said.
Dr Mellam said the transitional arrangements were inadequate to protect existing operations and could affect permit applications that already been submitted. He also said businesses would have to wear increased royalties, fees and levies and “unreasonable penalties”.
He said the passing of legislation in February – which removed industry representation on the Mineral Resources Authority Board and doubled the production levy rate from 0.25 per cent to 0.5 per cent – had already created a “great deal of uncertainty in the minerals sector and for international investors watching PNG”.
“The industry has already observed a gradual decline of investment into mineral exploration over the past two years.”
Mr Abel, who is both the Treasurer and Deputy Prime Minister of PNG, told Fairfax Media the current system had yielded good returns to government from mining projects in the past but a number of circumstances had combined to greatly reduce these flows as a share of government revenue.
These included projects approaching maturation, tax concessions, low prices, PNG LNG and Lihir, the gold mine owned by Newcrest, accessing accelerated depreciation provisions and greater use of the tax credit scheme.
“The state is not necessarily seeking to increase its take but wants earlier returns and smoother flows at lower cost,” Mr Abel said.
The gold processing plant on Lihir Island in PNG. Photo: Reuters
“This may necessitate a tax regime that is more production based rather than profit, has longer depreciation periods, has an element of free carry equity and simpler, more transparent structural arrangements and doing away with tax concessions.”
Mr Abel said PMG also wanted to minimise international fly-in fly-out operations to retain more benefits in Papua New Guinea.
The proposal to reduce maximum mining licenses from 40 to 25 years was “still under consideration”.
Mr Abel said the government was determined to deliver Wafi-Golpu, the PNG LNG expansion and Papua LNG to early works and final investment decision by 2019.
“These and other imminent projects should be based on the current legal framework with negotiated terms to meet some of the requirements I mentioned.”
The Resource Owners Federation of Papua New Guinea said the Mining Act should be reviewed in its entirety, so the ownership of minerals was retained by customary landowners.
“Minerals can still be mined only after development agreements are reached between the landowners and mining companies,” it said in a statement.
“All parties then benefit from a project, in contrast to Papua New Guinea in the past and today, where the landowners are the ultimate losers.”
According to the 2018 PNG economic survey by the Australian National University and University of PNG, the country is experiencing an “urgent economic crisis” and a shortage of foreign exchange is worsening.
The economy is dependent on the resource sector, which makes up 30 per cent of GDP, but much of it is foreign owned and a large share of the benefits flow offshore.
“Since 2015, resources revenue (corporate taxes and dividends from mining and petroleum) have been at their lowest level since 1992,” the economic survey says.
It says accelerated depreciation and tax holidays meant new projects paid no or virtually no resource revenue but it was surprising that even older projects were paying very little revenue.
“On the one hand there are genuine concerns in PNG that the country and landowners haven’t been getting a good deal from resource projects and change is needed,” said Professor Stephen Howes, the director of the Development Policy Centre at ANU.
“On the other hand the economy is in a very precarious state and the government is desperately looking for stimulus from new resource projects. That’s the tension … I think the government is in a difficult position.”
Professor Howes said he did not believe big new projects would go ahead until the uncertainty was resolved.
“They want clarity on these issues because they are long-term investments and these issues are seen as very important.”
Austmine, the leading industry body for the Australian Mining Equipment, Technology and Services sector, said current macroeconomic conditions and mining regulations in PNG had proven to be “considerable roadblocks to investment, creating uncertainty and stifling exploration”.