IT’S NOW OVER FOUR WEEKS since a Reuters’ report republished in PNG Attitude alluded to junior mining company Pan Aust Ltd buying a majority Interest in the Freida mine for about $US125 million. [A similar report in the Wall Street Journal put the value at $US75million.]
In my view, the orchestrated leak to the media could have been deliberately engineered by Pan Aust to pull the wool over the eyes of the PNG government and to execute a grab for cash not dissimilar to the Nautilus debacle.
The architect of this power play seems to be the same person who sits on the cross board of Highlands Pacific, Pan Aust and Nautilus.
When The National newspaper first carried this story at the beginning of November, I personally communicated with a handful of Cabinet ministers, including the acting Mining Minister Ben Micah, to alert them to the report and to point out the obvious - which is that the PNG government is a partner in Freida and has the right of first refusal in acquiring the interest of Xstrata–Glencore ahead of Pan Aust.
I asked them whether, as a matter of policy, the national government will hold on to its 30% equity in Freida or will it make a bid to increase its equity in the mine and whether Xstrata has informed the government of its decision to sell its interest in the mine to Pan Aust.
All the ministers were shocked and angry at this nose thumb to the PNG Cabinet by Pan Aust and said the company had treated the government and people of Papua New Guinea, and the Sepik in particular, with contempt in announcing a deal not sanctioned by the government.
The most glaring issue in the purported deal reached between Xstrata and Pan Aust is the figure placed on the value of the Xstrata interest in Freida.
First the amount outlaid by Xstrata to define the resources of Freida and Nena is now capped by Pan Aust at $US125 million when we know that since 2010 Xstrata spent no more than $US20 million each year on resource evaluation, and even then there were disputes between Xstrata and Highland Pacific on the quality of the work carried out.
The figure of $US125 is questionable and should be subjected to independent audit should the government of PNG decide to purchase Xstrata’s interest in the mine.
While foreign investment is welcome in PNG, the manner in which Pan Aust has attempted to enter the resource sector is questionable. There are still many areas in PNG where Pan Aust would be welcome to secure exploration rights but these certainly do not include Freida which is a known and verified deposit ready for extraction.
It would come as little surprise to me if Pan Aust is merely a conduit for the sale back to the PNG government of the interest acquired from Xstrata, in the process enriching a number of deal-makers who may have colluded to pull a fast one on the government.
It is now up to the Prime Minister and the Minister for Mines to summon Xstrata forthwith to explain the nature of the arrangement with Pan Aust and for the government to advise Xstrata of its intentions relative to Freida.
It is also important for the East and West Sepik Provinces and their landowners to impress on the Prime Minister and the Minister for Mines whether they also want to hold equity in Freida. Their interest should be rated ahead of any interest expressed by Pan Aust.
The government has before it a unique opportunity to take a 100% controlling interest in Freida as Xstrata exits the project so the government can maximise its income from Freida to meet the development needs of the nation.
It is estimated that the development of Freida will cost $5.6 billion and the PNG government is capable of raising 100% of this using a number of financing models available to it. For example, it can enter into a production sharing agreement with a known contractor to mine Freida on its behalf for a fee.
The government is also now better placed to utilise export credit financing to get Freida off the ground and does not need little companies like Pan Aust to run rings around it. This year alone we have witnessed Nautilus Minerals trying the same trick on the PNG government.
Obviously the view that everything in PNG is available for a price is attracting the wrong kind of resource companies who use local compradors to deprive the nation of its resources and wealth.
It is now time for the government to take control of the wealth of the nation and to tell companies such as Nautilus to fund their own operations or, in the case of Pan Aust, apply for new exploration areas to locate and develop new deposits.
This view is in no way a commentary on the debate between economic nationalism and economic rationalism. On the contrary, it aims to prevent economic mercenaries praying on an unsuspecting government and people.