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Australian miners in firing line of PNG resources law shake-up

Mine-pitJEWEL TOPSFIELD | Sydney Morning Herald | Edited extracts

SYDNEY - 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 PNG, which has significant resources including gas, gold, copper, cobalt and nickel.

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 PNG 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.

“Any proposed amendment must address the underlying concerns and keep PNG competitive as an investment destination,” he said.

New copper and gold projects including 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 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.

Australian company PanAust holds an 80% 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% to 0.5% – 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.”

Abel 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,” Abel said.

“On the other hand the economy is in a very precarious state and the government is desperately looking for stimulus from new resource projects,” said Professor Stephen Howes, director of the Development Policy Centre at ANU.

“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.

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