Wednesday, May 09, 2012

Brighter metals prospects for PNG

A series of significant mineral finds in Papua New Guinea have highlighted the role exports are set to play in the nation’s economic future.
However, there have been calls from industry players and opposition officials asking the government to do more to ensure revenues stay in the country.
In mid-April, state-owned Petromin announced that it had found a 364-metre intersection of porphyry copper, molybdenum and gold mineralisation at its Ipi River prospect, located 50km north of its Tolukuma gold mine in Central province.
In the same month, Australia-based Indochine Mining announced that gold and silver finds at Mount Kare had underlined the “outstanding potential” of the project to become one of PNG’s next major mining operations.
Officials also revealed that Kula Gold’s Woodlark Island project, which has estimated reserves of 700,000 ounces, was on track to start producing in 2014.
Also in April, Nautilus Minerals of Australia announced that it had obtained a license from PNG to mine a site the size of 21 football fields under the sea.
The company hopes to develop and expand undersea mining to obtain copper, gold, silver and zinc from the seafloor.
These recent finds and progress underline the significant contribution metals are set to make to GDP in the coming years.
In 2010, activities directly attributed to mining comprised 21% of domestic revenues, while high global commodity prices are widely credited for GDP growth reaching 8.5% in 2011 and the predicted rate for this year.
“In 2012, real GDP is projected to grow at 8%, supported by a recovery in mining output,” the IMF wrote in February.
However, concerns over the environmental impacts of mining and foreign miners over-exploiting PNG’s resources have led to calls for the country to tighten its tax regime.
Observers have called for the country to emulate Australia’s controversial mining tax, which will levy 30% of the “super profits” from corporations mining iron ore and coal.
Meanwhile, critics point to the 10-year tax holidays currently in place for a number of mining projects in the country, including the Chinese-operated $1.4 billion Ramu nickel-cobalt project.

Bird view picture of Basamuk in Madang province, site of the Chinese-operated $1.4 billion Ramu nickel-cobalt project

The government has proposed legislative reforms to increase domestic involvement in mining projects, with Belden Namah, the deputy prime minister, saying in February that the Mining Act will be reviewed to increase landowner participation in mining projects.
However, Namah’s plans were met with a strong backlash from industry players and opposition officials.
In February, the IMF echoed these concerns, stating the resource sector could make a larger contribution to public revenues.
The fund recommended that the government strengthen its current means of revenue collection, reinforce the internal revenue and Customs services, streamline tax concessions and apply the additional profits tax to mining activities.
The government’s grip on mining revenues will come under more scrutiny as speculation grows over the potential of the Wafi-Golpu copper-gold project, which Marian van der Walt, the investor relations manager at South Africa-based Harmony Gold Mining, in March described as the “find of the century”.
Exploration has already discovered 27m ounces of gold and 9m tonnes of copper, and those numbers are expected to grow before commissioning in 2018, wrote PNGIndustryNews.
“We believe Wafi-Golpu is amongst, possibly, the top-10 copper-gold porphyries in the world at this stage,” van der Walt told the Mines and Money conference in Hong Kong on March 22.
For his part, Prime Minister Peter O’Neill stressed in March that the revenues from the Wafi-Golpu will, like those from the $15.7 billion Exxon-led PNG liquefied natural gas (LNG) project, be carefully managed by the country’s Sovereign Wealth Fund to ensure that they benefit development in infrastructure and education.
“By 2016, we expect our budget to be three times bigger due to the monies coming into the country, not only from our LNG but other major projects, including the proceeds from the Wafi gold (and copper) mine in Morobe, Yandera in Madang and Frieda mine in Sepik,” O’Neill said. “We will use these funds to pay for school fees for students who are attending our universities. “By then, the entire education system in the country will be free.”
However, speculation in April that Swiss-based mining company Xstrata was mulling withdrawal from the Frieda mine project – which is estimated to have more than 11 million tonnes of copper and 18 million ounces of gold – may prove to be a challenge for the government as it struggles to attract investors.
To address the multiple factors limiting investment in the mineral sector, observers say stronger political will is needed for resources-driven economic growth to translate into real development.
“Public sector weaknesses and the extent to which corruption has infected this sector will be a real challenge in capitalising on this opportunity,” said Ian Kemmish, Australia’s High Commissioner to PNG, in March.
“Political stability will also be very important.”

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