Photo: Aerial view of the Porgera gold mine. Credit: Zijin Mining
In recent years Papua New Guinea has been ranked as one of the most natural resource-dependent economies in the world and has been seen as an example of the cruel ironies that often go simultaneously with big extractive industries which are supposed to lead to the development and lead people out of poverty but yet, on the contrary, the situation only seems to worsen.
PNG is undoubtedly an incredibly beautiful country with pristine beaches along the coastal shoreline and stunning mountain landscapes, valleys, and rainforests up in the highlands, which are sparsely populated in most parts. Natural resources form the backbone of the country's economy, especially mining, timber (logging), and oil with the inclusion of the enormous LNG projects that are in the pipeline which are mostly headed by Exxon Mobil and Total Energies.
Barrick's Inception
Porgera is one of Papua New Guinea’s longest-running goldmines. Operating for over 30 years in the highlands province of Enga, this large mine was expected to produce around 250,000 ounces of gold in 2019. It employed more than 5,000 people and the 5% landowner and provincial equity stake had helped to fast-track the efforts to bring services and education to one of the country’s most remote provinces.
The Porgera Joint Venture (PJV) was created in 1988 with the shareholding split between Placer Pacific (30%), Highlands Pacific (30%), Renison Goldfields Consolidated (30%) and the PNG government had a small 10% equity. [1]
Barrick Gold, a Canadian company that is also the World's largest producer of Gold acquired its interest in the Porgera Joint Venture in 2006 and through its subsidiaries in the country, the company held a 95% stake in the operation with the remaining 5% being held in equal partnership with the Enga Provincial Government and the traditional Ipili landowners. Barrick had agreed to continue production until 2023 before the closure of the mine in 2020. [1]
Since the Porgera Gold mine opened in the 1990s it has likely produced around 16 million ounces of gold and at today's price that would be worth more than K40 billion.
The mine is the vocal point and lifeline of everything that happens in Porgera, 12% of PNG's export earnings had come from the Porgera Gold mine but despite all the wealth it had gained the recent outcry by the people of Porgera the mine reopened has stated otherwise. [2]
Reports since the closure of the mine in the local media still show that the mining township and its surrounding areas still suffer from grinding poverty and a lack of basic government services. [2]
Mine's Closure - Porgera and Politics
Late in April 2020, in the middle of a global pandemic and brewing domestic economic crisis, the PNG government made the surprising announcement not to extend the mining lease on a goldmine that contributes roughly 10% of the country’s total exports. The mine had been closed following the government’s decision not to renew BNL’s special mining lease. A subsequent legal battle and an April 2021 agreement ceded majority ownership of the mine to ‘PNG stakeholders’ while securing BNL’s status as the mine’s operator. [3]
Before the mine's closure, Porgera was a joint venture between Barrick Gold (47.5 per cent), Zijin Mining (47.5 per cent), the Enga government (2.5 per cent), and the Porgera landowners (2.5 per cent) while the Government had no stake or equity in the gold mine. It only earned from what came out of corporate tax.[1]
The announcement not to renew the special mining lease for the Porgera mine was a shock, in particular to the mine’s operator, Barrick Gold, and their joint venture partner Zijin Mining.[3]
The decision on the closure of Porgera was reported widely as being mainly an attempt from the PNG government to harvest more bene benefits from existing projects and issue a stern warning to projects still in negotiation that they mean business.
When Prime Minister Marape was sworn into office in May 2019, he quickly set a narrative to “take back PNG”, arguing that the people of PNG were not getting their fair share of the benefits of the formal economy and major natural resource projects. During that period PNG’s slowly increasing and ongoing economic crisis was set to deepen in the fallout of Covid-19 and it was no surprise that the natural resources sector found itself in the crossfire, in this instance, the Porgera Gold mine was the one to take the fall.
At that time Prime Minister Marape had hoped Barrick would keep the mine operating while negotiating its exit. But the company’s firm refusal of that option and its immediate shutdown of the mine had demonstrated its bargaining power. Since then, Barrick and all stakeholders have been in negotiations with the government to have the mine reopened.[4]
While the government had seemed within its rights not to renew the lease, the unexpected announcement had led Barrick to hit out, by stating the move was the same as nationalization without prior notice and due process. [4]
According to PNG Report, the Porgera closure had cost 4,000 jobs and about K110 million in losses for small and medium enterprises servicing the Barrick-owned mine in Enga Province. Porgera Chamber of Commerce and Industry president Nickson Pakea said those affected included around 700 SMEs and 176 contractors.
Negotiation Process
During the past three years, ongoing negotiations between Barrick Gold and the government to reopen the mine have not yet come to fruition but are eventually taking a favourable course. The issues surrounding one of PNG's longest-serving mines and a significant contributor to the country's GDP have been closely scrutinized by both domestic and foreign interests who have links and have been benefactors of the mine.
Porgera has been on care and maintenance since April 2020 when the government declined to renew its special mining lease to which Barrick Niugini Limited (BNL) has spent more than a billion kina on care and maintenance since the mine was closed in 2019.[5]
Early this year, Deputy Opposition Leader Douglas Tomuriesa had suggested that the government re-negotiate and seek a 25 per cent shareholding in the Porgera gold mine, not 51 per cent.[6]
Tomuriesa pointed out that the Government also needed to be making money.
“Just admit that you were wrong or the advice you were given was wrong and go back and fix this so that the mine can operate again, and the country can make money,” he said.
“Realistically, how can we demand 51 per cent ownership, when we have contributed nothing?
At this rate we are going, we are starting to chase investors out of the country. “Who will want to do business in the country or invest here when our demands are unrealistic?”
Tomuriesa urged the Government to renegotiate a 25 per cent ownership, a 25 per cent share for economic benefits, to allow the mine to start operating.
“They can come up with an agreement where the 25 per cent has to be within the year and leave the other 25 or 26 per cent open for negotiations, which can be something they can go back and forth with but allow the mine to start operating,” he said. [6]
In light of this, Prime Minister Marape issued a statement stating that Barrick is committed to reopening the mine and the Government through Kumul Mining Holdings Ltd as a partner is also committed to reopening the mine. PM Marape is adamant that the re-opening of the mine should occur sometime this year.
In relation, The Lease for Mining Purposes chairman Timothy Andambo said re-opening the multi-million Kina Porgera gold mine would ease the country’s foreign exchange shortage issue. He stated that Porgera was a national asset and can generate the foreign currency ($US Dollars) that this country desperately needs.
Likely Recommencement
After a lengthy negotiation process at the back end of last year (2022) towards the first quarter of this year (2023), The Porgera gold mine has been looking steadily to get on track to resume operations later this year after the government and Barrick Niugini Limited agreed on a partnership for its future ownership and operation. [7]
The early recommencement of the mine, preferably within the first half of this year was critical for the country, as the lead time required for mobilizing resources and the significant start-up capital needed to get the mine back into its full operating capacity would be a challenge.[7]
Under the terms of a binding framework agreement signed by Governor General Sir Bob Dadae and Barrick Gold Corporation President and Chief Executive Mark Bristow, ownership of Porgera will be held in a new joint venture owned 51% by PNG stakeholders and 49% by BNL in which BNL will remain the operator of the mine.[8]
The framework agreement also provides, among other things, for
- PNG stakeholders and BNL to share the economic benefits generated over the life of mine on a 53/47% basis,
- BNL to finance the capital required to restart the mine,
- An increase in the equity allocated to a broad group of landowners who are the customary owners of the land where Porgera is located,
- And the state retains the right to acquire the remaining 49% of the mine from BNL at fair market value after 10 years.
The parties will now work towards the signing of definitive agreements at which time full mine recommencement work will begin.
Prime Minister James Marape said the framework agreement, reached after months of negotiation, was a historic development, which would benefit PNG for many years to come, and set the precedent for future projects.
“I thank Mr Bristow and his team for recognizing our nation’s aspirations and their willingness to partner with us in realizing this vision at Porgera,” he said.
President and CEO of Barrick Gold Mark Bristow said, on behalf of BNL’s joint venture partners Barrick and Zijin Mining, was delivering on its promise of reaching a fair agreement on the future of Porgera for the benefit of all its stakeholders, notably the local community, Enga province and the PNG government.
“We intend to partner with all key stakeholders to make Porgera a world-class, long-life gold mine,” he said. [8]
Final Outstanding Issue - Taxation
About the news of reopening, it was revealed that there was a clause inserted in the New Porgera framework agreement in which the resolution of Barrick’s old tax liabilities was a condition for reopening the mine. Since then, the taxation matter surrounding Barrick's past operations at Porgera Mine was put under the spotlight.
Internal Revenue Commission (IRC) Commissioner-General Sam Koim when responding to a statement by PM James Marape said the “old Porgera” tax issues relating to Barrick (Niugini) Limited should not be used as an excuse to delay the reopening of the Porgera mine.[9]
These remarks were made by Mr Koim following Prime Minister James Marape’s statement which blamed the delay in the reopening of the mine on a “tax issue”.
“We are almost there. There is just a tax issue standing in the way of Porgera being reopened,” Marape said.
Furthermore, Barrick's chief executive officer Mark Bristow gave an ultimatum to the State parties to resolve all outstanding issues by March 31.
Regarding Bristow's ultimatum, Koim stated that Bristow did not mention what “outstanding issues” were holding up the reopening of the mine.
Barrick has insisted that the IRC accepts its position, even if it goes against the grain of the law but Koim stated “It seems Barrick is seeking a political solution to its legacy tax problems, some of which are very technical matters even for non-experts like me to understand.”
Koim thanked PM Marape and the Government for being “forthright in informing Barrick that the IRC independently administers tax matters, and the Government is not in the business of breaking its laws”.
“Barrick should not use the pressure of reopening the mine to force the Government to address its tax problems. The mine should reopen immediately while Barrick addresses its ‘old Porgera’ tax liability following the due process of law.
in response, Barrick (Niugini) Limited (BNL) said it was “deeply disappointed that the Commissioner-General of the Internal Revenue Commission has chosen to speak publicly about a confidential tax matter.
“The Income Tax Act requires that officers of the Internal Revenue Commission, including the Commissioner-General, treat as confidential the information and tax affairs of all taxpayers.
“BNL has always administered its financial affairs by the laws of PNG and believes the matter should be dealt with by the law and obligations of fairness and confidentiality.” [9]
Whilst the future of Porgera Gold Mine is awaited the outcome of its taxation issue, Marape's justification in simple is to gain better shares for the landowners and the Enga Provincial Government.
Mine Reopening underway
In the first quarter of 2023, during the month of March, Barrick Gold Corporation, the government of Papua New Guinea, and New Porgera Limited signed an agreement on Friday 31st March to resume operations at the Porgera gold mine.
The New Porgera Progress Agreement (NPPA), which was signed, confirmed that all parties are committed to reopening the mine at the earliest opportunity, in line with the terms of the Porgera Project Commencement Agreement and the New Porgera Limited Shareholders Agreement, both of which were concluded in 2022.
The New Porgera project team will now proceed with the filings for a special mining lease and progress the other conditions set out in the Commencement Agreement for the reopening of the mine.
New Porgera's equity at 51% is shared by Papua New Guinea (PNG) stakeholders, including local landowners and the Enga provincial government. Economic benefits will be shared 53% by the PNG stakeholders and 47% by Barrick Niugini Limited, which will operate the mine. [10]
References:
1. http://www.porgerajv.com/Company/Our-Story
2. https://www.pngbusinessnews.com/articles/2023/1/women-groups-in-porgera-call-for-immediate-restoration-of-government-services-in-district-mine-closure-is-not-making-peoples-lives-better
3. http://www.porgerajv.com/Company/Media/Press-Release/Porgera Mine Temporarily Suspends Operations/Saturday, April 25, 2020
4. http://www.porgerajv.com/Company/Media/Press-Release/Update on Porgera Negotiations/Saturday, October 17, 2020
5. https://www.pngbusinessnews.com/articles/2023/1/barrick-niugini-limited-clarifies-its-stance-on-porgera-s-current-progress
6. https://www.thenational.com.pg/renegotiate-porgera-shares-to-25-per-cent-says-tomuriesa/February 13th, 2023
7. Luma.D https://postcourier.com.pg/porgera-reopening-process-almost-complete-says-vele/February 15th, 2023
8. https://www.barrick.com/English/news/news-details/2021/Porgera-Mine-Set-to-Restart-as-PNG-and-Barrick-Niugini-Limited-Agree-New-Partnership/default.aspx
9. https://www.thenational.com.pg/porgera-mine-tax-debate/ January 27,2023
10. http://www.porgerajv.com/Company/Media/Press-Release/Barrick Steers PORGERA GOLD MINE Back towards world-class production -March 31, 2023
