http://www.thenational.com.pg/080107/editorial1.htm
Momentum picks up for mining boom
The strength of Papua New Guinea’s recovery in mineral exploration and development provides one reason why Prime Minister Sir Michael Somare deserves his latest victory in the national elections.
The strength of Papua New Guinea’s recovery in mineral exploration and development provides one reason why Prime Minister Sir Michael Somare deserves his latest victory in the national elections.
Soon after taking office in August 2002, Sir Michael was personally determined to fix tax structures that had led to a long-term decline in mining with grassroots exploration almost becoming non-existent.
To push through a more conducive framework much opposition had to be overcome within government ranks, particularly in areas such as Treasury and National Planning which are more concerned with perceived losses in tax revenues flowing from various concessions.
For this reason Sir Michael’s similarly bold initiative to promote agriculture ended up falling by the wayside after they were severely watered down by Treasury. The change in direction caused the Malaysian parent company of New Britain Palm Oil, Kulim Plantations, to scuttle some of its innovative plans such as a rubber wood plantation. As a result, the impact of the proposed reforms can now only be a matter for conjecture.
Following implementation of the mining incentives in early 2003, spending on mineral exploration rose from K41 million in 2003 to around K100 million last year. Exploration is the lifeblood of the mining industry, being the equivalent of research and development in the industrial sector. It is also extremely high-risk, as shown by the huge amounts of money spent over the past three decades exploring the Frieda River copper-gold deposit in Sandaun province with no assurance of development yet in sight.
Experts have suggested that only one in about 300 exploration projects turn into a commercial mine, explaining the need for a stable fiscal regime and investor expectations of high returns for such risk taking.
When new pro-mining laws were implemented, PNG was anticipating two of its three major mines – Ok Tedi and Porgera – would both shut down before the middle of the next decade.
There were predictions about the end of most mining activities and these concerns continue to be expressed by academics and some analysts even today.
In fact, thanks to the more sensible fiscal regime, making PNG as attractive a location for exploration as Indonesia, the Philippines or some African countries, it will be more than likely, unless there is a sudden reversal in these policies, that there will be significant mining activities occurring even 50 or 100 years from now.
On current plans, Ok Tedi will shut down in 2013. Porgera will remain in production well after the end of the next decade. Since the closure of the Bougainville mine in the late 1980s, Ok Tedi has been the country’s only copper producer.
But by the time Ok Tedi is shut down, PNG should be producing twice as much copper given the likely start-up of undersea mining by Nautilus Minerals in 2009, Marengo’s Yandera project in 2011 and possible output from Frontier’s Kodu project in Central province.
PNG’s gold and base metals output is likely to be significantly larger than ever before by the end of this decade with Harmony’s like start-up at Hidden Valley next year and the long-life Ramu nickel-cobalt project the year after. In the decade ahead new project names will crop up in various parts of the country, some possibly involving mineral deposits that have yet to be discovered. New discoveries flow almost inevitably from increased exploration.
The National Alliance and its likely coalition partners are meeting in the next few days in Kokopo to determine the structure of the next government and, if they desire a break from intense political lobbying, they could well see the fruits of Sir Michael’s new mining policy even though these are early days considering the long lead times in exploration and mining.
Probably in less than an hour’s drive from their Kokopo meeting place, likely members of the next government could visit the 40,000oz a year gold mine at Sinivit, near Rabaul. Its owner, New Guinea Gold, only recently poured its first gold bar.
If they travel a little bit further out to Simberi Island, just north west of Lihir, they will see another somewhat larger gold mine getting ready for its first gold pour in about three months time.
But as stated earlier the changes implemented in 2003 will be bringing in more taxes, dividends, royalties and exports even 50 years from today despite the still common perception that much of it will disappear in the coming decade.
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