New investments to restore Mining Sector Capacity in Papua New Guinea
Papua New Guinea’s mining industry should see increased activity following the announcement of new foreign investment, which comes as many mines resume operations after February’s earthquake.
In early July Australian mining company Kingston Resources announced it had divested a total of A$2.4m ($1.8m) in domestic assets, largely to increase its investment in the exploration and development of the Misima Gold Project.
Located on Misima Island, 200 km east of the mainland, the mine has estimated gold reserves of 2.8 million ounces. Kingston, which controls 49 per cent of the project in a joint venture with Japan’s PPC, plans to increase its focus on gold at the site, which since 2004 has mainly targeted copper-gold porphyry systems.
The announcement comes after Wafi-Golpu Joint Venture (WGJV), owned by Australian firm Newcrest Mining and South Africa’s Harmony Gold, released an updated feasibility study in March for the proposed Wafi-Golpu project, located 65 km south-west of the city of Lae.
The study, being considered for approval by the Mineral Resources Authority, projects total investment of K17.4bn ($5.3bn) over the 28-year lifespan of the gold and copper mine. With estimated reserves of 26 million ounces gold, 48 million ounces silver and 8.8 million tonnes of copper, along with ore reserves of 11 million ounces gold and 4.8 million tonnes copper, it would be the largest, deepest and most complex underground mine in PNG, according to WGJV.
The project is expected to create some 2500 jobs during construction, with a further 850 to be maintained once completed. Meanwhile, with expenditure roughly $1bn below initial forecasts, the company has predicted an internal rate of return of 18.2 per cent.
Mines restore capacity following earthquake damage
The new and proposed investment in the mining sector comes as a number of existing mines bring capacity back on-line and expand operations in the wake of an earthquake that hit the country on February 26.
Much of PNG’s mining sector was affected by the 7.5-magnitude quake, either through direct damage to plant and sites, or disruptions to supply chains and utilities.
In late June full production resumed at the Porgera gold mine in Enga Province, whose operations were back on-line, ahead of schedule, after four months of repairs.
The mine, which experienced extensive damage to buildings, equipment and an on-site power station, had been operating at around 25 per cent capacity following the quake but has gradually scaled up output over the past few months.
The damage to mines and disruption to production may affect year-end results for many firms directly or indirectly associated with the extraction industry, which could also have a significant effect on the economy.
Government officials estimate that the mineral and hydrocarbons extraction industries account for more than 25 per cent of GDP, and generate a combined 80 per cent of the country’s export revenue, with shipments valued at PGK23bn ($8bn) last year.
Trade tariffs place downward pressure on mineral prices
Despite a rebound in activity, higher global tariffs on a range of industrial products could harm the export-driven mining sector in the short to medium term.
The price of copper on the London Metal Exchange dropped by 15 per cent between the first week of June and mid-July, its lowest point since July last year, sparked by the US government’s June 6 decision to impose $34bn in tariffs on Chinese goods. The tariffs went into effect on June 29.
The prices of other metals extracted from PNG’s mines, such as lead and zinc, have also dropped by 15 per cent and 21 per cent, respectively, since the introduction of the tariffs amid concerns that weaker demand could reverse the recent rebound in sales and production.
Nonetheless, state-owned Ok Tedi reported in mid-June that it expected copper prices of between $3.00 and $3.20 per pound this year, rising to as much as $3.50 between 2019 and 2025, a strong rebound from the $2.00 floor price of 2016 and the $2.79 average in 2017.
Industry concerned over mining legislation proposals
The industry also faces uncertainty closer to home. There are concerns that proposed amendments to legislation governing the mining sector could prove to be a disincentive to investment.
Planned changes to the Mining Act of 1992 include a reduction in maximum mining term leases from 40 years to 25, along with a shortening of renewal periods from 20 years to 10.
Industry figures say that such proposals, along with the state being granted the right to compulsorily acquire the mine upon expiry of the first term of the mining lease, would serve as a disincentive for new projects by undermining long-term security in development investment.
This Papua New Guinea economic update was produced by Oxford Business Group.
In early July Australian mining company Kingston Resources announced it had divested a total of A$2.4m ($1.8m) in domestic assets, largely to increase its investment in the exploration and development of the Misima Gold Project.
The announcement comes after Wafi-Golpu Joint Venture (WGJV), owned by Australian firm Newcrest Mining and South Africa’s Harmony Gold, released an updated feasibility study in March for the proposed Wafi-Golpu project, located 65 km south-west of the city of Lae.
The study, being considered for approval by the Mineral Resources Authority, projects total investment of K17.4bn ($5.3bn) over the 28-year lifespan of the gold and copper mine. With estimated reserves of 26 million ounces gold, 48 million ounces silver and 8.8 million tonnes of copper, along with ore reserves of 11 million ounces gold and 4.8 million tonnes copper, it would be the largest, deepest and most complex underground mine in PNG, according to WGJV.
The project is expected to create some 2500 jobs during construction, with a further 850 to be maintained once completed. Meanwhile, with expenditure roughly $1bn below initial forecasts, the company has predicted an internal rate of return of 18.2 per cent.
Mines restore capacity following earthquake damage
The new and proposed investment in the mining sector comes as a number of existing mines bring capacity back on-line and expand operations in the wake of an earthquake that hit the country on February 26.
Much of PNG’s mining sector was affected by the 7.5-magnitude quake, either through direct damage to plant and sites, or disruptions to supply chains and utilities.
In late June full production resumed at the Porgera gold mine in Enga Province, whose operations were back on-line, ahead of schedule, after four months of repairs.
The mine, which experienced extensive damage to buildings, equipment and an on-site power station, had been operating at around 25 per cent capacity following the quake but has gradually scaled up output over the past few months.
The damage to mines and disruption to production may affect year-end results for many firms directly or indirectly associated with the extraction industry, which could also have a significant effect on the economy.
Government officials estimate that the mineral and hydrocarbons extraction industries account for more than 25 per cent of GDP, and generate a combined 80 per cent of the country’s export revenue, with shipments valued at PGK23bn ($8bn) last year.
Trade tariffs place downward pressure on mineral prices
Despite a rebound in activity, higher global tariffs on a range of industrial products could harm the export-driven mining sector in the short to medium term.
The price of copper on the London Metal Exchange dropped by 15 per cent between the first week of June and mid-July, its lowest point since July last year, sparked by the US government’s June 6 decision to impose $34bn in tariffs on Chinese goods. The tariffs went into effect on June 29.
The prices of other metals extracted from PNG’s mines, such as lead and zinc, have also dropped by 15 per cent and 21 per cent, respectively, since the introduction of the tariffs amid concerns that weaker demand could reverse the recent rebound in sales and production.
Nonetheless, state-owned Ok Tedi reported in mid-June that it expected copper prices of between $3.00 and $3.20 per pound this year, rising to as much as $3.50 between 2019 and 2025, a strong rebound from the $2.00 floor price of 2016 and the $2.79 average in 2017.
Industry concerned over mining legislation proposals
The industry also faces uncertainty closer to home. There are concerns that proposed amendments to legislation governing the mining sector could prove to be a disincentive to investment.
Planned changes to the Mining Act of 1992 include a reduction in maximum mining term leases from 40 years to 25, along with a shortening of renewal periods from 20 years to 10.
Industry figures say that such proposals, along with the state being granted the right to compulsorily acquire the mine upon expiry of the first term of the mining lease, would serve as a disincentive for new projects by undermining long-term security in development investment.
This Papua New Guinea economic update was produced by Oxford Business Group.
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