by BRIAN GOMEZ
Only 2 companies underwrite PNG’s windfall revenues

Papua New Guinea’s good fortunes in terms of soaring commodity prices has really only been due to two companies – Ok Tedi Mining Ltd and Oil Search.
The two other gold mining companies, Barrick Gold and Lihir Gold, have for different reasons not contributed much to Government coffers in the past year despite the vast scale of their operations.
Barrick’s Porgera gold mine in Enga province was unlikely to have paid much, if any, corporate tax in 2006 because of problems faced at its large open cut mine and its underground mine.
As the subsidiary of a Canadian-owned company and the world’s largest gold miner, Barrick is comparatively less transparent than other mining companies listed on the Port Moresby Stock Exchange and on the Australian Stock Exchange.
Data that is easily accessible on the amount of corporate tax paid to the PNG Government by companies such as Oil Search is generally not available from Barrick.
However, according to information released by Emperor Mines, gold was produced at the troubled Porgera operations at a close-to-breakeven average of US$582 an ounce during the December quarter.
It is understood Porgera operations have virtually returned to normalcy. Its corporate tax payments should be very much higher in the next few years, assuming that gold prices remain high.
Lihir’s namesake mine in New Ireland has not yet been in a position to pay corporate taxes because of the high costs of development and many years of economic and technical problems that has seen it put in a variable performance until recently.
The company is now hopeful that by the turn of the decade, it will be a million ounce a year producer with additional gold produced by its recently acquired Ballarat gold mine in Victoria.
Since Arthur Hood took over as managing director two years ago, the company has been revolutionised and should soon become a firm pillar of the PNG economy.
Besides Hood’s decision to greatly boost mine capacity to the one million ounce a year level, he has more recently fired the market’s enthusiasm with a capital raising of A$1.2 billion that will effectively help to wipe out the company’s debilitating hedge book.
It is not clear at this stage when exactly Lihir will commence payments of corporate taxes, but once that happens, there should be no looking back for PNG although one has to keep in mind the possible closure of Ok Tedi in 2013.
In the last couple of years, the incredible increase in copper prices has turned Ok Tedi into a veritable financial power house so much so that royalty payments could possibly be turning some of its landowners into virtual millionaires.
Ok Tedi paid corporate tax totalling K799 million last year with this figure rising to K1.5 billion if employee taxes and other taxes were taken into consideration.
In addition, royalties worth over K80 million were shared between the Western province government and landowners.
In addition, 82% of its total K1.8 billion in dividends were retained within PNG, with 52% going
to the PNG Sustainable Development Program Ltd.
Oil Search, on its part, paid corporate taxes totalling K550 million in addition to significant royalty payments to landowners in the Southern Highlands.
These sums are much higher than in previous years because of high export prices for copper, gold and oil.
The additional taxes paid in PNG pales in significant when compared to the situation in Australia, which is one of the world’s major producers of various mineral commodities.
According to the budget brought down by Australia’s treasurer Peter Costello, the resources boom supposedly added almost A$18 billion to the 2007 budget’s bottom line.
Contributing to this huge windfall are the country’s huge exports of coal, iron ore, copper, lead, zinc and various
other minerals and metals.
Papua New Guinea would have been in a much stronger position today if not for the lost decade of the 1990s when excessive company taxes and other concerns caused overseas investors to shun the country.
Nevertheless, with experts anticipating that commodity prices will remain high for at least another two years, there are significant opportunities for PNG to experience rapid growth in production and exports from new projects.
Even as Ok Tedi winds down, assuming current resources cannot be converted to reserves, Lihir will become a strong contributor to PNG Government coffers.
Barrick’s Porgera mine, which had also been anticipated to close down around the time Ok Tedi is scheduled to shut down, has bought more time and will continue to generate export revenues and corporate taxes at least until 2020.
The Ramu nickel project, which will come into production before the likely Ok Tedi shutdown, would, as was the case with Lihir, not become a major contributor to taxes until around 2020.
But in the meantime, it will probably generate much more jobs than either Ok Tedi or Lihir because it will not just involve mining of the nickel-cobalt ore, but will also process these materials into metal at a refinery at Basamuk, near Madang.
With Oil Search confident that it can maintain oil production in PNG at around 50,000 barrels a day, this company will certainly remain a pillar of PNG’s economy with its highly valued LNG exports becoming an even more powerful contributor to revenues in the decade ahead.