Chamber sceptical

Papua New Guinea Chamber of Resources and Energy president Anthony Smare has expressed scepticism over the profit and revenue projections of the proposed gold refinery and mint project by a Singaporean company and its Papua New Guinean promoters, labelling the financial projections as “highly dubious” and not grounded in any realistic understanding of the refining industry or the gold industry per se.
Smare has warned leaders and thinking Papua New Guineans not to believe the numbers being put out by the project promoters.
“Anybody with any experience in the gold business knows that gold refining is a difficult business model, with razor thin margins and it requires significant volumes to carve out any meaningful profit,” he said.
“Any gold expert would know this, and PNG is lucky to have many of its own local gold industry experts who could have been consulted at any time to verify these numbers.
“Based on the numbers they have shared, it appears that the promoters of the proposed Gold Corporation are effectively claiming that they will make nearly three times the profit of Australia’s largest refinery and mint, despite processing less than eight per cent of the volume of the Australian refinery.
“The foreign proponents of this project claim that from PNG’s annual gold production (last year was around 1.5 million ounces), the State will receive around US$287 million (about K1.08 billion) in corporate income tax over 15 years from the proposed National Gold Corporation.
“Based on these projections, we are calculating that they are projecting an average annual profit of around US$63.8 milllion (about K241 million).
“But consider that Australia’s largest refinery and mint, Perth Mint, despite processing 16 million ounces of gold and silver, only generated a profit of US$26.2 million (about K99.19 million) in 2023, due to the significantly high costs associated with the business model. A profit margin of 0.17 per cent,” Smare added.
“In 2022, Papua New Guinea produced about 1.4 million ounces (Mozs) of gold. However, around 500,000 ounces were produced as part of copper flotation concentrates from mines like Ok Tedi and Kainantu. This means that the actual ore production (pure gold) available for refining was only 900,000 ounces.
“Additionally, there is an estimated 100,000 ounces of alluvial gold production annually. The restart of Porgera could potentially add 500,000 ounces per year when in full production. However, neither the development of Wafi-Golpu nor the expansion of Kainantu will significantly contribute to gold ore production as both mines primarily produce a copper-gold flotation concentrate, which requires treatment through a copper smelter to recover the copper and gold metals. Furthermore, Simberi produces about 100,000 ounces per year. If it continues to operate at same levels, it will produce a low-grade flotation concentrate from treating sulphide containing around 100 g/t gold.
“This concentrate would also require treatment by a smelter and would not directly feed into a bullion refinery,” Smare added.
“Overall, the potential feed for a gold bullion refinery in Papua New Guinea would be about 1.5 million ounces per year. Assuming similar profit margins as the Perth Mint in 2023 (0.17 per cent) and that all the gold in PNG were all refined at a refinery in country, this indicates that the PNG Refinery would only make a profit of A$3.7 million (about K9.3 million) before repayment of capital.
“The generation of profit would be reliant on sales of bullion coins, medallions, and bars outside of the country. This in turn would be reliant on the refinery having appropriate accreditation which a PNG refinery producing less than 1.5 million ounces would find difficult to achieve. The economics of a mint and refinery model on PNG’s existing production is challenging.”