Deal sending positive message

Last week, an agreement was signed between the Government, Barrick Nuinini Ltd for the mine in Porgera, Enga. Business reporter PETER ESILA this week talked to Institute of National Affairs director
PAUL BARKER about the multi-billion kina mine.

IT has been said that short-term loss leads to long-term gain but in business, it’s the short term that matters the most.
The new Porgera mine agreement should be a lesson to all stakeholders that with an existing operation, especially one with a limited remaining mine life, one wants to avoid disruptions and unnecessary additional capital and restoration costs.
Last week, a framework agreement was signed between the Government and operator Barrick Niugini Ltd (BNL) for the Porgera mine in Enga.
The PNG stakeholders – Kumul Mineral Holdings Ltd, Enga government and landowners – now own 51 per cent of the mine while the BNL holds 49 per cent.
BNL will fully fund the reopening of the mine which was closed last year because of a dispute over the non-renewal of BNL’s licence.
Barker says: “There’s a strong message here that while signing an agreement now is a good outcome, the current outcome, or something similar could have been achieved a year ago without all these disruption to the people’s lives and income, businesses, or to State or provincial revenue, and without causing major disruption to wider business confidence.
“The company indicated that it was ready for major alterations in investment arrangements, but also that it was committed to the future development of the mine.
“Restoration won’t happen overnight.
“There will be major cost outlays and while BNL has said they will carry these costs, it will delay the time in which Porgera returns to profitability, and, therefore, in a position to be paying corporate tax to the Government. The concluding of this framework agreement between BNL and the Government will send a very positive message to the business community in Porgera and Enga, the Highlands and down to Lae.
“It will also send a wider positive investment message that PNG is still open for business and investment and able to retain not only one of the largest, but, also, the most respected international mining companies in PNG.
“Having the mine closed for a year was like a gaping sore for the resource sector, and invariably put off other investors and lenders, that might be cautious to do business in PNG, for fear of repercussions and potential changes of investment rules down the track.
“Having an agreement in place and seeing this progress to actual restoration and resumption of production will restore opportunities, economic activity and wider business confidence, and is almost a prerequisite, or precondition, for investment in other major new resource projects.
“The closure of the mine over the past year has had a devastating impact on businesses and households in the Porgera valley, in other parts of Enga and down the Highlands Highway to Lae.”
Of the 3,500 employees, around 1,200 were from Porgera and 800 from other parts of Enga.
The others are from other parts of PNG, including 200 overseas workers.
“This comprises a lot of people, including their households, using goods and services from stores to markets and schools mostly locally supplied and, being on good salaries, paying substantial taxes to the State,” Barker said.
“It has been said that short-term loss leads to long term gain, but in business it’s the short term that matters the most.
“The biggest single impacted segment was local and other national businesses and contractors to the mine, which comprised over 15 per cent of the value of the exports, or markedly more than twice the value of the wages and salaries.
“Again, this comprises of dozens or businesses, and, therefore, thousands of people employed by the contracted companies and their families.
‘The restoration of the mine, of course, will take time and cost money.
“Most staff and contractors have relocated, and initially certain skills and a reduced team will be required to restore the mine site and plant and equipment back to full operating order, but this will start feeding back into the Porgera economy and the wider Engan economy over the course of several months.
“The extended closure had a major negative economic and social impact on households, businesses, local and national revenue, especially considering the missed opportunity from gold prices being at record levels last year.
“The negative effect included not only the loss of revenue, taxes, incomes, contract, royalty and desperately needed export earnings, but also considering the Government’s high budget deficit and the need to borrow both domestically at high interest rates and internationally to help finance the shortfall.
“The closure also had a negative impact on investor confidence, especially on the resource sector, at a time when PNG was trying to attract new investors and finance.”