Mine contributes to economy

According to a report released by the Institute of National Affairs, the Porgera mine had major economic impact since its operation with prospects of more years to come. Business reporter DALE LUMA breaks down the report

THE Porgera mine has had a major economic impact locally and nationally over its life to date, with prospects for many more years ahead.
This is according to a report titled: Economic Impact of the Porgera Gold Mine: 1990 to 2019 Loss of Income from Suspension of Operation released by the Institute of National Affairs (INA).
It states that during that period, various ideas have been conjured up for suitable benefit sharing arrangements between the developers and the Government, provincial and local authorities and landowners, particularly focusing upon equity stakes, but also using different means to spread benefits, including the innovative infrastructure tax credit scheme.
According to The National’s news files, the mining lease which the Porgera mine developer Barrick Niugini Ltd had expired in August when an application for an extension of its licence was refused after an independent process by the mining advisory committee.
The Government later granted a new special mining lease to the Kumul Mineral Holdings Ltd (KMHL).
But today the mine remains closed.
Prime Minister James Marape has assured the country that the Government was doing everything within its mandate to reopen the mine.
According to the INA report, dialogue is ongoing on that issue.
“Clearly, the closure of the mine at short notice in April 2020 had an immediate and potential long-term economic and social impact, especially locally, highlighting the need for better ways to plan and implement proposed policy or institutional changes that, directly or indirectly, affect investors, employees, contractors, the local community and Government itself,” the report stated.
“Periodically reviewing fiscal and investment conditions and ensuring that they are competitive and fit for purpose is an important function for all governments, while also seeking to sustain needed policy stability, confidence and engagement with business and investors.”

Total financial contribution
The total financial contribution of the mine from 1990 to 2019 was K13.2 billion, which is equivalent to K26.6 billion in 2019 prices.
This total comprised taxes paid to the Government, royalties, compensation and donations, infrastructure expenditure, local and national operations contracts and local and national wages (excluding expatriates).
Royalties were paid to the Enga government, Porgera development authority, landowners, a children’s trust and young adults.
The average total financial contribution of the mine to the national economy relative to export values was 40.9 per cent over the 30 years and 40.9 per cent in 2019.
The single most important category was national and local operations contracts constituting 17.3 per cent of export value revenue over the 1991 to 2019 period and 15.8 per cent for the most recent year 2019, the report states.
Taxes were the next most important category, noting the remaining 59.1 per cent of the share of export revenue is not profit but rather the residual sales value that must cover all the capital and business expenses of the mine not provided by PNG businesses and employees plus provide revenue to cover a return on investment and a return of the capital, in the form of depreciation expenses, that was invested.
The total financial contribution relative to non-mining Gross Domestic Product was 1.8 per cent in 2019, the same as the average for the period from 2006 to 2019.
Employment for PNG nationals at the mine averaged 2,578 over the 30-year period and was 3,527 in 2019.

Impact of mining suspension
The price of gold increased substantially in 2019 and the first 10 months of 2020.
The IMF forecasts some weakening of the price in 2021 but for prices from 2021 to 2024 to remain at an average of around US$1,600 (K5,610.06) per ounce which is 23 per cent higher than the average for the 2016-2019 period.
Based on these price forecasts, it is reasonable to assume that a conservative estimate of the lost income for the economy for one year would be the outcome for 2019 and would be three times that value for a three-year suspension of the mine.
Based on these assumptions, the total financial contribution in 2019 prices would be at least
K1.1 billion for one year and at least K3.3 billion for three years.
The impacts on Porgera and rest of the Enga constitute about 40 per cent of the total impact.
The biggest single category impact is for national and local operations contracts comprising 39 per cent of the total loss, followed by the loss of tax revenue at the national level which constitutes about 34 per of the total foregone economic benefit.

Ownership history
The mine began as the Porgera Joint Venture (PJV) in 1989 with an unincorporated joint venture ownership of:

• Placer Pacific (30 per cent);
• Highlands Pacific (30 per cent);
• Renison Goldfields (30 per cent); and,
• PNG Government (10 per cent).

Over time, ownership changes occurred and the Government equity share has risen and fallen.
In 1996, the government purchased an additional equity share of 15 per cent taking its total share to 25 per cent, the report states.
Five per cent of the government equity share was divested in equal parts to the Enga government and special mining lease landowners, and the remaining 20 per cent equity was held in Orogen Minierals, an ASX listed company which was 51 per cent owned by the Mineral Resources Development Company.
Orogen Minerals was taken over by Oil Search in 2002.
Placer Dome operated the mine until 2006 when it was taken over by Barrick Gold.
Presently, Barrick Niugini Ltd is the operator of the mine and also holds 95 per cent of the equity, equally split between Barrick Gold (47.5 per cent) and Zijn Mining (47.5 per cent).
The remaining 5 per cent equity is held by Mineral Resources Enga and equally owned by the Enga government (2.5 per cent) and Porgera special mining lease landowners (2.5 per cent).

Brief description of the mine and lease area
The Porgera mine is located in the Porgera Valley in Enga province.
It is a combined open pit and underground gold and silver mine.
It is located 140km west of Western Highlands.
The mine’s footprint covers the mining areas as well as communities along the Lae-Porgera Highlands Highway, the Hides (Hela) to Porgera electricity transmission line and the riverine tailings disposal system.
Production started in the second half of 1990 and gold production was very high in the following four years of operation before declining from average levels of over 1.2 million ounces per year from 1991 to 1995 to about 0.5 million ounces per year for the 2016 to 2019 period.
However, export values in kina increased strongly over the past 30 years, reflecting depreciation of the kina exchange rate and increases in the gold price over that time frame despite weaknesses in the early 2000s.