Mining sector on track to reproducing 2020 results

The National Business
Papua New Guinea has been producing on an annual basis nearly 2 per cent of the world’s gold produced in the mining sector, says Mineral Resources Authority managing director Jerry Garry. Business Reporter DALE LUMA this week discussed PNG’s gold production with Garry.

Q What has gold production been like for the country in the first half of the year?

Mining operations in Ok Tedi Mine, Tabubil, Western. According to the MRA, the country’s mining industry has done well over the years since the single operation on Bougainville in 1972. – Picture by Newcrest

GARRY: Before the closure of the Porgera mine during the quarter one in 2020, gold production was just over two million ounces a year. Now the amount of gold produced in any mine is directly dependent on the grade and the ore produced during that period of time. For example, if the gold grade in a particular deposit is low, it will affect the overall gold production in that particular year. In the case of Porgera, there are very high grade zones, commonly referred to as zone seven. It has very high grade gold. So the volume of material put through the processing plant could be low but the amount of gold you recover because of high grade will be relatively high.
So the measure of the amount of gold produced is a direct reflection or directly correlated to the grade of the ore material that is put through that processing plant at that given time.
Having said that, we have been producing above two million ounces in 2021, and dropped to 1.3 million ounces early this year up to May. We have produced close to half a million ounces of gold.
By that indication, we are on track. In 2021, we produced 1.3 million ounces. And that’s less output from Porgera. We are very much on track and we are likely to reach about 1.3 million ounces or 1.4 million ounces at the end of 2022. That’s the total gold produced in this country, including alluvial gold.
Q How does current gold prices sit at the moment?

GARRY: The current gold prices would be just over US$1,800 per ounce (about K6,192). We had seen gold prices since going back say 2020. We have seen a rise from around US$1,500 (about K5,160) per ounce to over US$2,000 (about K6,880) per ounce in 2020. But it averages about US$1,775 per ounce (about K6,261). In 2021, it ranges from US$1,800 (about K6,192) per ounce to US$1,900 (about K6,536), but averages about US$1,700 (about K5,848). So gold price has been very high, in fact higher than ever recorded in the history of gold. And in 2020, we are still maintaining every high gold prices – around US$1,800 and expected to go beyond US$2,000 per ounce.
So it’s going to be another good year for 2022 in terms of gold prices.

Q What are some of the factors that affects gold price?

GARRY: Gold prices are impacted by many factors. But generally, the number one and fundamental driver is the demand and global supply. If there’s a high demand and low supply, it will drive the price up. Number two, gold is normally priced against the US dollar. So if you have a stronger dollar, than it will basically stabilise. But if the US dollar is weak, and again you can peg that against the consumer.
The currency that buys more gold in the world is India. So if the value of the Rupee against dollar is weak, it can’t buy because the buying power is lost.
But if the US Dollar is weak, that the buying power of Rupee is strong.
So they buy more gold.
The value of the currency against the dollar is a critical factor determining the supply and the consumption rate. If the local currency has more buying power against the US Dollar, then they will buy more gold, driving the price up. The other thing is the geopolitical tension. If you have tensions in key countries either supplying gold or consuming gold, obviously it will drive the price either up or down depending again on the strength of the dollar and value of the currency. The other main thing that also drives the demand for gold is the amount of gold in the reserve bank and the value of the desire of countries to hold gold as hedge against inflation and currency valuation. If the inflation goes up, then the price of gold goes up because the cost of producing an ounce of gold would have gone up. The cost of goods and services would naturally increase. So to suppress and stabilise inflation in the country, many times they hold gold to control inflation and currency valuation. It’s a hard commodity that you can feel and touch. These are some of the factors that drive the price of gold up and down. Gold price is never fixed and it is always difficult to predict.

Q How has the country’s mining industry progressed over the years and what is the outlook?

GARRY: When you look at the mining industry in this country, we have grown from a single mining operation in Bougainville back in 1972 were it was our lifeline. That mine alone actually carried the nation until we commissioned Ok Tedi and thereafter. In a nutshell, if Bougainville was still around and Porgera, Ok Tedi and Lihir, we have four of the world class mining deposits and also operations in the world. So in terms of the mining business from 1972, we commissioned Ok Tedi back in 1984, Porgera in 1989 and Lihir in 1986. All these mines with the contributions from Hidden Valley, Sinivit and Tolukuma etc, we have grown the industry in terms of gold productions. We have grown from around 200,000 ounces from the Bougainville days to up to 500,000. When we have Ok Tedi and when Porgera kicked in, we reached close to two million ounces. Ever since Lihir came into production, we have been hovering around two million ounces. So in terms of mining industry, we have done really well.