SMEs in alluvial mining sector

The National Business
Below is an overview of the alluvial mining sector in PNG provided by the Mineral Resources Authority (MRA)

STATEMENTS and questions have recently been made and raised in Parliament on the alluvial sector.
Our PNG alluvial sector is an SME (small and medium enterprise) of considerable significance to the economy, especially in the rural setting.
The Mineral Resource Authority (MRA) wants to ensure that such statements are accurate within the context of the current alluvial mining regulations which apply to all who operate in this important sector and SME environment.
It is important to note that policy underpinning regulation of alluvial mining under the Mining Act 1992 (Act) has reserved alluvial mining sector for Papua New Guineans.
It is also important not to confuse the issue of exploration licences with alluvial mining leases (AML).
The former is generally for exploring non-alluvial ore sources.
Specific regulatory controls exist for allowing AMLs to co-exist within these licence areas and rules for objections are prescribed in the Act.
However, an exploration licence (EL) holder has two options if an AML is applied over the EL area:
l to object to the Mining Advisory Council which will uphold it if it is demonstrated that the EL holder will suffer material detriment to exploration or future mining if the AML is granted; and,
l can negotiate with the AML applicant to agree on how alluvial mining may co-exist within the EL and the required controls to allow this.
The fee structure prescribed by the Act is set at very low levels depending on the size and scale of alluvial mining operations contemplated.
However, it must be recognised that mining is a complex and expensive undertaking and there are some critical technical, financial, environmental, safety and social requirements to be met and observed.
With an one-off application fee of K250, rental of up to K15 per annum and no security deposit requirement, entry into alluvial mining through an AML has been purposefully kept low and does not cover cost of regulatory administration.
The reality is that many Papua New Guineans cannot afford to undertake large mechanised mining operations as they do not have access to capital or bank funding.
These larger scale operations might achieve higher levels of production and therefore revenue, but without additional capital funding, technical and management expertise and necessary specialised equipment, it is prohibitive for national developers.
The regulatory framework provides for and controls this national and international investor support through tribute agreements and minority entry to larger operations.

MRA and the small scale mining and training centre
MRA is the regulatory authority for the mining sector in the country.
For the alluvial sector, it operates under prescribed regulatory regimes established by the Mining Act 1992 and Mining (Safety) Act 1977.
It also has a small scale mining branch located in Wau, Morobe, from where it operates a nationally accredited alluvial mining training centre.
The training facility conducts in-house training courses over four levels and can accommodate up to 32 training candidates on site.
The facility was funded by the European Union and opened in 2009.

Alluvial sector facts
The 2019 alluvial gold export revenue through licenced gold exporters (regulated by the Bank of PNG) totalled K549,698.436.
Silver accounted for K2,051,239.
The total of K551,749,676, is a new revenue record.
Production of gold for 2019 was 119.904 ounces, slightly less than 2014 record.
The difference in revenue is because of the significantly higher average gold price throughout 2019.
MRA gold levy revenue for 2019, imposed under the MRA Act 2018 was K2,199,952.
This was as a result of the increase in the alluvial gold levy from 0.25 per cent to 0.5 per cent from last May 29.
With current world volatility caused by the Covid-19, the slump in oil prices and stock markets and uncertain economic activity in key economies, gold price has benefitted significantly and has hit peaks exceeding US$1,700 (K5,807) an ounce this month.
This level of pricing is very positive for the alluvial sector and PNG as a whole, given that gold exports represent around 70 per cent of all PNG mineral export revenue.
For every US$100 (K341) increase in the gold price, PNG mineral exports increase by more than K670mil based on total 2019 gold production of 2,214,428 oz.
However, gold is a very volatile commodity and regarded as a safe haven in troubled economic times.
It can drop as quickly as it rises.
But so far for this first quarter of this year, gold price remained on average over US$100 higher than last year’s average.
The top licenced gold export companies are Italpreziosi SPL and Golden Valley Enterprises, who together account for over 98 per cent of alluvial export revenue.
Questions remain over illegal exporting of gold, which MRA believes may have increased because of the foreign exchange crisis.
All alluvial gold and silver data is based upon the formal exports through the Bank of PNG and Customs regulatory process.
SSMB has now certified 5,112 alluvial miners through its training programmes since 2009, including 79 at the top mechanised mining level four.
With exception of tenement information, MRA holds no reliable data on the number of people participating in the alluvial sector in PNG, especially given the rural and remote locations of many of these community-based, non-mechanised operations.
We do know from our training initiatives, tenement regulation, convention presentations, regional activities and local knowledge that numbers run into the many thousands.
Until a comprehensive database of such information can be established these numbers will remain purely conjectural and largely unknown, and MRA takes the view it is best not to guess as this can be misleading.
The mercury project is expected to provide greater detail on the numbers involved within the sector.
Outreach training programmes have been undertaken in Morobe, New Ireland, Eastern Highlands, Milne Bay, East New Britain, Manus, Western, East Sepik, Chimbu, West Sepik, Central and Madang.
More than 3,053 miners have been trained through the outreach programme since its inception in 2013.
Several alluvial conventions and trade shows have been held in Lae and Goroka since 2014 to promote the sector and bring stakeholders together to discuss common themes, innovation and to educate on the regulatory environment.
As of this month, there are 31 active mining leases (for alluvial purposes).
There are 118 active alluvial mining lease tenements.
There are 11 AML and 119 ML conversion tenements awaiting completion of assessment for grant under the Mining Act 1992 – these are historic pre-1992 alluvial tenements whose tenement and mining rights have been preserved under transitional provisions.
Therefore, active alluvial mining tenements make up approximately 40 per cent of total active mining or exploration tenements in PNG.
Many of these alluvial tenements are supported by registered tribute agreements, which support the financial capacity and operational requirements of alluvial tenements.
These allow access by investors into alluvial mining lease operations on a joint venture basis and are also regulated by MRA.

Regulatory regime
The Mining Act 1992 sets out the basis for regulation of the alluvial sector in PNG.
Essentially, alluvial mining is reserved for Papua New Guineans, especially on their land.
The key reservations are that a mining lease (for alluvial purposes) shall:

  • be for a term up to 20 years but may be extended for up to 10 years;
  • be over an area not more than 60sqkms in a rectangular or polygonal shape which is marked out or surveyed;
  • be supported by proposals for development which prove a resource to support the term, area and operation as well as set out the technical and financial capacity of the applicants;
  • hold an environment permit issued by Cepa to protect the environment; and,
  • be subject to monthly production and royalty reporting obligations.

A mining lease anticipates a large scale alluvial mining operation and could, at the minister’s option be subject to a development forum and a benefit sharing agreement.

Compliance and monitoring
Subject to the size and scale of the proposed operation, mining is a cost intensive undertaking with numerous regulatory obligations.
Alluvial operations are often in remote and inaccessible locations throughout rural regions of PNG.
The logistics of development in such circumstances requires considerable funding, specialist heavy equipment and expertise.
An ML can be a major mining operation and cannot be contemplated without careful planning, adequate and reliable funding, a proven resource, technical and management expertise and cooperative working relations with the impacted community and landowners.
MRA’s role as regulator is to ensure that all requirements are able to be met or have been complied with.
Once a lease is granted compliance will be monitored and a monitoring committee is under trial to provide an additional level of assistance to selected tenements by way of oversight and advice to ensure developments occur and issues between parties are resolved for financial benefit of all parties, especially where tribute agreement relationships exist.

Unauthorised Mining (Sect 161, 166 and 167 of Mining Act)
The MRA has powers to seek information on any mining activities, especially illegal activity.
The police may be enlisted to assist in enforcing powers to close down unauthorised mining and to disable equipment by seizure, impounding or otherwise.
These powers include a right to prosecute for offences and fines of up to K10,000, imprisonment for up to four years and orders may be granted for rehabilitation of a mining site.

Challenges
The problems that frequently occur within the alluvial sector, and which unfortunately lead to numerous failed mining ventures, are well known.
The remoteness of many of the operations and lack of awareness of regulatory requirements are contributing factors.
Unauthorised mining is another factor as it will often involve others operating within areas they have no right to be.
Problems and challenges include:

  • landowner and land boundary disputes leading to relationship and access issues;
  • lack of trust and cooperation between mining partners;
  • lack of transparency and fairness in management and administration of the development;
  • failure to appreciate complexity and cost of mining;
  • commercial partners taking advantage of landowner naivety, and landowners frustrating access, development and operation;
  • use of mercury which is hazardous to health and environment; and,
  • illegal export of gold.