By Herb Thompson
Following long and acrimonious negotiations, the Papua New Guinea government has raised its stake to that of equal partner in the largest gold mine in the world outside of South Africa.
To close the deal, effective from March 1, 1993, government negotiators agreed to pay $200 million out of future earnings from the mine to the three Australian joint-venture partners. In return, the government's share of equity increases from 10% to 25%. Placer Pacific, Renison Goldfields and Highlands Gold (subsidiary of Mt Isa Mines) each sold one-sixth of their respective 30% shares.
As a sweetener, the government permitted the companies to depreciate capital costs more rapidly, which in itself is said to be worth about $10 million cash in hand for each company.
A number of issues remain to be resolved which could lead to problems in the future. These include fly-in fly-out arrangements for the work force, landowner equity arrangements, site security and the local purchasing of PNG goods and services. The joint venture and the government have also made a commitment to the local landowners to each spend $17.5 million on infrastructural development in the region during the next 10 years.
The new position of the government was made clear in July 1992, when Prime Minister Paias Wingti announced that, because the potential of the mine appeared to be far greater than anyone had originally imagined, he wanted to increase the state's equity. This was followed in November with a claim for 30%.
The companies maintained right up to the end of negotiations that there was no justification for the government's demands because they had carried all of the risks incurred in both exploration and the expenditure of $1.3 billion in development costs. The joint venture had been in existence and operating in the Highlands region since 1979.
However, the spokesperson for Placer Pacific, Vic Botts, comforted the shareholders with a "sweet lemons" hypothesis that "the state will now be more cooperative given its larger stake in the project". Renison's chief executive, Campbell Anderson, identified the pragmatic implications of a "satisfactory commercial and political agreement being essential to the maintenance of an active exploration presence in PNG".
Porgera made its first shipment of gold bullion on August 29, 1990. Within five months the company highlighted the wealth coming out of the ground in this isolated area of the Western Highlands by announcing a maiden interim net profit of $43.3 million.
The mine presently produces 1.4 million ounces of gold per year and will continue to do so for some time to come. Based on new ore reserve blic in June, the mine is set for a major phase of expansion which will most likely double its expected life to more than 30 years; recent drilling has confirmed that a higher quality of the ore is maintained at much deeper levels than those presently being mined.
The original Porgera mine agreement was negotiated in 1989, based on a feasibility study submitted by the joint venture in November, 1988. Because of the shadows cast by the Bougainville rebellion, which had at that time begun in earnest, the government convened a "development forum", which included both the provincial government and landowners of the area, to smooth out the expected problems which had never been resolved in Bougainville.
Yet, for those familiar with the original negotiations, the more recent agreement provides an element of deja vu. The most sensitive areas of concern left in 1989 to be thrashed out at a later date included; the fly-in fly-out operations; business spin-offs for the local population; and the equity position of landowners and the provincial government — very similar to those issues once again left vague and open ended in March 1993.
One issue studiously avoided by both parties in 1989 and 1993 is that bedevilling the large Ok Tedi mine further to the west. This is the disposal of tailings directly into the Porgera River system rather than opting for the provision of a tailings dam.
In November 1988, Jim Yer Waim, MP and minister for the environment and conservation, informed the joint venture in no uncertain terms, "... after careful consideration ... I hereby reject the company's preferred option of disposal of treated tailings direct to the river and will require the construction of a tailings impoundment dam at the proposed Yambala Creek site".
According to his interpretation of the Fourth National Goal of the constitution, the minister was putting public health and social welfare ahead of economic gains. This concern was quickly lost in the paper shuffle and was evidently at the bottom of a pile of matters to be negotiated in the more recent struggle for equity.