OBG talks to Greg Anderson, Executive Director, Papua New Guinea Chamber of Mines and Petroleum

Interview: Greg Anderson

What are the likely ramifications of the proposed changes to the mining law?

GREG ANDERSON: A formal review process has been going on since 2006, and the chamber has participated in this along with government agencies. This is an ongoing process and a lot of progress has been made, but we need to see the framework finalised. One of the changes we have lobbied for, and which we expect to see realised, is an increase in the term for exploration licences from two years to five years, because the current two-year term is impractical in Papua New Guinea due to logistical and social issues. This would give explorers more security in planning their programmes and investments.

We have written many papers and submissions to the lawmakers in the hope of ensuring the mining laws are progressive and not a hindrance to attracting investment to the sector. We understand some of our recommendations will be included in the new draft; however, a private members bill, the Mining Amendment Bill, has been promoted in some political quarters. Unfortunately, some of the changes proposed in this legislation are very radical from the private sector’s perspective, such as transferring ownership of the minerals from the state to communities. Balancing all stakeholders’ interests is important, but this would result in a unique situation that would seriously impact mining companies’ ability to raise capital in international and financial markets. The key issue is the equitable distribution of benefits currently enjoyed by landowners, and national and subnational tiers of the government.

How would changes to royalty rates affect the sector and the inflow of foreign investment?

ANDERSON: Because royalties are passed on to the landowners and provincial governments, there has been a push from several provincial governments to increase royalties, but at this stage, it has not been part of the Mining Act review discussed with industry. In any changing situation we look at all the parameters, and the key issues for investors are the tax framework, political stability and security of tender. The last major market crash in PNG happened in 1997, and resulted in zero exploration and investments coming into the sector.

Over the last 10 years both the sector and the policymakers have been very fortunate because we have experienced buoyant conditions without a downturn. The legislation that is currently being designed will be applicable for the next 15-20 years; we must therefore factor in the possibility of at least one future recession. We have an internationally recognised and competitive tax environment that has been part of PNG’s success story, and we need to ensure it remains that way without too much intervention, which could discourage new investment coming into the country. The other important factor is the high cost of doing business and infrastructural constraints in PNG; this must also be considered in the formulation of any new taxation policies, because it means that most mining companies need to raise additional exploration funds and a 20-30% loading on capital to operate in PNG.

What is the potential for offshore mining, and how might it change the dynamics of the sector?

ANDERSON: I have been involved with PNG’s offshore mining initiative and a supporter from the start. This is the first of its kind in the world and has the potential to change the global dynamics of the mining industry. If successful, it could make some onshore mines uneconomic, as the quality and grade of the commodities in these waters are far superior to, and up to 10 times greater than, those in onshore mines. An environment permit and a mining lease for our first mine, the Solwara 1 project, have been issued. The waste-to-ore ratio in the subsea resource is considerably lower than onshore: the ore sits on the seafloor so mining can take place with very little waste. Some of the technology has been adapted from the petroleum industry, which has been working at great depths for decades. There is already a lot of international attention on this project, and if it is successful, it could mushroom globally.