China looks to mine Papua New Guinea assets

Chinese miners are looking to increase their presence in Papua New Guinea’s minerals industry, with two recent acquisitions giving companies from the mainland a firm hold on assets in the extractive sector.

China already has a presence in the PNG economy, through investments in the mining, infrastructure and property sectors, attracted by the country’s relatively untapped mineral wealth. Recently, firms have been looking to raise their profile in the minerals sector, taking advantage of the depressed commodities market to buy into ventures where existing operators are in need of a cash injection, as well as secure supplies to meet domestic demand.

Buying up

In May, Australian miner PanAust accepted a revised takeover offer worth about A$1.2bn ($923m) from Guangdong Rising Assets Management Company (GRAM). The move will see the state-owned Chinese company gain control of a large-scale gold and copper development on PNG’s Frieda River, building on its 22.5% stake in the firm.

According to Greg Anderson, the executive director of the PNG Chamber of Mines, Chinese investors are better placed than most to fund developments, particularly large-scale mining projects such as Frieda River, because they have the capital. “It is a mega, world-class project and raising the funds for it, particularly in the current market, would be extremely difficult,” he told Australia’s ABC radio in June. “With the entry of the Chinese into the project, it’s far more likely that it will go ahead, certainly within the next five years or so.”

The Chinese drive gained further impetus when Zijin Mining Group acquired a 50% stake in Canadian-based miner Barrick Gold’s PNG Porgera gold operation for $298m in cash, at the end of May, as part of a broader strategic partnership. Barrick’s take from the mine was 493,000 ounces of gold last year, and it is expected to have an operational life of five years or more.

Barrick Gold is selling assets as it looks to reduce a $13bn debt pile, after investing heavily in assets when the market was high, only to see commodities prices dip.

Chairman John Thornton noted that Chinese firms would increasingly have a central role in the mining industry as the country’s appetite for minerals grows. “A 21st-century mining company with global reach and the intention to become an industry leader must, by definition, have a distinctive relationship with China,” he said.

Local opposition

Chinese miners have not always enjoyed a warm welcome in PNG. There have, for example, been clashes between locals and employees of the Metallurgical Corporation of China, which operates the Ramu nickel cobalt project via its subsidiary Ramu NiCo. At least four people were killed in 2009, when riots were sparked by fights between local and Chinese workers during the construction of the project, located near Madang on the north coast. Last August, production was halted for three days after five Chinese workers were injured in an attack by locals.

The $2.1bn Ramu mine was the first large-scale foray by China into the PNG minerals extraction sector. In 2014, the mine produced 21,000 tonnes of nickel, according to the Chinese firm’s junior partner Highlands Pacific, which is forecast to increase to 31,000 tonnes a year when the facility reaches full capacity over its 40-year lifespan. 

Though global demand for many minerals remains sluggish, some analysts are forecasting a rebound for the mining industry in 2016. In particular, metals such as copper, gold and nickel – all of which are found in PNG – are expected to post solid price increases, in part on the back of higher demand from China.