PNG Mining: Key decisions ahead PDF Print E-mail


Mick Leahy, an Australian prospector, worked in rugged mountainous country in Papua New Guinea (PNG) in the 1930s.

He said to a colleague at the time: “Jim, good country, good climate, good kanakas (traditional people), too good to find gold in”.

But in time, the country Mick Leahy explored gave rise to two major mines operating today: Porgera and Ok Tedi (see map).

Following growth in gold mining between the 1930s and 1950s, PNG had only one major operating mine at independence in 1975: the Panguna copper mine on Bougainville Island.

Operations at Panguna ended in tears in 1989; the development was closed in the face of fierce local opposition, accompanied by civil war on the island.

Notwithstanding this, mining in PNG – notably of gold – has grown strongly since independence. Gold production in 2011 totalled 4 million ounces.

Resources (mainly mining) now account for over 70 per cent of exports and 25 per cent of government revenue.

There are several major mining projects on the drawing board, such as Wafi-Golpu (copper and gold), Frieda River (copper and gold), Mount Kare (gold and silver), Woodlark Island (gold), Yandera (copper, gold and molybdenum) and Mambare (nickel).

These six projects alone will entail capital expenditure of at least $15 billion, partly on infrastructure such as roads, pipelines, power stations, ports and accommodation camps.

In addition, some $15 billion is being spent on ExxonMobil’s liquefied natural gas project, which will come into production next year.

The PNG government is publicly committed to the development of the resources industry and foreign investment in the industry.

At the same time, it faces pressures to become more active in mining policy.

For example, the government is currently in dispute with Nautilus Minerals of Canada, terminating last year an agreement with the company under which the government is to contribute 30% of the cost of developing this company’s Solwara 1 project (entailing the sub-sea mining of copper). And it is in dispute with BHP Billiton over ownership of the Ok Tedi mine.

In addition, it faces moves from some quarters to give local communities the right to own minerals, something that is strongly opposed by the industry.

(As stated by the PNG Chamber of Mines and Petroleum, “because there is no system of land title for customary land, an explorer would be left with the task of dealing with a resource owned by a community that was always open to challenge from within and without”.)

Dealing with local communities is a difficult issue in PNG, given its cultural diversity (the country is home to hundreds of tribes and languages) and by the communal nature of much land ownership. Local protests, sometimes violent, have been part-and-parcel of mining since independence in PNG.

Underneath these issues lie serious economic problems. Papua New Guinea receives more foreign aid per capita than almost any other country. At the same time, an estimated 40% of people live on under US$1 per day.

In the forceful words of Professor Helen Hughes of the Australian National University, foreign aid has boosted, not the lives of villagers, but rather large-scale corruption and the privileges of “cadres of aid officials” and “non-government aid organisations with political agendas”.

In the more gentle words of an Australian government review in 2010, the model of “capacity building through advisers” is not working.

The development of a new economic model for PNG and the development of the resources industry will go hand-in-hand.

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