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Bright spots, but challenges remain for PNG’s mining industry

Despite some positive developments for the mining sector in Papua New Guinea, the industry continues to face funding challenges for critical exploration activity, the PNG Chamber of Mines and Petroleum’s Greg Anderson tells Business Advantage PNG.

After sharing the pain of a global downturn in commodity prices during the past decade, Papua New Guinea’s mining industry has enjoyed some promising developments in recent months, according to the PNG Chamber of Mines and Petroleum’s Executive Director Greg Anderson.

In particular, he pointed to the Pan Aust Ltd involvement at the Frieda River copper-gold project on the border of West and East Sepik provinces, the Highlands Pacific joint venture with Anglo American for the Star Mountains copper project, and the decision to advance development of the Wafi-Golpu copper-gold project in Morobe Province.

However, he added that the industry in PNG is continuing to be challenged at the grassroots level as smaller companies find it ‘very difficult’ to raise funds for exploration or to develop projects.

An example of this situation is Indochine Mining, which went into voluntary administration earlier this year after failing to obtain funding for its Mount Kare gold project in Enga Province.

‘There are some bright spots around the country, but we continue to have this problem, particularly at the exploration level,’ Anderson told Business Advantage PNG.

‘If this problem keeps going and the gold price stays where it is, with a market that continues to be junior unfriendly, then more companies are going to fade. It means that most of the small end of the sector will need to totally recover when things turn around.’

Anderson likened the environment to the cycle of 1997 to 2002, when the junior sector in PNG was also suffering and had to be rebuilt after almost disappearing.

‘It would be a shame if that happened again because we had a very strong cross section of companies in our mining industry three or four years ago, which was a great achievement,’ Anderson said.

PNG’s potential

Despite the lack of exploration activity, Anderson believes the Star Mountains partnership shows that PNG still has the potential to attract major mining companies.

Highlands Pacific Managing Director John Gooding agrees, saying that PNG is well positioned to attract more major companies in the future.

‘PNG is the home of world-class ore bodies and has huge potential to deliver more as long as mining companies are attracted to the country. It is important that the country remains attractive fiscally and stability wise,’ Gooding told Business Advantage PNG recently.

‘Wafi-Golpu is exciting; Frieda River is probably the next big project to get going. That’s important for the country because the LNG project produced all of these trained workers to help build it and now we have a better workforce to help with the next projects.’

However, Gooding stressed the importance of a strong exploration sector in PNG to ensure the future of the country’s mining industry.

‘I’m a great believer in exploration, particularly if you look at a lot of the deposits that have been found in the past, a lot of it stems from the work that smaller companies have done,’ he said.

‘Smaller companies are a bit more nimble and are able to get the resources on the ground perhaps a bit quicker than many larger companies.

There should be a lot more exploration, it is the mainstay of the industry.’

Mining Act review

Anderson said the success generated by the likes of Pan Aust and Highlands Pacific primarily came down to their ‘specific circumstances’. In the case of Pan Aust it was in response to the departure of Glencore Xstrata at Frieda, while the Star Mountains joint venture was the result of Highlands Pacific’s exploration success, as well as Anglo American’s discontent with changing regimes in other mining jurisdictions, he noted.

‘The joint venture with Anglo American provides a very clear example of what can happen if you keep a healthy, attractive investment environment, which is what we are trying to communicate to the PNG Government with the Mining Act review,’ Anderson said.

He urged the PNG Government to learn from past achievements and retain the bulk of the existing Mining Act, which has been under review for several years, to be viewed by major companies as internationally competitive.

‘We had 10 very successful years because we had an attractive, internationally-competitive tax regime, a stable policy regime, and a very proactive government in terms of marketing. It is critical to maintain that with the Mining Act and taxation reviews, especially in these times.’

Anderson believes the amended Mining Act would need to shape the PNG industry for the next 10 to 15 years, and be appropriate for ‘good times and bad times’.

Savvy services sector

While much of the PNG’s mining industry faces difficulties, Anderson said the services sector in PNG was showing it could adapt to the conditions.

‘It’s a bit of a reverse in a sense because I have been seeing quite a lot of new services companies in PNG recently,’ Anderson said.

‘This is partly in response to the PNG LNG project, as we are still considered to be an LNG hot spot in many ways. The other reason is that services companies are stressed for business so they have got to be more aggressive.’

He said the services industry, like producers and explorers, had also been forced to become ‘leaner and meaner’ after being told by mining and petroleum companies they would have to share the pain.

‘This has meant costs have become cheaper for everyone, which is an encouraging outcome for the industry here,’ Anderson noted.

This article was kindly provided by www.businessadvantagepng.com

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