Mineral riches could yet bring much-needed change

Already known for its copper, gold and silver mines, Papua New Guinea is about to refurbish its economic image as a major exporter of liquefied natural gas too – with the hope that, this time, the people finally get a share of the wealth.

Although the mining industry provides the greatest share of Papua New Guinea’s export revenues, pessimistic citizens have little expectation that even the massive new natural gas projects now being developed will make them rich. After all, previous large mining projects have not yet done so.

But the mining companies contend that they have bankrolled lifestyle improvements: better medical care and education as well as infrastructural developments, including vital road links in this large mountainous country, where many poor and far-flung places are otherwise reached only by air or river.

The government is firmly in favour of encouraging additional developments, claiming that they will improve the lot of the rural populace. As Prime Minister Peter O’Neill notes, future projects should benefit ordinary citizens and not just the foreign investors. He describes his government as “fully committed” to the “right mix” of projects. “We don’t just want those that have an export focus alone,” he maintains. Instead, the country needs those that “create jobs, boost investment and meet domestic energy needs”.

Further, O’Neill encourages foreign companies “to look at taking on board Papua New Guinean investors and partners from the outset. We have successful contractors, transport operators, engineers and other  professionals, retailers, farmers, manufacturers and processors – all with funds or access to funds that can be used to participate directly in the next phase of the development of the resources sector.” The government wants local businesses to get “the lions’ share of work undertaken by contractors and suppliers”.

At present, the project receiving greatest attention – and now scheduled to commence its operations in late 2014 – involves production of 6.6 million tonnes of liquefied natural gas (LNG) per year over its anticipated lifespan of at least 30 years. The so-called PNG LNG Project involves an overall investment outlay of US$19 billion. The project has an Exxon Mobil unit, Esso Highlands, as operator, holding a 33.2 percent stake, with further stakes held by PNG-based Oil Search, the government’s Independent Public Business Corporation and other smaller investors.

A similar scheme, costing $6 billion and called the Liquid Niugini Gas Project, is scheduled to produce up to 5 million tonnes of LNG a year, starting in 2014 or 2015. It includes a 354km pipeline from the Elk Antelope gas fields to a refinery alongside InterOil’s existing petroleum refinery at Napa Napa on the outskirts of Port Moresby. Canada-incorporated InterOil is the operating partner, with smaller stakes held by Swiss-based Pacific LNG Operations and the government-owned Petromin.

Other major mining sector projects, currently productive, include New Ireland Province’s Lihir gold mine, and Western Province’s Ok Tedi mine, which produces copper, gold and silver. Lihir, operated by Australia’s Newcrest Mining, produces around 600,000 ounces of gold a year. Ok Tedi, run by Papua New Guinea Sustainable Development Program Limited (also known as the Program Company), which is controlled by BHP Billiton and Papua New Guinea interests, each year sends about 60,000 tonnes of copper and 540,000 ounces of gold to key markets around the world.

The Program Company is also mulling over the purchase of a stake in another major multinational miner’s project – Xstrata’s Frieda River copper and gold mine. Xstrata has told the government it would welcome such participation to help it dilute its own involvement as part of a global “ongoing review of operations”.

Frieda River mine – with 12 million tonnes of copper and 18.5 million ounces of gold – is located in the same region as Ok Tedi. Around $270 million of investors’ funds has already been spent to buy the land on which the open-cast mine is located, and the essential infrastructure is planned to include an airport, a hydroelectric dam, a port and 120km of roads.

A project in preparation is the offshore Solwara project to mine sulphides from the seabed, operated by Canada-based Nautilus Minerals.

Meanwhile, a giant open-cast copper, silver and gold mine on the island of Bougainville is still languishing in maintenance mode. Civil unrest, sparked by secessionist fervour, forced its closure in the 1990s. Peace accords were signed 11 years ago, with Papua New Guinea agreeing to greater local autonomy and promising a referendum on separation. Some compensation was paid to local landowners (although the amounts remain confidential) and rumours circulate periodically that the mine is poised to reopen.

Marking up GDP growth of 8.9 percent in 2011, Papua New Guinea exports copper, gold and oil along with timber, coffee, palm oil, other agricultural products and seafood. Neighbouring Australia is both the main trading partner and leading aid donor. Imports are predominantly manufactured goods (including machinery), food, chemicals and fuels. Most people are subsistence farmers, about one-third of whom live below the poverty line. However, foreign governments and international agencies consider the country stable and highly appropriate for low-risk investment.

As a new generation of oil, gas and other mining projects come on stream, there is no doubt that a transformative economic boom will follow, but the key to sustaining this will be in ensuring that the benefits are spread more widely than before.


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