Papua New Guinea is threatening to take immediate control of Barrick Gold’s (TSX: ABX) (NYSE: GOLD) Porgera mine after the company’s local unit halted operations over the weekend following news that the mining lease would not be renewed.
Barrick, the world’s second largest gold miners, and its
joint venture partner, China’s Zijin Mining, had applied in June 2017 for a
twenty-year renewal of the mine lease, which expired in August.
Since then, the company has faced backlash from landowners and residents over what they
claim are negative social, environmental and economic impacts from the mine.
Negotiations with Porgera’s operators were complicated
further by a split among the landowners.
The mine manager, Barrick Niugini Limited, halted operations
on Saturday because it said the government had not given it any formal
notification on the lease renewal rejection. It also said it had not received
any detail over the imminent change of hands.
Prime Minister James Marape said in a Facebook post
late on Monday that he would be “forced” to take immediate control of the
mine if it remains closed during the transition period.
“My letter will ask Barrick to continue operating the
mine when we go through this phase, but if you sabotage or close the mine, you
leave me no choice but to invoke orders to take over the mine for the sake of
land owners and provincial government,” he said.
“Work with me for your ease of business during this
transition and exit phase,” Marape said. “You never know,
negotiations may buy you extra operation time”.
Tier One Potential
Barrick’s president and chief executive officer, Mark
Bristow, had said last month that Porgera had “tier one potential” but faced many
challenges in the form of “legacy issues and an unruly neighbourhood.”
The gold mine, located in PNG’s northern highlands region,
is a joint venture between Barrick and Zijin Mining. Each own 47.5% of the mine,
with the remaining 5% held by landowner group Mineral Resources Enga.
Porgera contributes to about 10% of the nation’s exports and
employs over 3,300 Papua New Guinea nationals.
The open pit and underground gold mine sits at an altitude
of 2,200-2,600 metres in Enga province, and is about 600 km northwest of Port
Moresby.
“We don’t have many details on the implications of this
decision yet, including the timing of transition,” Jackie Przybylowski of BMO
Capital Markets said in a research note last week.
“Barrick has warned that it will pursue all legal avenues to
challenge the government’s decision and to recover any damages. We expect that
discretionary spending, such as development capex, will be minimized through
the current period of uncertainty,” Przybylowski noted.
The mining analyst also said that “while removing Porgera
from Barrick’s portfolio would have a negative financial impact, it would
improve the ESG performance of the company’s portfolio going forward.”
“On its website, Barrick reports allegations of human rights
violations in the region,” she pointed out, “including allegations of ‘extreme’
violence linked to local police forces or private security forces acting on
behalf of the joint venture.”
Other mining companies operating in PNG, including
Australia’s Newcrest (ASX: NCM), have not been impacted by the decision
regarding Porgera.
The miner has “welcomed” the Prime Minister’s
support for its Wafi Golpu gold and copper asset, adding that its
special mining lease at the Lihir operations remaining in good standing with a
lease renewal not expected until 2035.