A profile of the mining sector in Papua New Guinea, including mining companies, licences and leases and tax incentives.

Lihir Gold Mine is in Niolam Island, 900 kilometres north-east of Port Moresby. Credit: Newcrest Mining

Industry snapshot

Papua New Guinea’s mining sector is one of the nation’s strongest industries. Mining accounted for more than 10 per cent of GDP in 2019 and the sector was responsible for 35 per cent of the country’s export revenues. Principal mineral exports were gold, copper, nickel and cobalt.

Total mineral export, including LNG and condensate, receipts were K25,778.4 million in 2020, a decrease of 20 per cent on the previous year. The decrease was due in part to the COVID-19 pandemic, which affected export volumes of all the mineral commodities.

The volume of gold exported was 58.7 tonnes in 2018, slightly down from the 63 tonnes in 2017, mainly due to earthquakes, which led to lower production at the Porgera, Ok Tedi, Lihir and Simberi mines, and by other licensed alluvial gold exporters. There were higher production volumes at the Hidden Valley and Kainantu gold mines.

PNG has four large mines:

1. Ok Tedi (copper)
2. Porgera (gold)
3. Lihir (gold)
4. Ramu (nickel and cobalt)

Significant recent announcements and developments at each operation have been made recently, changing the landscape of the resources sector in PNG.

Current mines

Ok Tedi (Western Province)
Production: 1984 to 2025
The 100 per cent PNG-owned Ok Tedi in 2018 production of concentrate from the mine currently averages 400,000t, containing about 96,000t of copper and 280,000 ounces of gold.

The state-owned mine is in transition, with a current mine life estimated to be 10 years. The company is ramping up the exploration process, drilling in areas within the special mining lease that can be developed quickly. The aim is to find additional resources adjacent to the current pit. The company has made significant efficiency improvements, increasing production by 68 per cent between 2013 and 2018. Over the same period, it reduced gross costs by 22 per cent.

Porgera (Enga Province)
Production: 1984 to 2020

Porgera has been producing gold for more than 28 years. Its production in 2017 was about 500,000 ounces of gold and 204,000 in 2018 (due to the Highlands earthquake). The mine life is projected to be 10 years, with another 10 years after that considered likely.

Porgera is subject to heavy rain, tribal conflicts, illegal mining and transport issues because it is located at the end of the Highlands Highway.

China’s Zijin Mining Group Co Ltd became a 50 per cent stakeholder in the Porgera gold mine in 2015 after forming a strategic partnership with Barrick Gold: the Porgera Joint Venture (PJV).

In October 2019, its mining lease underwent a review for renewal and, in April 2020, the PNG Government announced it would take the mine back from the PJV. Subsequently, a special mining lease was issued on August 2020 to state-owned Kumul Minerals Holdings Limited (KMHL).

The State and Barrick entered a period of negotiations after the company signalled that the Special Mining Lease (SML) No. 11 (SML 11) to KMHL was ‘unlawful and invalid’.

Since them, steady progress has been made with KMHL and Mineral Resources Enga holding 51 per cent ownership of the mine. Barrick holds the remaining 49 per cent.

It has been suggested that the State has the right to acquire Barrick’s 49 per cent at a ‘fair market value after 10 years.

The mine could reopen as early as April 2022, with Barrick Niugini financing the reopening of Porgera.

Lihir (New Ireland Province)
Production: 1997 to 2030
Gold mining on Lihir Island operation commenced in 1997. Ranked as the third largest gold mine in the world, Lihir is considered to be PNG’s most productive mine. It is owned by Newcrest Mining and 14.3 million tonnes were mined in the 2018-2019 financial year, generating A$301 million of free cash flow. The mine has an estimated 45 million ounces of gold.

The mine was impacted by the COVID-19 pandemic in 2021 because of travel restrictions, contact tracing, isolation requirements and the ability to attract labour. These also caused delays in Newcrest’s development project for Lihir,

Kainantu (Eastern Highlands Province)
Production: 2018 to 2038
The Kainantu mine, which ceased production in 2010, was acquired by Canada’s K92 Mining (formerly Otterburn Resources Corp) from Barrick Gold in 2014. The mine is now profitable and forecasting annual production of 42,000-46,000 ounces a year, with a projected mine life of 15-20 years. As the mine expands output is expected to rise to 100,000 ounces a year.

Simberi (East New Britain Province)
Production: 2018 to 2021
The St Barbara-owned operation produced 135, 000 ounces in the 2017-2018 financial year. The mine life has been extended to 2020-21.

Hidden Valley (Morobe Province)
Production: 2019-2025
Harmony Gold bought Newcrest Mining’s half share in the mine in 2016 and now fully owns the operations at Hidden Valley. It is producing about 200,000 ounces of gold annually and is projected to have a five year mine life.

Ramu (Madang Province)
Production: 2011 to 2040+
The Ramu nickel-cobalt project, majority owned by the Metallurgical Corporation of China Ltd, started exporting from the Kurumbukara mine at the end of 2012. It is one of the top 15 nickel producers in the world. The company in late 2018 said it would expand the mine, investing over US$1.5 billion (K4.8 billion) into the project. The company produced 35,355 tonnes of nickel and 3,275 tonnes of cobalt in 2018. In April 2019, Canadian company Cobalt 27 acquired Highlands Pacific, which has an 8.56 per cent joint venture interest in the Ramu mine.

Future projects

Frieda River (West Sepik Province)
Production: Feasibility study complete
Regarded as PNG’s largest undeveloped copper-gold project, Frieda River has resources of 13Mt of copper, 20 million ounces gold and 49 million ounces of silver. Chinese-owned PanAust operates the mine and has a majority share. It has been renamed the Sepik Development Project because it will require a hydro-electric facility and power grid, plus significant infrastructure development. The project is projected to require an estimated initial capital investment of US$8 billion (K26.5 billion) and has a mine life of 33 years, with a pathway to extend that to 45 years. Average annual production rates are forecast at 170,000 tonnes of copper and 230,000 ounces of gold. Doubts were caste on the project in August 2020, however, when a majority of East Sepik people.

Yandera (Madang Province)
Production: Feasibility study
Discovered in the 1950s, the Marengo Mining project is a Copper-Molybdenum-gold resource. It has estimated reserves of 580 million tonnes of ore grading 0.41 per cent copper, 0.01 per cent molybdenum and 1.1 million ounces of gold.

Wafi-Golpu (Morobe Province)
Production: pending approval of special mining licence
The Harmony Gold/Newcrest Mining joint venture copper-gold project is projected to require K118 billion (US$5.4 billion) in investment and to produce annual cash flow of US$900 (K2.92 billion). A Memorandum of Understanding to develop the mine was signed with the PNG Government in December 2018.

Developers Newcrest Mining and Harmony Gold (the Morobe Mining Joint Venture) signed a memorandum of understanding with the Government in December 2018 for the development of the Wafi-Golpu copper-gold mine in Morobe Province.

In May 2019, the project was put on hold by the country’s National Court due to an application by the Morobe provincial government for leave for a judicial review. This application was rejected in February 2020. A decision on its special mining lease application is expected in 2020.

Woodlark (Milne Bay Province)
Production: Licence granted
The Kula Gold project, in which GeoPacific Resources has a 93 per cent interest, contains a 2.1Moz resource and 766,000 ounce reserve for a nine-year mine life. Gold production is forecast to be 100,000 ounces per annum and the mine life is expected to be 10 years.

Exploration activity

Global spending on exploration for non-ferrous metals rose from US$7.3 billion (K24.7 billion) in 2016 to US$8.4 billion (K28.4 billion) in 2017, the highest level since 2013, according to Standard & Poor’s (S&P) Global Markets.

By contrast, exploration activity in PNG in 2018 fell to K296 million – only slightly higher than the K283 million expenditure level eight years previously, according to the Mineral Resources Authority (MRA).

Despite challenging market conditions, exploration continues in PNG. Prospects in cobalt and lithium in particular are attracting interest.

There is also a significant informal alluvial mining sector that employs thousands of Papua New Guineans on a full-time or part-time basis. Alluvial mining is reserved for local businesses only.

An interactive map of mining tenements in PNG is available on the MRA website.

Training and human resources

PNG’s mining industry has faced a shortage of experienced national professionals for many years. This resulted from strong growth in the industry over the past decade and the exodus of mining engineers, geologists and other industry professional, which is testimony to the high standard of training and experience embodied in the domestic market. On the other hand, local training institutions tend to be viewed as under resourced and are in need of increased government funding for facilities upgrades and new equipment.

But several successful industry-operated training centres have been developed in PNG over the past decade, such as Ok Tedi Mining’s Star Mountains Training Institute in Tabubil, Western Province.

Other institutions providing training relevant to PNG’s mining and petroleum sectors include:

• Department of Mining Engineering, Papua New Guinea University of Technology (Unitech), Lae
• Division of Earth Sciences, School of Natural and Physical Sciences, University of Papua New Guinea (Port Moresby)
• Port Moresby Technical College (Pomtech)
• The Mineral Resources Authority’s Wau Small Scale Mining Training Center (SSMTC) in Morobe Province

Governance and legislation

The principal laws that regulate mining activities in PNG are: Mining Act 1992, Mineral Resources Authority Act 2018, Environment Act 2000 and Mining Safety Act, which stipulates safety requirements on mine sites.

On June 2020, the Parliament of PNG passed the Mining (Amendment) Bill 2020 amending the Mining Act 1992. The amendments introduce a ‘live data’ reporting obligation, give the state entity, Kumul Minerals Holdings (KMH), priority in tenement applications over reserved land and afford KMH the option to take up to 100 per cent equity in projects. The Marape government has also announced its intention to move to Production Sharing agreements rather than Royalty Tax agreements.

Copies of these Acts are available on the Mineral Resources Authority (MRA) website. The MRA is responsible for administering both Acts. The development of policy for the mining sector is the responsibility of the Department of Mineral Policy and Geohazards Management.

The MRA became operational in June 2007. It has several roles, including:

• To promote PNG as a destination for exploration and mine development
• To facilitate and encourage exploration through the provision of relevant exploration and geological data
• To increase all mining and exploration activity in the sector
• To closely monitor mining projects and provide support to operating companies, landowners and communities
• To encourage sustainable development.

The Department of Environment and Conservation administers a Code of Practice for Mining, which stipulates the environmental responsibilities of mining projects in PNG. Use of water resources within mining and exploration tenements is governed by the Water Resources Act.

Mining licences and leases

All land in PNG, including the seabed beneath the country’s territorial waters, is potentially open to mining activity. Under the Mining Act, the State owns all minerals existing on, in or below the surface of any land or in any water lying within the territory of PNG.

The various types of mining tenements (licences and leases) issued under the Mining Act on recommendation from the Mining Advisory Council include:

• Exploration Licence (EL)
  A two-year licence that allows the licensee to occupy and explore a specified area.
• Mining Lease (ML)
  A 20-year lease that allows the licensee to mine within a specified area that can be extended for 10 years.
• Special Mining Lease (SML)
  A longer lease (not exceeding 40 years) issued for larger, more complex projects. It may be extended for 20 years.
• Alluvial Mining Lease
  A five-year lease reserved for Papua New Guineans conducting non-mechanised mining operations on their own land. This can include joint ventures with overseas partners, provided the project is at least 5 per cent owned by Papua New Guineans.
• Mining Easement and Lease for Mining Purposes
  Issued explicitly for the development of roads, powerlines, port sites and other associated infrastructure related to a mining project.

Process for approving an Exploration Licence

Licences are issued by the Tenement Management Branch of the MRA. Application forms and a Schedule of Fees, Rents, Security and Exploration Expenditure Requirements is available from the MRA website or direct from the MRA head office at Mining Haus in Port Moresby (see address below).

Once an application for an Exploration Licence (EL) has been received, the MRA checks the Registry of Tenements to ensure the land is available, and reviews additional information provided by the applicant, such as the program of work set out in the application (which should include plans for post-exploration rehabilitation) and project finances. It also seeks advice from the Department of Environment and Conservation on environmental impact, as stipulated under the Code of Practice for Mining.

The MRA will then host a Mining Warden’s Consultation Forum between landowners and other affected people local to the tenement and the exploration company. With approximately 97 per cent of land in PNG held under customary laws, this process is critical.

Once the Warden’s forum has been held and all issues are resolved, the application is received by the Mining Advisory Council, which makes a recommendation to the Minister for Mining, who is ultimately responsible for approving all mining and exploration leases, with the exception of Special Mining Leases. The Governor-General of PNG, on advice from the National Executive Council, approves special Mining Leases.Exploration Licence reporting requirements and extensions

Once an Exploration Licence (EL) is granted, the licensee must submit biannual and annual reports to the MRA on its progress. A statement outlining reporting requirements for exploration licences and mining leases is available from the MRA.

The MRA may ask for additional reporting at its discretion. Penalties exist for late lodgement of reports, false reporting and environmental breaches.

A licensee may apply for extensions to an EL using the application process detailed above. Holders of an EL are obliged to relinquish not less than half the original tenement when renewing the licence.

Mining and Special Mining Lease requirements and extensions

Under the conditions in Mining Leases and Special Mining Leases, licensees must provide the following studies prior to operations being given final approval:

• Bankable Feasibility Study
• Scoping study
• Environmental Inception Report
• Environmental Impact Statement
• Compensation Agreement

Guidelines and standard templates for these reports are available from the MRA.

A development forum hosted by the MRA will then be held between the licensee, the relevant provincial and local governments, and the local landowner association with the purpose of negotiating a Memorandum of Agreement, which includes important clauses on benefit sharing. The State is a co-signatory to this memorandum.

In the case of a Special Mining Lease a Mining Development Contract is also signed between the State and the licensee, which prescribes a number of obligations of both parties.

Once the Mining Lease or Special Mining Lease is granted, the licensee must submit monthly, quarterly, biannual and annual reports to the MRA on its progress. A statement outlining reporting requirements for exploration licences and mining leases is available from the MRA.

The MRA may ask for additional reporting at its discretion. Penalties exist for late lodgement of reports, false reporting and environmental breaches.

Mining operations are subject to quarterly site inspections by the Mines Inspectorate Branch of the MRA’s Regulatory Division, which audits technical compliance with the Mining Permit, other relevant agreements and regulations, and internationally-accepted technical standards (eg. United States or Australian standards). The inspectorate operates to enforce the Mining (Safety) Act and Regulations, and any other Act as directed by law or statutory determination.

Application for extension of the term of mining tenements can be lodged as per the Mining Act 1992.

Tax incentives

There are a number of incentives for the mining sector, including an income tax rate of 30 per cent for mining projects, dividend withholding tax of 10 per cent, royalties of two per cent and interest paid by a resource project to a non-resident lender being exempt from income tax and interest withholding tax.

A double deduction is available for certain mineral exploration expenditure, and all development expenditure on a project may be deducted on a 25 per cent diminishing value basis.

Mining projects are also eligible to take advantage of PNG’s Infrastructure Tax Credit Scheme, which deems eligible expenditure on certain approved infrastructure to be tax paid. The amount that may be claimed as a credit is either the total eligible expenditure, or 0.75 per cent of the taxpayer’s total assessed income, whichever is the least.

The Bank of Papua New Guinea said in its March 2019 Monetary Policy Statement that ‘current policies in relation to the extractive industries give a lot of tax concessions to the project partners for the development of major projects in PNG’, resulting in ‘most of the export earnings in foreign currency (being) held in offshore foreign currency accounts.’

Information resources

Mineral Resources Authority
www.mra.gov.pg

Department of Mineral Policy and Geohazards Management
Tel +675 321 4011

Department of Environment and Conservation
www.dec.gov.pg

PNG Chamber of Mines and Petroleum
www.pngchamberminpet.com.pg

Extractive Industries Transparency Initiative
https://eiti.org/papua-new-guinea

Useful publications

Profile: Mining and Petroleum Investment – Papua New Guinea, published biennially by the Papua New Guinea Chamber of Mines and Petroleum

Industry events

PNG Mining and Petroleum Investment Conference. Alternately held in Sydney and Port Moresby, and run by the PNG Chamber of Mines and Petroleum, this annual event is the major gathering point for those doing business in the country’s resources sector.

The PNG Alluvial Mining Convention and Trade Show was last run in 2018 by the Mineral Resources Authority.

What else would you like to know?

This sector file is a living document created as a service to our subscribers. It is updated from time to time, as new information comes to hand.

Is there something else you’d like to know about this sector? Is there new information we haven’t included? Let us know in the Comment section below, or email editor@businessadvantageinternational.com and we’ll look into it.