Papua New Guinea government and Barrick sign ‘commencement agreement’ for restart of Porgera mine


A ‘commencement agreement’ has been hailed by Papua New Guinea’s government and Barrick Niugini as a ‘crucial step’ in the process of reopening the country’s largest gold mine. Business Advantage PNG considers what still needs to happen for the mine to return to productivity.

Signing the Commencement Agreement. Credit: Department of the Prime Minister & NEC

In a joint statement issued last Friday, Papua New Guinea’s government and Barrick Niugini Limited (BNL) announced the signing of a ‘Porgera Project Commencement Agreement’ aimed at restarting the mine in PNG’s Enga Province.

The mine has been closed since April 2020 following the government’s decision not to renew BNL’s special mining lease. Following a subsequent legal battle, an April 2021 agreement ceded majority ownership of the mine to ‘PNG stakeholders’ while securing BNL’s status as the mine’s operator.

‘The Commencement Agreement is the master agreement that elaborates in detail the terms agreed in the historic Project Porgera Framework Agreement we signed in April,’ explained Prime Minister James Marape at Friday’s signing ceremony at Government House in Port Moresby.

Under the April 2021 agreement, it was agreed ownership of the mine would transfer to ‘a new joint venture,’ 51 per cent-owned by PNG interests (Kumul Mineral Holdings Limited and Mineral Resource Enga Limited) and 49 per cent by BNL (itself a joint venture between Canada’s Barrick Gold and China’s Zijin Mining).

The agreement also provided for

  • PNG stakeholders to share 53 per cent of the economic benefits from the mine
  • BNL to provide the finance to restart the mine
  • customary landowners to have an ‘increase in equity,’ and
  • the State to have the right ‘to acquire the remaining 49 per cent of the mine from BNL at fair market value after 10 years’.

Further agreements

At Friday’s signing ceremony, the Prime Minister reaffirmed the government’s commitment to the early restart of mining at Porgera for another 20 years and ‘promised to ensure that BNL, as the investor, was provided the assurance required to move from care and maintenance to mine recommencement.’

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‘We look forward to the setting up of the New Porgera Project Company and for work to begin in preparation for the processing of gold ore at the soonest possible date,’ he said.

‘If a final deal to reopen the mine is not reached by end-2021, there would be additional downside risks to our forecast for growth in 2022’

April 2022 was suggested as the date for recommencement of operations.

However, while the Commencement Agreement represents progress, the Prime Minister said it provided a ‘framework’ for the negotiation for a number of agreements that still need to be resolved, such as the shareholders’ agreement for the new joint venture, an operatorship agreement, and the mine development contract.

The Prime Minister also confirmed that a Development Forum would be held in Enga in December to discuss landowner benefits before mine restart.

Arriving in PNG before the signing ceremony, Barrick’s Mark Bristow admitted the pace of the negotiations was ‘not as rapid as we might have hoped’ but that ‘certain commercial arrangements, as defined under the Framework Agreement, need to be finalised to give our shareholders confidence in the reinvestment.’

The joint release from the government and Barrick said that ‘negotiation teams would continue to engage intensively over the coming weeks to ensure that all remaining conditions required for the recommencement of operations at the Porgera mine can be met as quickly as possible.’

In the June, Bristow said the cost of reopening the mine was estimated at around K630 million.

Engine of the economy

Barrick Gold’s Mark Bristow. Credit: Porgera JV

‘As we move toward starting up mining operations, our common task is to negotiate expediently and in good faith so that Porgera, a mine with enormous potential, can resume production and take its place as an engine of the PNG economy and contributor of foreign exchange once again,’ said Bristow.

Indeed, the economic activity and revenue from the mine, which produced some 600,000 ounces of gold in 2019, has been badly missed in the past 18 months.

Some 2766 direct employees lost their jobs following the mine’s closure, with a significant flow-on impact on the surrounding communities. Some estimates suggest around 200 local businesses also closed.

Mining sector GDP growth in PNG was negative 22 per cent in 2020, according to Asian Development Bank figures, largely due to Porgera’s closure.

In its latest outlook for Papua New Guinea, released this week, the Fitch Solutions ratings agency, has lowered its forecast for PNG’s real GDP growth in 2021 to 1.5%, from a previous 2.4%, partly due to ‘weaknesses in the mining sector’.

While Fitch is maintaining its forecast for GDP growth of 4.4 per cent in 2022, it warns ‘if a final deal to reopen the mine is not reached by end-2021, there would be additional downside risks to our forecast for growth in 2022’.

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