Papua New Guinea’s Department of Mineral Policy and Geohazard Management recently released its latest version of the draft Mining Bill. If passed, the Bill will introduce wide-ranging reforms to overhaul the country’s mining sector, according to Sarah Kuman, Partner in Allens’ Port Moresby office.

Existing mining projects, such as Newmont’s Lihir mine, pictured, may continue to be governed under the old Mining Act. Credit: Newmont

Papua New Guinea’s Department of Mineral Policy and Geohazard Management released the latest version of the draft Mining Bill for public comment in February. If passed, the Bill will introduce sweeping reforms to overhaul the country’s mining sector, replacing the current Mining Act 1992.

Below are the most-notable reforms proposed in the draft Mining Bill.

Existing mining operations

The Bill provides that all existing mining projects, licensed under a mining lease or a special mining lease, shall have ‘regulatory stability to be governed under the current Mining Act 1992, as if it had not been repealed, for the term of the relevant mining lease or the special mining lease’.

We assume this means that the Bill, when it commences, will not apply to existing mining projects, which will continue to be governed under the Mining Act.

The Wafi-Golpu project and the Frieda River project, which have both submitted applications for special mining leases, are specifically mentioned, as having ‘similar qualifications stipulated under [Subsection (3)]’. We assume this means that both of these projects will also continue to be governed under the Mining Act; however, the provision is vaguely worded and should be amended to make clear Parliament’s intention.

New state equity provisions

Under the Mining Act, the state may take up a participating interest in a mining development; however, the size of this participating interest is not specifically set out in the Act.

The Bill will introduce specific sections that provide for the state to acquire up to 30 per cent equity in any mining project and a share of the mine’s products. The 30 per cent equity may include a stake in the mining development and extraction of the mineral, refining and processing facilities, any technological developments associated with the project and any commercial ventures utilising the country’s minerals (which we assume is a reference to gold refineries that may be set up under a lease for a mining refinery, discussed further below).

The cost of acquiring the 30 per cent equity will be deferred and subsequently recovered from the project’s future earnings, and a state equity option agreement will detail the percentage repayment, interest rates, and other terms of the deferred payment, including hedging provisions.

The Bill also includes provisions for granting a portion of the state’s equity to landowners and affected provincial governments, to be held in trust and managed by the Mineral Resources Development Company.

New royalty provisions

Currently the holder of a mining lease or a special mining lease is required to pay a royalty to the state equal to 2 per cent of the value of mined product. Furthermore, every producer of minerals is also required to pay the Mineral Resources Authority a levy of 0.5 per cent of the value of assessable income of a mining project.

The Bill will introduce new royalty provisions providing that:

• the holder of a mining lease will have to pay a royalty of 5 per cent where the state takes up equity in a mining project; and
• where the state does not take up equity in a mining project, the holder of a mining lease will have to pay a royalty of 10 per cent of the gross revenue for the life of the mine.

The state has the prerogative to decide whether to retain or distribute the royalty.

Royalties not paid within a specified timeframe may lead to lease cancellation.

New compensation provisions

The Bill introduces comprehensive compensation provisions, aimed at ensuring fair treatment and adequate compensation for landowners affected by mining activities.

Landowners will now be entitled to compensation for resettlement costs and disruptions to agriculture or fisheries, and only those identified as landowners in annual studies are eligible for compensation.

Compensation agreements will now have to account for potential changes in landowner structures based on annual studies to be undertaken, we think, by tenement holders. Tenement holders will now have to keep detailed records of all compensation payments.

The Bill will also expand the groups to which a developer must pay compensation, to include groups outside of any tenements that may be held by a developer. The new groups include:

• landowners within whose land the boundaries of the corridor of a riverine area of impact run through or through their local level government(s) or the provincial government(s); and
• up to seven local level government wards on the coast nearest an offshore mining site, known as the ‘coastal area of benefit’.

The Bill does not otherwise provide any indication of the scale of potential impacts on these sites for the purposes of determining compensation payable.

Lease for mining refinery

It appears that the Government has sought to introduce downstream processing of minerals through this new licence in the Bill.

The Bill proposes to introduce the requirement that mining leaseholders in PNG must offer at least 50 per cent of their mine products to local smelters, refineries, or other secondary processing plants, if such facilities exist and can process the products competitively. The relevant provisions allow for agreements between tenement holders and local processors on commercially competitive terms.

Moreover, the Bill will permit the state to establish a gold bullion bank for storing its gold assets or pooling gold reserves from its equity share in mining projects.

The Bill contains no other details about a gold bullion bank or the storing of gold assets and we expect that other new laws or consequential amendments of existing laws may be made to give effect to these provisions.

What’s next?

During the opening of the consultation period in February this year, the then Mining Minister, Hon. Wake Goi, expressed an intention of his Department to enact the Bill before PNG’s golden jubilee in September this year.  In order to meet that target, the next step would be to obtain the relevant internal government approvals to be able to submit the Bill to Cabinet for approval.

It is unclear whether the Department will circulate an updated draft of the Bill incorporating any of the feedback it received during the consultation period, although we do not expect so.

This is an edited version of an article published on the Allens website, “Wide-ranging reforms to overhaul PNG mining sector,” written by Sarah Kuman, Partner, Allens. Republished with permission.