Papua New Guinea’s Chamber of Resources and Energy has come out with serious objections to the government’s proposed National Gold Corporation Bill. We take a closer look at the legislation and what it could mean for the country’s second most valuable export.

The Lihir gold mine. Credit: Newmont Corporation

The goal of the National Gold Corporation Bill, which may come before Papua New Guinea’s Parliament as early as its next scheduled sitting in May, is no less than “the establishment and promotion of Port Moresby as an international gold bullion centre”.

However, the proposed bill is causing a good deal of concern among the country’s miners, with peak industry body, the PNG Chamber of Resources and Energy (PNG CORE), labelling it as potentially “disastrous”.

The bill’s intent

The bill can be seen as helping to achieve two key pillars of government policy: increasing onshore value-adding and, as per the Marape government’s ‘Take Back PNG‘ agenda, delivering greater benefits from PNG’s finite mineral resources.

It seeks to establish a National Gold Corporation (NGC) in PNG, which would have a number of subsidiaries, including a National Mint (to include a National Gold Refinery), a National Gold Bank and a gold marketing organisation, National Gold Marketing.

Founding shareholders in the NGC, which would be defined as a private company and not a state-owned enterprise, would be the PNG State and a Singapore-registered private company, Refinery Holdings Pte Limited.

According to PNG’s Minister for Finance, Rainbo Paita, the State will own 50 per cent of the entity “and can acquire 100 per cent at a time of the government’s choosing.”

“The proposed National Gold Corporation Bill 2022 will effectively create a gold monopoly”

The NGC would be tasked with assisting the State “in the establishment, and promotion of, Papua New Guinea … as a world-class gold producing country”.

According to the draft bill, the NGC’s subsidiaries are intended to help PNG become “a reliable producer and international supplier… of internationally accepted gold bars, gold coins and other gold products,’ as well as “world-class gold processing, refining and minting services” and “domestic and international banking and other financial services relating to gold”.

Exclusivity

Notably, the draft bill provides for the National Gold Corporation to have significant exclusive rights in PNG’s gold market. Among several exclusive functions set out in the draft bill, is that “all gold mined or recovered in Papua New Guinea will be refined by the National Gold Refinery.”

Currently, major gold miners make their own arrangements for the export and refining of the gold they mine, with supply volumes and prices often set under long-term contracts with international customers. PNG’s small scale alluvial miners are also free to sell their gold to any gold buyer with a license to export gold.

“The NGC Bill does not change the long standing PNG law that miners own the gold and precious metals they mine, or that they may sell to anyone they wish to, as they do now,” James Scobie and Dr Michael Dyson, directors of Refinery Holdings, tell Business Advantage PNG.

“The NGC Bill only requires that all gold and precious metals be first refined to international investment grade standard by the National Mint before the refined gold and precious metals are exported.”

Under the proposed bill, the National Gold Corporation’s National Mint subsidiary would be both the country’s exclusive refiner of gold and its exclusive manufacturer of gold bullion and gold coins.

According to Minister Paita, the NGC will build new US$200 million (K762 million) refinery and mint facilities at Port Moresby’s Jacksons International Airport, which will take approximately five years to complete.

“The margins in gold refining are typically narrow – unless you have a monopoly”

Meanwhile, the National Gold Bank would be the exclusive issuer of National Gold Notes (in a form as yet unknown), and National Gold Marketing would have the exclusive right to market gold bullion, gold notes and gold coins produced by the NGC.

New regulatory framework

The bill also provides for wholesale changes to the way gold would be regulated in PNG, providing for the establishment of a new National Gold Authority, with new powers.

According to the draft bill, the National Gold Authority would be “the exclusive ‘gatekeeper’ in protecting the national interest in the processing and refining of gold derived from land in Papua New Guinea, and the import, export and dealing in gold.”

Currently, gold exports are licenced by PNG’s central bank, the Bank of Papua New Guinea, with gold producers reporting on their production and exports to the mining industry regulator, the Mineral Resources Authority, as well as to the Internal Revenue Commission, PNG Customs and the PNG Extractive Industries Transparency Initiative.

Industry reaction

Mining industry peak body PNG CORE has issued a number of statements this month criticising the bill and has also written to Prime Minister James Marape seeking urgent consultations.

“The proposed National Gold Corporation Bill 2022 will effectively create a gold monopoly which will be disastrous for PNG’s mining sector and the economy of Papua New Guinea,” it has said in a statement. “The bill does this by requiring that all gold mined or recovered in PNG can only be refined by National Mint, a private company.”

The Chamber’s statement notes that the bill “does not require the National Mint company to refine gold in PNG, giving it the right to refine or process gold in any foreign country, however the bill bans any other person from operating a gold refinery in PNG.”

The Chamber also suggests the bill “effectively seeks to invalidate the marketing arrangements and contracts put in place by major mines for the sale of their gold internationally”, thereby affecting both their financial viability and investor confidence in the sector.

It also questions why it is necessary to over-ride “two dozen other laws” to provide the NGC with its monopoly.

Also in question is at what price and on what terms PNG’s miners will be obliged to use NGC’s services.

“The formula for setting the price appears unclear from the draft bill,” observes Paul Barker, Executive Director of PNG’s Institute of National Affairs, who has also voiced opposition to the bill, suggesting it will deter major investors “at a time when there’s already considerable uncertainty”.

“The margins in gold refining are typically narrow,” he tells Business Advantage PNG. “Unless you have a monopoly.”

“The NGC Bill does not allow the National Gold Refinery to charge what it likes for refining,” clarify Refinery Holdings’ Scobie and Dyson, who say the the refinery will be “required to provide globally competitive refining costs, outcomes and benefits to PNG miners … Those matters will be addressed and agreed on an individual and confidential basis between each  miner and the National Gold Refinery.”

Gold in PNG

After liquefied natural gas, gold is PNG’s most valuable export.

According to Bank of PNG statistics, the country exported gold with an on-board value of K7.89 billion (US$2.08 billion) in the 12 months from 1 July 2022 to 30 June 2023.

Gold is currently produced at seven productive mines: Lihir (operated by Newmont Corporation), Ok Tedi (Ok Tedi Mining), Hidden Valley (Harmony Gold), Kainantu (K92 Mining), Simberi (St Barbara), Crater Mountain (Crater Gold Mining) and Porgera (New Porgera Ltd). The last of these, Porgera, re-commenced production earlier this year.

While most refining of PNG gold currently takes place offshore, PNG has previously had some local refining capacity, with Metals Refining Operations (MRO) operating under various ownership structures in Port Moresby from the 1980s until its mothballing in 2020 as a result of regulatory issues faced by its last owner, Pacific Balanced Fund (PBF).

“The facility is still there,” John Sanday, MRO’s former Chairman, tells Business Advantage PNG. “In capacity, capability and expertise, we were world class, even producing ultra fine ‘5-9s’ gold for use in super hi tech industries and electronics.

“In 2017, PBF carried out a major refurbishment and retooling of MRO and, as of today, there is a brand new refinery waiting to be switched on at the Gordons Industrial area.”

Sanday says the mothballed facility has the capacity to refine 60 tonnes of bullion per annum – “equivalent to more than the whole of PNG production plus more”.