This month, global gold, copper and silver prices hit lows not seen for over two years, causing commentators around the world to suggest that the global mining boom, driven largely by demand from China, is over. How could this affect Papua New Guinea?

An aerial view of the Hidden Valley gold mine. Credit: Morobe Mining Joint Venture/PNG Chamber of Mines and Petroleum

1. Is PNG’s mining boom over?

Barrick Gold’s Dr Ila Temu

Dr Ila Temu, outgoing President of the Papua New Guinea Chamber of Mines and Petroleum, believes so.

The global mining boom ‘is definitely over’, with the current downturn expected to have a ‘big impact on capital spending, exploration expenditure and financing for many existing and planned projects’, Temu told his organisation’s annual general meeting last week.

David Lennox, resource analyst with the stockbroking firm Fat Prophets in Sydney, Australia, agrees. The ‘boom’ is over but will be replaced ‘with a more sustained, stable growth’.

‘Just as in Australia, the infrastructure couldn’t be sustained—it’s the same with PNG,’ he told Business Advantage PNG.

2. What’s going to happen to PNG’s pipeline of future resources projects?

‘The recent decline in gold prices is affecting projects globally … and projects with higher costs have already been impacted,’ notes Adam Cowen of Ironstone Capital, a corporate advisory firm specialising in the resources, energy and infrastructure sectors.

Cowen told Business Advantage PNG he did not think all resources projects in PNG would be affected, however:

‘PNG has a number of high quality proposed projects and I suspect that a number of these will be viable even with today’s pricing. On a positive note, there is a great deal of interest in PNG oil and gas, which may partially offset deferred spending on mining in PNG over the next few years.’ (To view a list of future mining projects in PNG, click here.)

3. What should the Government do about it?

Given the PNG Government’s reliance on resource revenues to fund its future development expenditure, a healthy mining and petroleum sector is in its best interests.

Dr Temu argued that the Government could do more to address some of the issues that make PNG a high cost place to do business, such as law and order, infrastructure and red tape. (As reported in this week’s Around the world column, PNG is ranked equal last in the world by Behre Dolbear for the time it takes to bring a new mine on line.)

‘If the [PNG] Government were to invest in infrastructure and training this would assist in bringing costs down, thereby improving the viability of projects from an investment perspective,’ observes Ironstone Capital’s Adam Cowen.

One thing Temu was adamant about is that this is no time to increase the tax burden on resources companies:

‘The current tax review must take these global developments into account. This is not the right time to increase taxes. It is a good time to review expenditure as well and to cut unnecessary spending.’

The Chamber of Mines will hope this message will be carried to the body of eminent persons—former Internal Revenue Commissioners Sir Nagora Bogan and David Sode and former Australian Treasurer Peter Costello—currently reviewing the taxation regime for mining and petroleum in PNG.

4. What impact will the slowdown have on the rest of the economy?

Fat Prophets’ David Lennox

While reduced activity in the mining sector is likely to have some knock-on effect across the economy, there are positives in the slowdown, according to David Lennox.

‘Because mining was going at such a rapid pace, other industries were not able to keep pace. Growth will be more manageable,’ he says. ‘Other parts of the economy can now step in and mining can continue at a moderate pace.’

5. Does this change PNG’s long-term future?

While the current mining boom may be coming to a close, the longer-term picture still looks positive.

Speaking at last month’s Australia–Papua New Guinea Business Forum in Port Moresby, ANZ’s Chief Economist Warren Hogan observed that China was still planning to bring 300 million people into cities over the next decade and ‘when you bring people into cities, you need to build them first.’

With between two-thirds and three-quarters of real economic growth coming from Asia over the next decade, Hogan said ‘PNG is sitting right now in the zone of the greatest opportunity.’ Hogan said capital would continue to go into the economic sectors with the highest potential return, and for PNG that would continue to be the resources sector.

With the right policies from government, research conducted for ANZ by Port Jackson Partners has predicted that PNG can increase its exports sixfold by 2030—something asserted by ANZ CEO Mike Smith during his February 2013 visit to PNG.

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