The Porgera mine in PNG: some background

Porgera Gold Mine (Wikimedia Commons: Richard Farbellini)
Porgera Gold Mine (Wikimedia Commons: Richard Farbellini)

Breaking late on 24 April 2020, Papua New Guinea Prime Minister James Marape announced that his government would not renew Barrick Niugini Limited’s (BNL) mining lease at the Porgera gold mine. At present BNL is a joint venture between Barrick Gold (47.5%), Zijin Mining (47.5%), the Enga Provincial Government (2.5%) and the Porgera landowners (2.5%).

The decision was widely reported by industry media sources as a government takeover: it had forced out BNL and taken control of or snatched the mine. This is a narrative centred on the portrayal of PNG as a risky place for investment and that ‘jittery investors’ will flee the country whenever the government tries to assert the resource nationalism embedded in the Constitution, where the state is to control ‘major enterprises engaged in the exploitation of natural resources’.

This is not the first time that Porgera has been in the sights of nationalistic government moves, nor is it the only mine in the country that has had vexed relationships with the state over licences, taxes, environmental impacts, and ownership. In this blog, we look at the historical context and survey a range of reactions to Marape’s announcement.

Historical context

BNL began life as the Porgera Joint Venture in 1988 with the shareholding split between Placer Pacific (30%), Highlands Pacific (30%), Renison Goldfields Consolidated (30%) and the PNG government (10%). The mine opened in 1990 and began producing a million ounces of gold a year. At the time, the government owned 20% of the Ok Tedi mine and 19.1% of the Panguna mine in Bougainville.

Over time the government stake has risen and fallen. In what the Business Review Weekly called the Porgera Coup, the winner of the 1992 national elections, Paias Wingti, demanded a further 20% of the operation after claiming the government had been duped. After six months of turmoil, a deal was reached to sell 15% to the government. From a highpoint of 25% in government hands, 5% was divested to the Enga Provincial Government and the landowners and the remainder progressively diluted over five prime ministerial terms (Chan, Giheno, Skate, Morauta, Somare), reaching 0% in 2003, when DRD Gold, then operating the small Tolukuma mine, acquired the last parcel.

The original 30-year Special Mining Lease gazetted in August 1989 fitted the mine plan, which envisioned an end to mining in 2006 (a 40-year lease could have been applied for). By 2002, mine closure had been pushed out to 2012, and rising gold prices in the mid-2000s postponed closure planning indefinitely. In applying for a 20-year extension in June 2019, which the PNG Mining Act does not compel a government to grant, BNL suggested the mine could remain productive beyond 2039.

What do observers think about the non-renewal?

The resources media line is ‘investment risk’. This rings hollow given that this was the script for months during the 1992-93 raid by Wingti and there was no perceptible change in PNG’s standing as an exporter of minerals. When Lihir Gold raised capital on the ASX two years later, its shares were keenly sought.

Current industry anxieties focus on the government’s hard-line in talks with Exxon over the P’nyang gas project, permitting for the Wafi-Golpu project in Morobe Province, and the slow progress in advancing the Frieda River project in Sandaun Province. Recently, the State got burnt trying to pay for its equity in the PNG LNG project (see the PNG Ombudsman Commission’s report) and Marape has no magic wand to make things different at Porgera. By contrast, a policy response could have, but has not, addressed the recent collapse of resource revenues – PNG’s EITI reports show that the two leading miners, Barrick and Newcrest Mining (PGK46 million and nil corporate income tax paid between 2013 and 2017, respectively) have led the way on tax minimisation.

Barrick’s CEO, Mark Bristow, who met Marape four times in 2019 to talk about the lease, reacted angrily on 24 April 2020, saying Marape’s decision was tantamount to nationalisation and BNL would pursue all legal avenues to assert its rights. Already the courts have ordered the parties to meet to resolve the dispute. Bristow’s counterpart at Zijin, Chen Jinghe, wrote to Marape on 27 April 2020, saying that if Zijin’s investment at Porgera was not properly protected, it could damage relations between China and PNG. He pointed out that BNL owned the mining facilities and, once dismantled by BNL, it would be costly for a new operator to replace. The Chinese ambassador to PNG, Xue Bing, told the ABC that the continuous and stable operation of the mine was in both countries’ interests.

At Porgera itself, the decision cuts across many unresolved issues at the mine. Landowner spokesmen have said they recently negotiated an amicable agreement with BNL and claim that the decision by the government is contrary to the views of a majority of clan leaders. On the other hand, a group owning 27% of the land leased for the mine said they supported Marape’s decision but BNL could not leave before settling the lawsuit they have brought in the National Court for damages. No single representative body has ever had unanimous support. The comments suggest that the government did not consult them beforehand.

Porgera has been the site of many long-running sagas concerning human rights, resettlement planning, downstream environmental and water issues, in-migration, ‘illegal mining‘ by locals and migrants on the mine’s leases, and conflicts over compensation payments – which have been implicated in heightened levels of violence over the past 30 years. Forcing BNL off the mine does nothing to advance what the company was doing to resolve these things, or make the dilemmas of development go away. The existing proxies for the state, notably the Porgera Development Authority, have performed poorly in improving services and infrastructure for Porgerans.

Replacing the current operator with another has not particularly sprung to local minds, as it stands to disrupt local businesses and employment. Marape’s plans are unclear, but the fact that he has communicated at greatest length on Facebook (here and here) does not suggest he has a ready-to-go team on hand to effect an orderly transition.

Barrick and Zijin’s legal obligations for mine rehabilitation are unclear if they are sent away, nor do we know if either could really dismantle the facilities and sell the mining equipment. If BNL were forced into an abrupt exit, the perverse result would be that the first mine to produce a meaningful mine closure plan would escape its implementation.

Marape, he of the slogan ‘Take Back PNG’, is not the first Prime Minister to strike against a mine. Paias Wingti tried it 28 years ago and his immediate predecessor Peter O’Neill nationalised Ok Tedi. O’Neill only had to do a bit of parliamentary paperwork to acquire Ok Tedi, given its strange corporate arrangements, so it has continued normal operations to the present. To bend the old miner’s trope about PNG being ‘elephant country’, if Marape sees elephants he wants to jump on the back of, he better have a well-thought-out plan, or else it will be he who has the elephants on his own back.

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John Burton

John Burton is an Honorary Senior Lecturer with the Department of Pacific Affairs at the Australian National University.

Glenn Banks

Glenn Banks is Professor and Head of School at the School of People, Environment and Planning at Massey University, New Zealand.

8 Comments

  • I thank the authors for their blog-post on the Porgera mine.

    The comments that follow are to provide a context to (i) the refusal of the PNG government to grant Barrick NL a term extension to the Porgera Special Mining Lease (SML), (ii) Barrick NL’s 22 July 2020 application to ICSID for a rules-based conciliation (invoking the Porgera Mining Development Contract) and (iii) the Barrick Australia 11 August 2020 application for an ICSID arbitration invoking the Australia – Papua New Guinea BIT (Agreement between the Government of Australia and the Government of the Independent State of Papua New Guinea for the Promotion and Protection of Investments 1991).

    The Porgera SML holders are Barrick NL (Operator) and Enga PG functioning as an unincorporated two-party joint venture. Zijin owns a 50% equity in Barrick NL and is not a signatory party to the Porgera Mine unincorporated joint venture operating agreement. The Porgera SML rights were gained by Barrick takeover of Placer in 2006 and acquired by Barrick from DRD by novation in 2007. These transactions created Barrick’s legitimate investor interest in the Porgera SML. Barrick has additionally invested in ore processing and tpd rates, further exploration work and mining development planning. These are permitted activities under the terms of the April 1989 Mining Development Contract and the May 1989 SML.

    Barrick’s data acquisitions and planning work have been communicated to the Mineral Resources Authority as required by The Mining Act 1992. Barrick’s position is that since it has made these supplementary investments, complied with statutory and regulatory requirements, met its’ lessee and contractual obligations, it has a ‘legitimate expectation’ that it will be granted an SML extension of term by the PNG government.

    The Enga PG (as co-venturer) opposes Barrick’s request for an extension of the SML licence. The functionality of mining two-party joint ventures is discussed here. This discussion mentions the importance of customs and usages in the mining industry. By implication any government regulatory authority conforms to these customs and usages when it contracts with and recognises and licences mining joint ventures. Industry customs and usages come into play when contract interpretation is at issue. Mining industry customs and usages are of relevance in both domestic law and international law.

    After PM James Marape refused Barrick NL’s application for an extension to the Porgera SML Barrick NL applied to the PNG National Court for the discovery of the NEC advice given to the PM.

    On 10 July 2020 Deputy Chief Justice Kandakasi denied Barrick’s application on grounds that the requested documents were not discoverable by court process because of their protected confidential status under both the Constitution and the Mining Act.

    At para 32 His Honour permits himself an obiter moment of reflection and wonderment.

    Also, the important point is that, no case has been made out as was my finding in the decision leading up to the grant of leave that the plaintiff had not established a case of any of the statutory process under the Mining Act being breached. The effect of this is that, I am not too sure of the purpose for which these disclosures are sought especially when there is no clear establishment of a statutory provision, in the Mining Act being breached and the need to know how that breach occurred. If at all, the argument is clearly that, when the lease expired at its natural life, the State was entitled to make a decision and that decision was made. Counsel for the defendants led by the learned Solicitor General’s arguments are that the State is under no obligation to give reasons and one of his colleagues in this case, joined in to say it is like a lease situation. When a landlord decides to terminate a lease, the landlord is not required to give reasons. Whether that is a correct analogy or not, I am not getting into that space except to say in this case that a decision has been made and that, there is no expressed statutory provision for disclosure of reasons.

    From the Barrick point of view His Honour’s decision can have come as no surprise. The decision benefits Barrick because it grounds two points of significance in the context of international law and the Aus-PNG BIT. Firstly, the response of the State unequivocally establishes that the denial of an SML extension was an act of State and thus brings the Barrick/PNG imbroglio within the scope of a BIT investor-state dispute. Secondly, the decision arguably brings to an end and exhausts further avenues for domestic legal action by Barrick. I think it likely that the earlier 22 July application by Barrick to ICSID for a conciliation (under contract) will not proceed. Instead the later 11 August application by Barrick (Australia) under the Aus-PNG BIT will proceed as a claim for damages. Thirdly, the decision enables Barrick to argue for and the arbitral tribunal to adopt as applicable law general international law (i.e. to exclude PNG domestic law as applicable law).

    Barrick has previous experience of ICSID arbitration. In 2010 Barrick concluded and tendered to the Balochistan Provincial Government (the licencing authority) a feasibility study for the Reko Diq mine in Pakistan. The proposal included a scheme for copper concentrate to be conveyed by pipeline to the port of Gwadar for export. The Balochistan PG required that a refining capacity be developed in the Province and for this and other reasons denied Barrick and its co-venturer Antofagasta a mining licence. Barrick registered the dispute with ICSID for arbitration under the Australia – Pakistan BIT. Barrick claimed to have invested more than US $220 million in the project. In July 2019 the arbitrators made an award of US $5.83 billion in favour of Barrick/Antofagasta. The arbitral tribunal had no difficulty in finding their way to the conclusion that the Pakistan/Government of Balochistan had denied Barrick/Antofagasta a right that gave rise to a substantial loss. The full report of the arbitration which includes reference to mining industry customs and usages can be found here.

    An important point to be taken from this somewhat horrific award is that under international law the effet utile doctrine of treaty interpretation becomes analytically operative. This means that if, when applying the applicable provisions of the Aus-PNG BIT to the relevant facts, a breach of international law is found to have taken place, then –

    the fundamental principle [is that] a State cannot rely on its domestic law to determine the scope of, and thus to escape its liability under, international law (Para 1362)

    Recently Barrick has filed a claim under the ‘New York Convention’ for the enforcement of the Reko Diq arbitral award in foreign courts. In October 2019 Papua New Guinea acceded to the ‘New York Convention’ (the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards).

    In order to gain a wider appreciation of the Barrick ‘style’ it is useful to survey recent events involving Barrick in Tanzania. The protracted dispute with a Barrick subsidiary (Acacia) involving both tax payments and the Tanzanian government equity share in three mines which led to the banning of gold concentrate exports has recently been resolved. The Acacia subsidiary has been dissolved and replaced by a new Barrick subsidiary. The tax dispute has been settled and new arrangements have been made for Tanzanian government equity participation in the three Barrick controlled mines. The deal to end the dispute and resume slurry concentrate exports included Barrick paying compensation of $300 million to the government. Barrick’s Tanzanian operations are now owned 84% by Barrick and 16% by the Tanzanian government. The deal includes a 50/50 sharing of benefits after the recoupment of capital debts. Barrick has made an immediate payment of $100 million to the government and will make a further five annual payments of $40 million.

    It has been reported that Barrick has made offers to the PNG government to increase both government and landowner beneficiation from the Porgera mine. To date these offers have not been accepted by the PNG government and matters seem set to go to arbitration.

    Barrick v Papua New Guinea Arbitration?

    UNCITRAL arbitration rules enable the tribunal, by default, to “apply to the substance of the dispute … law that it determines to be appropriate” (Article 35 (1)). I expect that the tribunal will concur with a Barrick argument for the application of general international law (i.e. not domestic PNG law).

    Additionally, Article 35 (3) stipulates that –

    In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.

    The Australia – Papua New Guinea BIT under “Protection and security of investments” Article 3 (3) specifies that –

    Investments … shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security.

    Aus-PNG BIT Article 4 (4) specifies that –

    Each Contracting Party shall ensure subject to its law that the management, maintenance, use, enjoyment, acquisition or disposal of investments, rights related to investments and activities associated with investments in the territory of the other Contracting Party shall not in any way be subjected to or impaired by arbitrary, unreasonable or discriminatory measures.

    Aus-PNG BIT Article 7 covers expropriation and nationalisation and allows a bona fide expropriation for a public purpose.

    The Barrick v Pakistan tribunal rejected the Pakistan claim that the denial of a mining licence was a bona fide regulatory measure “despite its ‘disguise’ as an exercise of regulatory power under Rule 48(3) of the 2002 BM Rules” (Para 1329).

    The tribunal determined that the denial of a mining lease by the GOB amounted to an expropriation

    The denial amounts to abuse of sovereign power that can also constitute a measure with expropriatory effect (Para 1329).

    The Tribunal found that Pakistan was in breach of its treaty obligations to provide ‘fair and equitable treatment’.

    It is likely that under a Barrick v Papua New Guinea arbitration a tribunal will find that Papua New Guinea has breached its obligations under general international law by “impairing” Barrick’s investment and that the PM’s denial of a lease extension is a “measure with expropriatory effect”.

    If the tribunal reaches this point when arbitrating the Barrick v Papua New Guinea investment treaty-based dispute the issue becomes the quantum of damages.

    A twenty year mine life? Say, US $3 billion or US $6 billion?

    If Papua New Guinea wishes to avoid this result then it must develop an innovative argument. Such an argument may be based on the differences between the Barrick (Reko Diq) social licence to operate and the Barrick NL Porgera social licence to operate.

    Vailala

    Note:

    Barrick v Pakistan refers to –
    Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1.
    The UNCITRAL transparency rules permit, allow and encourage publication of jurisprudential analysis and speculation at all stages of the arbitral process.

  • Papua New Guinea Prime Minister Hon. James Marape’s announcement that his government would not renew Barrick Niugini Limited’s (BNL) mining lease at the Porgera gold mine on the 24th of April 2020 was a dream come true for the suffering majority of the Porgera Landowners living within the Special Mining Lease boundaries of the Porgera Gold Mine project.

    Note that the landowners were living like squatters within the Special Mining Lease boundaries in the past 30 years, while the shareholders of the mine were directly benefiting from the sufferings of the poor landowners.
    As landowners we do not see Barrick and its partners as so called “Developers”, we view them as criminals in disguise – “Exploiters”.

    After 30 years of Mining in Porgera, we the landowners have learnt so much about such mining companies (EXPLOITERS) and we know for the fact that taxes, royalties, compensations and contracts are all part of the mines EXPENSES, yet EXPLOITERS like Barrick is saying those are economic benefit to the government and landowners. It would be great if such EXPLOITERS explain to us how much of the 95% of the Profits declared after expenses have been put back into the growth of the nation or the nations economy.

    It is true that Barrick’s CEO, Mark Bristow, met Marape four times in 2019 to talk about the lease. But the question to JOHN BURTON & GLENN BANKS as the authors of this Blog, What was discussed in the meetings? Despite these meetings why has Marape decided not to renew the SML? Have you twos even considered getting down to the bottom of this? If not then from the landowners’ point of view this article is totally biased and you twos are part of the syndicate who are exploiting this nation of its natural resources.

    WHAT DO OBSERVERS THINK ABOUT THE NON-RENEWAL?
    Stating the above it brings us to the question of what do you (JOHN BURTON & GLENN BANKS) think about the Non -Renewal?

    We make note of this phrase used “At Porgera itself, the decision cuts across many unresolved issues at the mine. Landowner spokesmen have said they recently negotiated an amicable agreement with BNL and claim that the decision by the government is contrary to the views of a majority of clan leaders.”

    It is very important you take note of this – There are 24 SML landowner spokesmen who are recognised spokesmen, who are known as SML Clan agents. The 24 SML agents were identified in a National Government sanctioned land investigations study. The gist of the study was to identify the true SML landowners prior to the development and operations of the Mine. These 24 agents were the very persons who signed the agreements for the development and the operation of the mine.

    From what we know and for the record, as the majority landowners (more than 90%) are supporting the call by our Prime Minister Hon. James Marape not to renew the lease. Two months prior to the announcement by the Prime Minister, there was a resolution signed by 21/24 clan agents of the SML resolving NOT TO RENEW THE SML APPLICATION FILED BY BARRICK.

    We know that the landowners’ spokesman you are referring to are paid employees and contractors of Barrick, whose interests are conflicted and corrupted by Barrick. We the genuine landowners DO NOT WANT BARRICK!

    JOHN BURTON & GLENN BANKS should further state in your article where in the PNG constitution and or in the agreements leading up to the development and operations of the mine that gives the right to Barrick to have its lease renewed automatically and more importantly where does it state that the government should give notice beforehand for any announcement of the decision of the lease application?

    We don’t see investors as developers, but Criminals and Exploiters

  • Gentlemen, we need advise with solutions. Your sentiment is just a piece of your mind that do not provide constructive criticism.
    However, we have some national experts who knows that cause have provided support for the government.

  • Glen, Ok Tedi landowners now own 33% of the mine. Ok Tedi paid more than 3hundred million as dividend to the government last year. The landowners are benefitting more then what they used to. OTML spent billions (still) to manage the pollution created by foreign entity. There are undeniable evidences of clear regrowth along the corridors of the Fly river system. It will take several decade but it is work in progress.
    FYI with the covid 19 lock down OTML has managed to exceed its recovery when 99% of the expatriate had already left the country over 2 months ago. Also, the same shut down PNG nationals from nationally owned companies have been rotating between the two mines (otm & pjv) to carry out critical maintences on all the major mill equipment for over a decade. I firmly believe that we are ready as a nation to own and operate such mines so long we do it without breaking any laws. How can you and I assist strategicaly in making this become a reality?

  • Glenn and John,
    Good backgrounder for people who are interested. Some of the problems (resettlement for example) might have been better addressed if the soft diplomacy/engagement through the use of experienced PNG people had continued as per Placers’ time rather than hard security and a concentration of ex military and police in engagement roles. Others from that time have recently been in contact and I am partly quoting their thoughts which I endorse.
    Without a long term engagement the problems in general will not be solved. If the hardline security remains unchanged these problems will never be solved.

  • Gentlemen, a very good history and analysis.
    So many so called experts like yourself continue to end up painting negative pictures of decisions that have been made without offering solutions to assisting in anyway.
    Such skepticism is a norm yet we have time and time again proven critics wrong.
    Our government made the decision with a good intent and for us the 8+million population. Fyi ML had expired and they made that decision based on recommendations from the advisory team thereforeyour term snatching is not appropriate.

    • Thanks for this Peter. The term ‘snatched’ is not ours – we were reporting what others (in the sector) were saying. I tend to agree with you – and our article supports your position. There has been industry concern, even outrage, from time to time over the ways in which the Government has interacted with the mining sector (Paias Wingti’s decision which we cite here for example), but it hasn’t stemmed the flow of investment or slowed the industry significantly. We are concerned though with some of the potential effects on locals of these decisions: they could potentially be left with little but a few crumbs and an environmental and social mess.

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