The Porgera gold mine in Enga Province looks set to reopen later this year after the Papua New Guinea Government and mine operator Barrick Gold reached a ‘binding framework agreement’ to share future benefits from the mine and boost local ownership.

The Porgera mine in Enga Province. Credit: Zijing Mining

The deal, signed at the end of last week by PNG’s Governor-General Sir Bob Dadae and Barrick Gold Corporation’s President and Chief Executive Mark Bristow, is preliminary. It cedes majority ownership of the mine to ‘PNG stakeholders’ while securing Barrick’s status as the mine’s operator.

Under the agreement, ownership of the mine will transfer to ‘a new joint venture’, which will be 51 per cent-owned by PNG interests and 49 per cent by Barrick Niugini Limited (BNL), the mine’s operator, which is a joint venture between Canada’s Barrick Gold and China’s Zijin Mining.

The agreement also provides for PNG stakeholders to share 53 per cent of the economic benefits from the mine.

BNL will also ‘finance the capital required to restart the mine’, while the PNG State will have the right to acquire BNL’s share of the mine after 10 years ‘at fair market value’.

In its statement, Barrick Gold noted that the ‘full mine recommencement work’ won’t begin until ‘the signing of definitive agreements’.

PNG stakeholders

The largest PNG stakeholder is expected to be state-owned mining company, Kumul Minerals Holdings, also majority owner of the Ok Tedi copper mine in PNG’s Western Province.

Local Porgera landowners also look set to benefit, with Barrick’s statement saying the agreement would involve ‘an increase in the equity allocated to a broad group of landowners who are the customary owners of the land where Porgera is located’.

‘I thank Mr Bristow and his team for recognising our nation’s aspirations and their willingness to partner with us in realising this vision at Porgera,’ said PNG’s Prime Minister James Marape in a statement.

‘We intend to partner with all key stakeholders to make Porgera a world-class, long-life gold mine,’ said Bristow in response.

Care and maintenance

Prime Minister James Marape and Barrick Gold’s Mark Bristow. Credit: Porgera Joint Venture

The mine has been in ‘care and maintenance’ since April 2020, following the PNG government’s refusal to renew the mine’s lease for a further 10 years.

The closure was followed by legal actions by Barrick Niugini, both in-country and internationally, to bring the government back to the negotiating table.

Negotiations have been ongoing since October 2020, when an in-principle agreement was reached to give PNG a majority share of equity in the mine, and ‘fair sharing’ of economic benefits.

Impact of re-opening

Porgera’s reopening will provide a welcome boost to PNG’s economy at a time when it has been struggling to recover from the impacts of the COVID-19 pandemic.

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

In 2019, the mine produced some 600,000 ounces of gold. At a national level, its closure had a direct effect on the country’s GDP.

‘According to our estimates, the economy contracted by 3.8 per cent in 2020 compared to the 2.9 per cent growth that we estimated before the pandemic,’ Ilyas Sarsenov, PNG Country Economist at the World Bank told Business Advantage PNG earlier this year.

‘So we can see the magnitude of the downturn; it is almost seven percentage points [below the 2019 forecast] that the economy experienced.

‘If we consider the Porgera impact, it was 1.5 per cent out of that seven per cent. It was a significant impact.

‘According to Barrick, there was US$3 million (K10.6 million) a month [of lost revenue] to the government of PNG. So, it would be a one per cent drop in revenue to the government.’

The return of that missing revenue in 2022 will be most welcome to a government facing a significant budget deficit.