Barrick Niugini’s Mining and Petroleum Industry Investment Fund provides relocated landowners with a superior financial outcome, according to Chris Trainor, Manager of Commercial Services. He believes it is a model for other Papua New Guinea mining companies to follow.

The Porgera gold mine in Enga province. Credit: Barrick Gold Corp.

Trainor says the trust fund was set up as an ‘appropriate vehicle’ for landowners connected with the Porgera gold mine in Enga Province to invest the funds given to them for having to relocate.

The fund provides a quarterly annuity, and the beneficiaries pay no tax. The fund exclusively invests in government bonds.

‘It really works well,’ he says. ‘It is available to any mining company in PNG,’ Trainor told the Papua New Guinea Mining and Petroleum Investment Conference last December.

He said the company had taken other approaches, including constructing houses for relocated landowners, but they had not proven successful.

‘It didn’t work as well as hoped.’

High yield

Eric Kramer, Chief Executive of PacWealth Capital, which manages the fund, says recipients are getting a return of 10 per cent a year, paid every three months.

‘It is a very good return and the money is intact at the end of the road. I think it is a fantastic product. Every quarter they get 2.5 per cent.

‘It has been a long road, especially for the guys at Barrick, to explain it.’

‘The initial idea was that they could use that money for whatever they want: school fees or down payment on a car or whatever.’

Kramer says the fund, which was launched two years ago, has about K17 million in assets and 150 members. Recipients were initially offered a choice between a 10-year plan and a 20-year plan. All have now opted for the 10-year plan.

Benefits

PacWealth’s Eric Kramer. Source: PacWealth

Kramer says getting the landowners to see the benefits—when all they get is units in a trust fund—required a period of intense explanation.

‘It has been a long road, especially for the guys at Barrick, to explain it in order to get everybody on board for this product.’

Kramer says initially landowners were given money, which he says was ‘spent in no time.’ Then the company built houses for the landowners.

‘That didn’t work either because people would simply sell the place, or break it apart and sell bits and pieces of it.

‘If you get K100,000 in compensation money, that K100,000 is invested.’

Finally, the idea came to set up a fund and pool peoples’ compensation money into that fund and invest the total and give dividends to the unit holders.

‘That idea might sound simple, but it is hard to explain because it is nicer to have K100,000 in your hand.’

Clean

Kramer describes the structure of the fund as ‘very clean’. Barrick, he says, pays the costs. ‘If you get K100,000 in compensation money, that K100,000 is invested. It is not K100,000, minus 2 per cent for the lawyers, minus 3 per cent for us and 5 per cent for someone else.’

‘We linked it to pigs. If you have two pigs and you butcher one for a feast, now you have one pig left.’

Kramer says the predictability of the returns was important for the beneficiaries. The greatest challenge, he says, was to explain the benefits clearly.

He is still not sure whether all the beneficiaries understand that at the end of the period, they will still have the initial amount; it will not have been spent.

‘We linked it to pigs. If you have two pigs and you butcher one for a feast, now you have one pig left. Pretty soon you are going to eat that one up as well.

‘However, if you leave them in the pen pretty soon you will have 10 pigs and now you can start eating one of them but your stock will be intact. They seemed to understand that the money is being put away and invested for making little pigs.’