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”.
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Summary and Assessment on proposed National Gold Corporation Bill
1. Bill Overview:
– The proposed National Gold Corporation Bill aims to establish Papua New Guinea (PNG) as an international gold bullion center.
– It will create the National Gold Corporation (NGC), including subsidiaries such as a National Mint, National Gold Bank, and National Gold Marketing.
– Founding shareholders are the PNG State and Refinery Holdings Pte Limited from Singapore.
– The State will initially own 50% and can acquire 100% ownership at a future time.
2. Exclusivity and Monopoly:
– The NGC will have exclusive rights to refine all gold mined or recovered in PNG.
– The National Mint will be the sole refiner and manufacturer of gold bullion and coins.
– The National Gold Bank will be the exclusive issuer of National Gold Notes.
– National Gold Marketing will have exclusive rights to market NGC’s gold products.
3. New Regulatory Framework:
– Establishes a National Gold Authority as the exclusive regulator for gold processing, refining, and trading.
– Current gold export licensing handled by PNG’s central bank and other agencies will change under the new bill.
4. Industry Opposition:
– The PNG Chamber of Resources and Energy (PNG CORE) strongly opposes the bill, calling it potentially disastrous.
– Concerns include the creation of a monopoly, which could disrupt existing marketing arrangements and contracts of major mines.
– The bill does not require the National Mint to refine gold in PNG, allowing it to refine gold abroad while banning other refineries in PNG.
– Uncertainty around pricing and terms for miners using NGC services.
5. Economic Implications:
– Industry fears the bill will harm the mining sector and deter major investors due to increased uncertainty.
– The NGC’s monopoly on refining may affect the financial viability of mining operations.
– The bill’s intent to promote domestic value-adding and align with the ‘Take Back PNG’ agenda is noted, but its impact on investor confidence and sector stability is questioned.
Is the Bill in Favor of PNG’s Economic Growth?
– The bill aims to enhance economic growth by promoting domestic value-adding and establishing PNG as an international gold hub.
– However, industry stakeholders argue that the monopolistic structure could negatively impact the mining sector, investor confidence, and overall economic stability.
Will it Affect the Gold-Mining Sector?
– Yes, the bill is likely to significantly affect the gold-mining sector.
– It mandates exclusive refining rights to the National Mint, disrupting existing marketing and refining arrangements.
– The sector might face challenges related to pricing, terms of refining, and potential increased costs due to the monopoly.
Implications:
1. Economic Uncertainty:
– The monopolistic framework may deter investment and create financial instability within the mining sector.
2. Operational Disruptions:
– Existing contracts and marketing arrangements for gold sales might be invalidated, causing operational disruptions for miners.
3. Increased Costs:
– Potential for increased refining costs due to the lack of competition, despite assurances of globally competitive pricing.
4. Regulatory Changes:
– A new regulatory framework with the National Gold Authority could centralize control but also introduce bureaucratic complexities.
5. Value-Adding and National Agenda:
– Aligns with the government’s goal of increasing domestic value-adding and maximizing benefits from mineral resources, but the effectiveness of these goals is uncertain amidst industry opposition.
In summary, while the bill aims to promote economic growth and align with national objectives, it poses significant risks and challenges to the gold-mining sector, potentially hindering overall economic stability and investor confidence.
This is part of downstream processing. Also to better manage our gold, pathway for future gold prospects. Pass the bill.
Finally we are talking about refining our gold at home in PNG, that’s in all sense one of the biggest bargaining chips our country can have in the global economic arena.
However, investors deserve a win/win platform, thus, a proper transparent negotiation is in line, perhaps.
Footnote: PNG must be the main beneficiary of any development.
Nonetheless, Go PNG.
God Bless and Protect Papua New Guinea ❤️
Who are the so-called industry experts whose protection of the current status quo seem weak and lack economic common rationality especially with regard to the current rapid fluctuations in the global market for gold and other minerals and strategic resources. They want PNG to be the same old peripheral producer of gold and other mineral ores produced in PNG to the metropolis economies so that when processed their economies are soaring at the expense of PNG which continues to maintain the primary supplier. I thank the Prime Minister for this decision to localize gold production. In these times countries possessing gold bars will be more insulated and sustainable when a global economic depression occurs. However, for the purpose transparency and accountability on regulation, marketability and other laws pertaining to the proposed bill, a wider consultation with all stake holders is needed. The so-called industry experts from PNGCORE seem not to represent long term economic independence and interest of PNG. Let’s do a proper COST BENEFIT ANALYSIS instead of just defending the present gold trade regime which allows PNG not to get the maximum value of its gold and other minerals.
PNG is an Independent Country. This is our Country, our Black nation and any Businesses decisions we make will be from the leaders and executives of this sovereign nation. Hence, the proposed National Gold Corporation Bill is beneficial for PNG. Having refineries and Gold Bullion in PNG would offer distinct advantages that simply can’t be found in almost any other investment. These are the advantages of owning physical gold. Also, like any investment, PNG can benefit from gold most when we understand how it fits within our overall financial plan, and make strategic allocation, not one based in fear. Afterall, PNG is a third world country, whether we fail or succeed, this will be PNG’s own to try. If PNG fall, we all people of PNG fall as one as one Black Nation. PNG do not need consultations from the others. Investing in Gold is a ‘Well Kept Wallet’. PNG Building a MINT, Bullion, whilst gold offers stability and diversification, it’s essential to weigh the costs and potential downsides when considering building a mint or a gold bullion in any country, especially in PNG’s case, a third-world context. Each situation is unique, and thorough research is necessary before making investment decisions.
However, Gold is universally recognized and accepted as a form of currency and Globally Accepted, it can be easily traded or sold across international borders. Hence, the bill to have PNG’s own Mint / Gold bullion Bill should be passed in the Parliament. Ms. Gion Amean Belo
The proposed National Gold Corporation Bill in PNG could potentially provide numerous significant economic benefits for the country. While it may face opposition from certain industries, it is essential to consider the potential advantages it could bring.
1. Economic Sovereignty:
The establishment of a National Gold Corporation could enhance PNG’s economic sovereignty by allowing the country to have more control over its valuable natural resources.
2. Revenue Generation:
With a National Gold Corporation in place, PNG could potentially increase its revenue generation through better management and marketing of its gold resources. This could lead to enhanced economic growth and development opportunities for the country.
3. Job Creation:
The establishment of a National Gold Corporation could create employment opportunities for the local population, contributing to poverty reduction and overall economic stability in PNG.
4. Infrastructure Development: Increased revenue from gold mining operations managed by the National Gold Corporation could be reinvested into vital infrastructure projects, such as roads, schools, and hospitals, benefitting communities across the country.
5. Environmental Protection:
A state-owned corporation focused on gold mining could prioritize environmental sustainability and responsible mining practices, ensuring the protection of PNG’s natural ecosystems for future generations.
In conclusion, while there may be opposition from certain industries, the passage of the National Gold Corporation Bill in PNG could unlock significant economic benefits for the country, leading to greater economic stability, job creation, infrastructure development, and environmental protection.
Despite the resistance by PNG Core, INA’s Paul Barker and others, the need for a nationally operated gold industry is good, but only if managed well and if the proposed bill would have been given ample time for all stake holders views. Stakeholder views are critical on its regulations, pricing, monopoly and market concerns. A thorough cost and benefit analysis should have been initiated by the government instead of its current knee-jerking approach.
With the international value of gold rising PNG as a mineral producer needs its own mint to process its ore so that the value of money lost through international transactions can be retained. The Cost Benefit Analysis should be done on the establishment of a mint and its gold price regulation.
The key aspect of this proposed NGC is its regulation, economic viability and its marketing arrangements. If these can be managed based on consultations with rest of the stake holders, then the NMC Bill can be introduced and passed.