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Papua New Guinea hits back at Barrick for halting Porgera

The Porgera mine in Papua New Guinea. (Image courtesy of Barrick Gold.)

Papua New Guinea is threatening to take immediate control of Barrick Gold’s (TSX: ABX) (NYSE: GOLD) Porgera mine after the company’s local unit halted operations over the weekend following news that the mining lease would not be renewed.

Barrick, the world’s second-largest gold miner, and its joint venture partner, China’s Zijin Mining, had applied in June 2017 for a 20-year renewal of the mine lease, which expired in August.

Since then, the company has faced backlash from landowners and residents over what they claim are negative social, environmental and economic impacts from the mine.

Negotiations with Porgera’s operators were complicated further by a split among the landowners.

Prime Minister Marape warned Barrick his government would be forced to take immediate control of the mine if it were to be closed during the transition period

The mine manager, Barrick Niugini Limited, halted operations on Saturday because it said the government had not given it any formal notification on the lease renewal rejection. It also said it had not received any detail over the imminent change of hands.

Prime Minister James Marape said in a Facebook post late on Monday that he would be “forced” to take immediate control of the mine if it remains closed during the transition period.

“My letter will ask Barrick to continue operating the mine when we go through this phase, but if you sabotage or close the mine, you leave me no choice but to invoke orders to take over the mine for the sake of landowners and provincial government,” he said.

“Work with me for your ease of business during this transition and exit phase,” Marape said. “You never know, negotiations may buy you extra operation time.”

The company said last week it would pursue all legal avenues to prevent what it calls the “nationalization without due process” of Porgera.

Tier One Potential

Barrick’s president and chief executive officer, Mark Bristow, had said last month that Porgera had “tier one potential” but faced many challenges in the form of “legacy issues and an unruly neighbourhood.”

The gold mine, located in PNG’s northern highlands region, is a joint venture between Barrick and Zijin Mining. Each own 47.5% of the mine, with the remaining 5% held by landowner group Mineral Resources Enga.

Porgera contributes to about 10% of the nation’s exports and employs over 3,300 Papua New Guinea nationals.

The open pit and underground gold mine sits at an altitude of 2,200-2,600 metres in Enga province, and is about 600 km (370 miles) northwest of Port Moresby.

Barrik said it would pursue all legal avenues to prevent what it calls the “nationalization without due process” of Porgera.

“We don’t have many details on the implications of this decision yet, including the timing of the transition,” Jackie Przybylowski of BMO Capital Markets said in a research note last week.

“Barrick has warned that it will pursue all legal avenues to challenge the government’s decision and to recover any damages. We expect that discretionary spending, such as development capex, will be minimized through the current period of uncertainty,” Przybylowski noted.

The mining analyst also said that “while removing Porgera from Barrick’s portfolio would have a negative financial impact, it would improve the ESG performance of the company’s portfolio going forward.”

“On its website, Barrick reports allegations of human rights violations in the region,” she pointed out, “including allegations of ‘extreme’ violence linked to local police forces or private security forces acting on behalf of the joint venture.”

Other mining companies operating in PNG, including Australia’s Newcrest (ASX: NCM), have not been impacted by the decision regarding Porgera.

The miner has “welcomed” the Prime Minister’s support for its Wafi Golpu gold and copper asset, adding that its special mining lease at the Lihir operations remains in good standing with a lease renewal not expected until 2035.