Barrick CEO faces stark test in fight for Papua New Guinea mine

TORONTO (Reuters) - A standoff over a remote gold mine in Papua New Guinea threatens Barrick Gold Corp Chief Executive Mark Bristow’s streak of resolving thorny disputes with host governments, in the first major test he has faced outside his home patch of Africa.

FILE PHOTO: A visitor passes a Barrick Gold mining company display during the Prospectors and Developers Association of Canada (PDAC) annual convention in Toronto, Ontario, Canada March 4, 2019. REUTERS/Chris Helgren/File Photo

Barrick, the world’s second-largest gold producer, lost a key court challenge last week over rights to the Porgera gold mine. PNG Prime Minister James Marape in April refused to extend Barrick’s lease for the requested 20 years and instead gave the lease to a state-owned mining company Kumul Minerals Holdings Ltd.

The setbacks are a blow for Barrick and Bristow, who has touted Porgera as a springboard for a potential buyout of Freeport McMoRan Inc’s Grasberg copper and gold mine in neighboring Indonesia.

Revered as a mining industry titan across Africa and the Americas, Bristow has a long track record of solving seemingly intractable issues, most recently settling a long-running tax dispute in Tanzania.

In PNG, however, Barrick’s offers of an upsized equity stake in Porgera for nearby landowners and a greater share of economic benefits for Port Moresby were rebuffed.

Marape, who took power last year on a platform of economic nationalism, has said Barrick’s lease was not extended owing to environmental and community concerns, part of his justification for granting the new Porgera lease to Kumul Minerals.

A spokesman for Marape did not immediately respond to questions.

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Porgera produced nearly 600,000 ounces of gold last year, with Barrick’s share accounting for about 5% of its annual production.

Barrick, which declined a Reuters interview request, has sought international arbitration and pledged to appeal its loss of the Porgera lease to PNG’s Supreme Court. It also said it would challenge the lease grant to Kumul Minerals, though it has not said in what forum.

Bristow is unlikely to relent, due to Porgera’s potential to become one of Barrick’s top assets and because doing so might embolden pushback from other host governments, investors and analysts said.

“They’ll use negotiations and lawsuits and diplomacy to do what they can to keep it,” said portfolio manager Joe Foster at Van Eck Associates Corp, Barrick’s second-largest shareholder, according to Refinitiv data.

The dispute has flared as gold prices scale record highs at the same time PNG struggles with a budget deficit of more than 6% of gross domestic product.

Kumul Minerals has said it is open to talks to restart production and that Barrick and its partner China’s Zijin Mining Group could retain an ownership stake.

Previously they each held 47.5% of Barrick Niugini Ltd, which operated the mine as a joint-venture. Landowner group Mineral Resources Enga held the rest.

Barrick has questioned the state’s capacity to operate Porgera where it projected margins of 50% or higher for this year.

PNG’s cash constraints suggest “an eventual compromise on improved terms is likely,” said Joseph Parkes, Asia analyst with global risk advisory firm Verisk Maplecroft.

“But a high profile and contentious legal battle would make it harder for the government to soften its stance.”

Reporting by Jeff Lewis in Toronto; additional reporting by Tom Westbrook in Singapore; editing by Ernest Scheyder and Marguerita Choy