MELBOURNE (Reuters) - Barrick Gold Corp ABX.TOGOLD.N is set to elevate its troubled Papua New Guinea mine to its top-tier assets, despite landowner and government demands to cede a larger stake and deteriorating security at the joint venture with China's Zijin Mining 601899.SS.
With a 20-year lease renewal application in the balance, Barrick has faced backlash from Papua New Guinea (PNG) landowners and residents. Critics say the Porgera mine has polluted the water supply and created other environmental and social problems, with minimal economic returns for locals.
Seven people have died at the Porgera mine since September, including three so-called illegal miners last month in clashes that prompted Barrick’s local entity to appeal for government intervention.
Barrick hopes to boost the mine’s production by 18% or more. This previously unreported outlook raises the stakes for Prime Minister James Marape’s government, which has been seeking richer terms from miners and oil and gas producers.
The head of the country’s mining regulator said Barrick, the world’s No. 2 gold miner, is waiting to begin serious negotiations for permit renewal terms with the country’s executive council, led by Marape.
“If we can renew the permit on a reasonable basis, it stands up as a tier one asset,” Barrick Chief Executive Officer Mark Bristow told Reuters, referring to a large scale, long-life, high margin deposit.
PNG's next steps with Barrick could influence billions of dollars of planned investment by global miners including Australia's Newcrest Mining NCM.AX and St Barbara SBM.AX, who are eyeing new mines or mine extensions, but are wary of rising sovereign risk.
Miners, facing a dearth of new deposits and rising resource nationalism, may now have to cede greater rewards to other stakeholders.
“There will have to be equitable sharing of the spoils or these things won’t be developed or will be discontinued, ultimately,” said portfolio manager Simon Mawhinney, at Allan Gray in Sydney who is among Newcrest’s biggest investors.
Barrick’s tier-one designation, used describe a mine capable of producing 500,000 ounces of gold annually for at least 10 years at low cost, would place Porgera in league with Barrick’s crown jewel assets at a time major gold miners are desperate to replace shrinking reserves.
Barrick and Zijin’s combined 2018 production at Porgera was around 421,500 ounces.
Barrick has broadened the role of its top China executive and former U.S. diplomat Woo Lee to handle day-to-day talks with the PNG government. It has pledged to relocate villagers whose land the mine has swallowed and study ways to improve management of mine waste currently dumped in rivers, Bristow said.
The moves, aimed at mollifying concerns over access to arable land and pollution of local waterways, may not be enough to satisfy landowners and the PNG government who want a larger equity stake.
Barrick and Zijin each own 47.5% of the mine, with the remaining 5% held by landowner group, Mineral Resources Enga.
Analysts have said Barrick could opt to put its stake on the block with other assets it has shed to meet a $1.5 billion (1.2 billion pounds) divestment target. But Bristow played down a potential sale, saying Porgera fits Barrick’s investment criteria.
“It makes real returns, it creates value, it can survive the cyclicality of the gold industry and will make a significant contribution to our other stakeholders,” he said.
Barrick’s top executive has shown he is willing to make concessions to settle disputes. In October, Barrick agreed to sell Tanzania a 16% stake in each of its Bulyanhulu, North Mara and Buzwagi mines to resolve a long-running fight over taxes.
The Canadian miner may face added pressure to confront issues in PNG that run afoul of investor benchmarks on environmental, social and governance issues.
Standard Chartered for example has said it will not provide financial services directly towards mining operations that conduct direct marine or riverine tailings disposal.
Maso Mangape of the Porgera Land Owners Association said local residents had been squeezed out. “The mine site has now become a battlefield,” he said.
Reporting by Melanie Burton in Melbourne and Jeff Lewis in Toronto; Editing by Denny Thomas, David Gregorio and Grant McCool
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