Interview: Craig Lennon, Managing Director and CEO, Highlands Pacific
How might the public and private sectors overcome high entry costs in mining?
CRAIG LENNON: The challenges for Papua New Guinea are not unique; many emerging markets have high entry costs. Investors entering the country’s mining sector often choose a joint-venture structure as it allows the investors full control over how much money they put into any given project. However, PNG must realise that although it considers itself an attractive mining destination, it only has seven to eight ongoing projects when it could have 10-20. It would not be surprising if up to 50% of a project’s total costs go towards infrastructure related activities instead of mining activities. The biggest challenge in the sector is the lack of infrastructure, including power. Public-private partnerships could and should work on this problem together. In the past, the private side has absorbed a large part of this responsibility and, while it can maintain a leading role, without a true partnership approach it is difficult to see it as a sustainable model. PNG is competing with the rest of the world, and in order to continue to attract investment, project-related infrastructure costs need to be lower.
This is also important for the development of a downstream sector. Access to power potentially leads to downstream development; this can be seen all over the world and PNG should be no different.
What role will non-traditional mining products have in the sector moving forward?
LENNON: Currently, the government wants to double mining activities by 2030. Gold and copper are the most dominant traditional mining products, and this is not likely to change any time soon, as moving away from gold and copper takes time and effort. Mining projects in PNG tend to be of a larger scale and take considerable time to develop. For example, the Ramu project was permitted in 2000 and started operating in 2012. A project with a known resource might reach production phase in about 10 years, but sometimes it takes longer. This doesn’t mean non-traditional products such as nickel and cobalt won’t play an important role in the 2030 target. On the contrary, global demand for both resources is expected to be spurred by the battery storage and electric vehicle markets, with PNG holding significant cobalt reserves, and one of the largest reserves outside of the Democratic Republic of Congo. There are several known undeveloped nickel-cobalt sites in PNG, but they too will require significant investment in a short period of time in order to change the mining balance by 2030.
How successful do you feel PNG’s mining laws are in protecting private sector interests?
LENNON: The Mining Act of 1992 has served PNG well. The development of available projects and strong investment over the course of the last 20-plus years is the direct result of PNG’s stable regulatory framework.
Currently, the government wants to review legislation with a focus on the country and its people benefiting more from its resources. However, the government should keep in mind that it still requires outside investment for the future development of projects, and therefore needs to balance any adjustments with their potential to deter investors.
An area that has recently improved but remains a concern is the permitting processes. The current permit system has the right foundation; however, it is less than ideal for investors to have a significant period of uncertainty around licensing renewal during the permitting period. This can be a difficult situation to explain to investors that have not previously had experience with the process in PNG. Another regulatory change that could be considered is the restructuring of land ownership so that it benefits all parties. The uncertain and never-ending land claims and the subsequent impact they have on projects is perhaps one of the most significant constraints on the sector.
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