Interview: Peter Graham
With copper and gold so important to the mining industry, how do you see global commodity prices impacting the sector in the coming year?
PETER GRAHAM: Gold and copper are the principal metals mined in Papua New Guinea. For copper, the price bears a relationship to supply and demand. Demand in China, which is the dominant user of copper in the world, has a significant impact on price. Gold price is more difficult to forecast and geopolitical issues typically play an important role. In late 2015 and early 2016, when copper prices were at around $2 per pound, many producers were experiencing financial stress and, consequently, some production was taken off-line. In 2016 the prices for copper and gold were around 30% lower than the peaks of about five years ago. The copper price increased during 2016 and averaged about $2.20 per pound, while gold stood at about $1250 per oz.
In 2017 some modest price growth is expected for copper and possibly gold. For copper, supply and demand are seen as close to balanced, but pricing will be affected by what happens in the Chinese economy and any disruptions to supply. Analysts forecast the price to be $2.50 per pound in 2017. Anything above $3 per pound is likely to be more than three years away. To incentivise investment in new mines, analysts estimate a price of around $3.35 per pound will be needed. Brexit and the election of the US President Donald Trump both bring uncertainty and this usually translates into stronger gold pricing. The forecast for 2017 is a price of around $1250 per oz, which should remain flat, but this could change based on global geopolitical factors.
Forecasting price is fraught with difficulty. Miners focus on what they have most control over, and that is the cost of production. Mines need to target being in the lowest unit cash-operating cost segment of the cost seriatum curve to survive and grow through the price cycles. PNG’s existing copper and gold mines report that their all-in sustaining costs are such that they are profitable at current prices.
What more can be done in the extractive industries to ensure there is a trickle-down benefit to the affected communities?
GRAHAM: Benefits from resource projects that flow to affected communities come in various forms, such as direct and indirect employment, business opportunities, cash in the form of royalties, land compensation and rental and equity dividends, infrastructure developments for schools, hospitals, roads, airports, housing and utilities, and usually a range of sustainability programmes.
The package of benefits is typically negotiated with local and affected landowners as part of a formal benefit-sharing agreement prior to a development licence being granted; other benefits flow from developers’ corporate social responsibility initiatives. How well these benefits translate into improved quality of life varies greatly across projects. The beneficiaries are typically those in close proximity to the resource project, and frequently the primary recipients are local leaders rather than individuals or families. Women and children are often marginalised in the sharing process.
Resource projects have a finite life and engagement of resource-impacted communities in sustainable business ventures such as agriculture will better provide for the long term. There have been a number of success stories, such as rubber, broiler chickens and eggs, which show the way forward. Cash benefits from resource projects invested in farming ventures, supported with sound technical and business advice, can benefit a broader cross section of communities. Promotion and engagement of womens’ associations in such ventures has a multiplier effect as women invest their earnings in the development of their family’s education and health.
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