Interview: Byron Chan

Given current world economic trends, when can the recovery of the mining sector be expected?

BYRON CHAN: We had a slow start to 2014, but the sector is set to recover promptly in the second quarter of 2015. This is what analysts are forecasting for the industry worldwide. Specifically in Papua New Guinea, the improved economic conditions and the windfall derived from the PNG liquefied natural gas (LNG) project should strengthen the position of the kina, thereby providing a more secure platform for investments made by the major and mid-sized companies that have sustained the industry during this downturn. We have seen a lot of firms significantly scaling back production over the last couple of years, but this is nothing new in such a capital- and labour-intensive industry as mining.

In what ways did mining operators contribute to the present market conditions?

CHAN: In hindsight, perhaps industrial plans were based on overly optimistic gold prices as a benchmark, but forecasts are always tricky, as commodity prices depend on many external factors. The fact that massive projects like Lihir Gold and Hidden Valley have scaled down production has inevitably affected our tax revenues, but we feel confident about the future, which is why we are currently issuing new licences. We recently issued a mining lease to Woodlark Mining for a period of 10 years, which shows the interest that foreign investors still have in PNG. Once operational, Woodlark Mining will be essential for the socioeconomic development of Milne Bay, especially after the closure of the Misima Mine. At this stage, I would encourage more firms to fast track their feasibility studies and apply for licences in order to show investors and financiers that they have access to the resources that would be developed.

How significant is the development of Solwara 1, the world’s first deepwater mine?

CHAN: The Solwara 1 project is the first of its kind in the South Pacific region, and clearly it will take mining into a new era of deepwater exploration. While in the past we have seen activities at 200 metres of depth, we are talking about seabed mining at 1500 metres, which requires state-of-the-art technologies and entails engineering challenges never faced before. PNG’s government, which is a partner with a 15% stake and is contributing PGK327m ($132.9m) towards the cost of the operation, will also have intellectual property rights in the project, which puts this country at the forefront of the industry worldwide. The seabed of Solwara 1 is very rich in minerals, especially gold, copper and zinc, and it is expected to generate significant revenues when production starts in 2016, with an estimated life expectancy of five years. While the project is controversial, the current administration has conducted all the necessary environmental impact studies, and the UN’s International Seabed Authority has, in fact, welcomed Nautilus Minerals’ agreement with PNG.

What major legislative changes are expected to improve the industry?

CHAN: For a while we have been striving to achieve the most efficient level of production, the highest degree of environmental protection and the most equitable distribution of social benefits when it comes to the mining industry in PNG. The goal of new legislation will be to increase the participation of the government and landowners, as we want to be a more involved in developments. With the LNG windfalls entering the system, we expect the kina to be much more stable in the future, offering a perfect backdrop for long-term investment. As such, there is little doubt that PNG now offers a much better environment to conduct business, and we would want investors to park their capital here, as they have in Singapore, Dubai and Hong Kong. The recently created PNG Sovereign Wealth Fund and Kumul Mining Holdings will also act as transparent and accountable organisations to sustain the industry. We do not want to bite into operators’ profits, as in some other markets, but we will require a more equitable distribution.