Nov 23, 2020 Last Updated 12:34 AM, Nov 23, 2020

Global miner Rio Tinto says it is ready to discuss cleaning up the site of the giant gold and copper site which it abandoned in 2016, four months after destroying a 46,000 year-old Aboriginal site in Western Australia.

Bougainville landowners have filed environmental and human rights complaints against Rio Tinto with the Australian Treasury Department, which has the power to investigate complaints made against Australian companies operating overseas.

Landowners are hoping to secure tens-of-millions of dollars for rehabilitation of the Panguna mine site, abandoned after the mine was shut by a civil war in 1989, which it helped spark, and which resulted in the deaths of an estimated 20,000 Bougainvilleans.

Rio’s about-face – having walked away from Bougainville in 2016 saying the mine was no longer its responsibility – follows its deliberate destruction of ancient Aboriginal rock shelters in May this year.

Read more in our November issue.

PNG Mining: Layoffs and laws

  • Nov 24, 2020
  • Published in July

The Parliament of PNG has passed a series of amendments targeting the mining, oil and gas industries, which give the Minister greater flexibility in determining whether to grant or refuse petroleum development licences, according to a briefing note by law firm, Allens.

One of the key elements for the mining industry is that the Mining Minister may impose a 'minimum expected level of return' for the State on a licensee, say Allens authors Rob Merriam, Jacqui Rowell and Sarah Kuma, writing in Insights.

“What the level of return might be, how it would be calculated and how it would be enforced are not prescribed in the O&G Amendments,” they say.

Existing applicants may also be subject to these amendments if the Minister has not yet granted their licence, they add.

The legislation follows the Marape government’s refusal to grant an extension of the Porgera mining licence which expired last August, although JV company Barrick New Guinea Ltd (BNL) had sought a 20-year extension as far back as June 2017.

Barrick’s CEO, Mark Bristow, reaction was that it was “tantamount to nationalisation without due process” and legal action in the PNG Courts is continuing.

This month (July), Barrick has begun layoff staff. According to Barrick, most of the 116 expatriate employees have already been retrenched, while 2650 PNG nationals will have their employment terminated prior to the end of July at a projected cost to the company of K180 million (US$52 million).

“This is already having a big impact on the economy,” Shane McLeod, analyst at the Lowy Institute, told Islands Business.

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The Papua New Guinea government’s decision not to extend the mining lease on the economically important Porgera gold mine has shocked the joint venture operator, but the K17 billion (US$4.8 billion) Wafi-Golpu project is likely to be signed off in September.

The current Porgera lease expired last August, but Barrick New Guinea Ltd (BNL) had sought a 20-year extension as far back as June 2017. Barrick’s CEO, Mark Bristow had met with Prime Minister James Marape four times after his election last June to negotiate an extension.

In a shock statement on 24 April, the government said it had carefully considered the issue and decided it was "in the best interests of the State, especially in lieu of the environmental damages claims and resettlement issues", that the lease not be renewed. That weekend, Marape sent in 100 troops to secure the mine site.

Over the 30 years of the mine’s operation, there have been numerous controversies, claims and counter-claims about water pollution, environmental and social problems, questions around local economic returns and violent clashes in the area, according to ANU analysts John Burton and Glenn Banks.

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Papua New Guinea has been advised to tweak its macroeconomic policy and throw more weight behind agriculture, as it has the potential to enable more diversified and inclusive development.  

The World Bank makes this recommendation  in its latest newsletter Pacific Possible. It warns of rising economic uncertainty and fragile growth in PNG and recommends that authorities focus on structural transformation of the economy, especially in the agriculture sector, to help absorb any shocks.  

"Around 87 per cent of Papua New Guineans live in rural areas, and 75 per cent of these are engaged in a variety of subsistence and cash income agriculture activities. Staple products are the main source of subsistence, provide food energy and protein, and are a source of food security for rural villagers when income-earning opportunities are limited," the reports states.

"While most rural villagers combine these traditional subsistence and cash income activities, there is a small but increasing number producing value-added products such as high-value coconut products and spices."

Agriculture is one of the priority sectors in the government’s Medium-Term Development Plan for 2018–22 (MTDP III.

"To utilise the potential of agriculture as a source of income and job creation, the authorities should consider a proposed set of policy options and responses for securing sustainable rural livelihoods in food and agriculture," the World Bank says.

The resource-rich nation of over eight million people is home to a number of multi-billion dollar minerals projects and is vulnerable to substantial commodity price shocks, natural disasters and uncertainty in the performance of new and existing minerals projects. 

Its agricultural sector includes fresh food and export products like coffee, cocoa, palm oil, and copra and copra oil. 

Shipping nickel to China

At a time Western security analysts are fretting over Chinese strategic influence in the Pacific, some local businesses are looking at opportunities for trade and investment with China. In the French Pacific dependency of New Caledonia, the Northern Province administration led by Paul Neaoutyine is seeking expanded access for nickel sales to the Chinese market, as part of a broader development strategy for the Kanak-majority region.

The nickel strategy is managed through the provincial development arm Société de Financement et d’Investissement de la Province Nord (SOFINOR) and the mining company Société minière du sud Pacifique (SMSP).

Over the last three decades, since the 1988 Matignon-Oudinot Accords, SMSP has grown into a significant producer of nickel metal and a major global exporter of nickel ore. After the construction of the Koniambo nickel smelter in New Caledonia’s Northern Province, SMSP is expanding offshore through joint ventures. However the company has maintained 51 per cent controlling interest in its projects in New Caledonia, Korea and even China. This is an unprecedented achievement in the Pacific, where many governments and businesses take a minority stake in resource projects run by transnational corporations.

In an interview with Islands Business, SOFINOR’s chief financial officer Karl Therby said that SMSP was working both in New Caledonia and overseas to use the diverse range of nickel ores available from locally controlled mines.

“We’ve developed a strategy to add the maximum value to the resource by adding value right through the supply chain,” said Therby. “As is the case in many countries, mining alone cannot add the necessary value that can come from the minerals. So the crucial element is the transformation of the minerals within the country.

“For high grade ore, we’re doing this transformation onshore through our subsidiary KNS, while lower grade ore is transformed into metal offshore in our joint-venture plants in Korea with SNNC and NMC and our new partner in China.”

The driving force behind SMSP and its subsidiaries is New Caledonian entrepreneur Andre Dang Van Nha. Dang’s parents arrived in New Caledonia from French-controlled Indochina in 1935. They worked as indentured labourers in the mines on the Koniambo Massif owned by Société le Nickel (SLN), which has dominated New Caledonia’s nickel industry for more than 100 years. His father died in the mines when Dang was just 17
months old. Today, SMSP controls mining operations across the Koniambo Massif.

During New Caledonia’s armed conflict of the 1980s, Andre Dang was driven into exile in Australia, with the colonial Right perceiving him as too close to the FLNKS independence movement. However he returned to New Caledonia in 1990, to assist the Northern Province manage its mining operations after the tragic death of SMSP’s Raphael Pidjot in a helicopter crash.

Beginning in 1990 as a mining transport company with 120 employees, SMSP began exporting nickel ore in 2007. Over time, SMSP has worked to break the monopoly over nickel smelting held by the French corporation ERAMET and its local subsidiary SLN.

SMSP’s strategy has been to retain high value saprolite ore from the Koniambo Massif for domestic use. This ore, with 2.3 per cent nickel content, has been supplied to a new smelter in the Northern Province: the US$5.3 billion plant at Vavouto operated by Koniambo Nickel SAS (KNS), a joint venture between SMSP and the transnational conglomerate Glencore.

Andre Dang told Islands Business that he persuaded the Anglo-Swiss financial conglomerate to allow SMSP 51 per cent controlling interest in KNS. Dang said that despite debt burdens to get the project underway, this is carried by Glencore: “I bring the resource, and Glencore brings the money. Glencore takes all responsibility for the financial risk. I don’t have any debt – they’re the ones with debt!”

To generate funding for its share of Koniambo finances, SMSP developed a strategy to export lower grade nickel ore to Korea and China, once again using joint ventures controlled 51 per cent by SMSP.

SMSP has two joint ventures with the Korean corporation Posco: the Nickel Mining Company (NMC) and the nickel processing company Société du Nickel de Nouvelle-Calédonie et Corée (SNNC). In 2009, SNNC began smelting nickel at the company’s plant at Gwangyang, South Korea, with production of 261,469 tonnes of nickel metal between 2009 and 2017. In the same period, SMSP’s subsidiary NMC has exported nearly 20,000,000
tonnes of ore to the Gwangyang plant, which uses lower grade saprolite ore with an average of 1.98 per cent nickel content.

The next challenge is to export even lower grade ore, with average nickel content of 1.65 per cent, to a joint-venture smelter in China. On 18 October 2017, SMSP signed a memorandum of understanding (MOU) with Yangzhou Yichuan Nickel Industry Co Ltd to develop a joint project in China.

This MOU was expanded on 22 March 2018 when Andre Dang met Yichuan CEO Zhang Jianguo to finalise a memorandum of agreement (MOA).

These preliminary agreements were designed to test export systems to China before finalisation of a full contract, under which SMSP agrees to deliver 600,000 tonnes of nickel ore to Yichuan each year for the next
25 years, after the Chinese corporation agrees to sell 51 per cent of its share capital to SMSP.

SOFINOR’s Karl Therby explained that Yichuan’s pyro-metallurgical smelter at Yangzhou began production in 2012 using Indonesian minerals, but soon turned to New Caledonia.

“The Chinese had been purchasing nickel ore from Indonesia, but they had a range of concerns about the quality, the humidity of the ore and of the reliability of delivery,” Therby said. “So SMSP was able to say to them that, through our Korean operation, we have shown our capacity and reliability to export ore of higher quality than can be found in the Indonesian market. By signing the contract with us, they’ve guaranteed supply but we retain 51 per cent of the operation.”

The decision to operate offshore in Korea, and especially in China, was driven by domestic politics as well as market realities. Conservative anti-independence parties in Noumea are fiercely opposed to Chinese investment in New Caledonian enterprises, so SOFINOR and SMSP have developed new ways of working without Chinese companies operating in New Caledonia (a contrast to the troubled Chinese investment in PNG’s Ramu nickel project).

SOFINOR’s Karl Therby explained: “In our political context, with referendums on independence and public concern about Chinese influence, we don’t want them to operate here. We’ve seen what has happened in Papua New Guinea, we’ve seen what has happened in Vanuatu and we want to protect the territory from all that. So they have no actual investment in our mines; instead, we just have a contract to supply them.”

Andre Dang said that this strategy is based on an unprecedented corporate structure giving majority control to SMSP rather than the Chinese partner.

“The corporate structure is a real innovation and it’s the first time in the world that it’s been used, above all in China. The structure of 51 per cent / 49 per cent - the Chinese have never before accepted this. The Chinese government was obliged to change a law and it took seven years to allow SMSP to start operations there. We’ve just taken one small step into the Chinese market.”

He added: “After that we’ll see, because the Chinese are very intelligent. We have to be very careful, because they can be terrible! The Chinese aren’t here, they’ve stayed at home! Instead, we’ve gone over there and have taken possession of a small piece of their country, through our 51 per cent control of the smelter. The cost of operations will be paid for by the profits from the smelting.”

In 2018, after striking an agreement with SMSP, Yangzhou Yichuan Nickel added a second production line to its Yangzhou smelter, increasing potential annual production capacity from 5,000 tonnes to 25,000 tonnes of ferronickel. The metal is then sold to stainless steel producers in China. In July 2018, Northern provincial president Paul Néaoutyine paid an official visit to China, to meet with officials from Yangzhou City and major
shareholders from the Yangzhou Yichuan Nickel.

The first shipment to China under the MOA, departing Noumea in late July 2018, caused initial problems. The Yangzhou port only has capacity for vessels weighing 45,000 tonnes in a shallow river channel, but the first shipment of ore from New Caledonia

aboard MV Kiran Caribbean amounted to 62,500 tonnes. Without informing SMSP or the New Caledonian mining directorate, Yinchuan unloaded 16,006 tonnes at Lianyungang port rather than deliver the full load to the Yangzhou smelter.

To assert their rights as controlling partner, Andre Dang halted further shipments until the Chinese company apologised and agreed to bear the costs of transhipment to smaller vessels. When shipments resume, this will allow all the ore to be used at the Yangzhou smelter, thereby generating maximum returns to SMSP as controlling partner of the operation.

For Andre Dang, this strategy of maintaining majority control over operations avoids many of the problems that independent Pacific countries have faced with Chinese investments, including the over-use of Chinese labour, poor environmental standards and pressure on local politicians.

“As long as I’m at the company, I will never allow it to sell nickel ore directly to China,” Dang said. “I only want our resource to be used in New Caledonian plants or those that will be owned by New Caledonia in the future and that will supply benefits to our country. I’ll be travelling soon to China to make our policy clear to them. We’re going to shoot ourselves in the foot if we simply provide raw minerals to our competitors. That’s been going on for 140 years, ever since colonisation. We want to ensure the continued existence of our mines, because nickel is not a renewable resource. Once you’ve exhausted it, bit by bit, that’s the end.

“We don’t want New Caledonia to end up like Nauru,” he said.

“They were a world leader in phosphate mining, but they abused it and used it all up. They are a sad country. So our strategy is to add value to the resource which can generate funds for use in sectors beyond the nickel industry, which will benefit the country and future generations.”

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