PNG seeks larger stake in Porgera

The new coalition government of Papua New Guinea (PNG) headed by Prime Minister Paias Wingti has served notice that it plans to seek an additional 20% to boost to 30% its stake in the Porgera gold mine held 22.7% by Placer Dome (TSE).

Wingti was elected prime minister in July after a new coalition party won the June general election. He is being advised by Robert Needham, a well-known mining executive appointed managing director of the PNG Mineral Resources Development in September.

Needham is also a former managing director of Placer Pacific (1980-87) and was the foundation chairman (1979-87) of the Porgera joint venture committee. The parting-of-ways between Needham and Placer “was not amicable,” according to several industry sources.

Placer Dome controls Placer Pacific, which has a 30% interest in Porgera. The non-government joint venture companies — which besides Placer include Renison Goldfields Consolidated and Highlands Gold — insist the proposal by the prime minister is “inconsistent” with the equity agreement negotiated in 1979 with the PNG government which set state participation at a maximum of 10%.

The dispute is of considerable concern to Placer Dome, for obvious reasons. One of the world’s richest and lowest-cost gold mines, Porgera is on track to produce 1.4 million oz. gold this year at a cash cost of about US$86 per oz. A recent drilling program to test the extent of underground and open-pit mineralization upgraded the project’s total gold resource to 130.4 million tons grading 0.14 oz. gold (at a cutoff grade of 0.04 oz). This revised estimate, released several months ago, added 2.7 million oz. to the previously announced resource estimate of 17.5 million oz.

Further exploration drilling is continuing.

Placer Dome notes, however, that under existing equity levels, the people of PNG receive up to 60% of the profits from Porgera through a combination of equity interest, taxes and royalties. Additional benefits are realized from the increase in economic activity in the country, going back well before the first phase of production began in August, 1990.

Lawrie Reinertson, managing director of Placer Pacific, denied various reports that the joint venture companies had misled the government, or had provided misleading information on reserves and production.

“This is simply not true,” Reinertson stated in a news release. “As the project moved ahead, a number of factors combined to contribute to Porgera’s better-than-projected performance. The PNG government was kept closely informed at every step along the way of the progress being made.” Placer Dome said Porgera performed better than projected, but described the variance as within normal estimating margins. The improved performance was attributed to construction being completed ahead of schedule, trouble-free plant commissioning, improved gold recoveries from refractory ore, and higher throughput because of operating efficiencies.

The joint venture companies will be presenting the PNG government a full response to the matter on the questions of state equity levels, as well as the future of the project.

“We have a good relationship with the PNG government and we believe it will form the foundation for resolving this issue,” said Placer Dome spokesman Hugh Leggatt.

Placer Dome, which recently appointed John Willson as its new president and chief executive officer, is also involved in a legal dispute relating to a portion of its world-class Pipeline gold discovery in Nevada, held by its 60% owned Cortez joint venture.

In addition to Porgera, Placer Dome has an interest in the Misima gold mine which lies east of mainland Papua New Guinea.