Papua New Guinea court rules against Barrick in Progera Mine case

September 10, 2020

Papua New Guinea Prime Minister James Marape in April refused to extend a lease for the Porgera gold mine to Barrick Gold Corp for the requested 20 years and instead gave the lease to a state-owned mining company Kumul Minerals Holdings Ltd. In September, Barrick lost a court challenge over the rights to the mine that Barrick had touted as being a springboard for a potential buyout of Freeport McMoRan Inc’s Grasberg copper and gold mine in neighboring Indonesia.

Reuters reported that Barrick has offered an upsized equity stake in Porgera for nearby landowners and a greater share of economic benefits for Port Moresby but that those offers were rebuffed.

Marape, who took power last year on a platform of economic nationalism, has said Barrick’s lease was not extended owing to environmental and community concerns, part of his justification for granting the new Porgera lease to Kumul Minerals.

Porgera produced nearly 600,000 ounces of gold last year, with Barrick’s share accounting for about 5 percent of its annual production.

Barrick has sought international arbitration and pledged to appeal its loss of the Porgera lease to PNG’s Supreme Court. It also said it would challenge the lease grant to Kumul Minerals, though it has not said in what forum.

Barrick CEO Mark Bristow is unlikely to relent, due to Porgera’s potential to become one of Barrick’s top assets and because doing so might embolden pushback from other host governments, investors and analysts said.

“They’ll use negotiations and lawsuits and diplomacy to do what they can to keep it,” said portfolio manager Joe Foster at Van Eck Associates Corp, Barrick’s second-largest shareholder, according to Refinitiv data.

The dispute has flared as gold prices scale record highs at the same time PNG struggles with a budget deficit of more than 6 percent of gross domestic product.

Kumul Minerals has said it is open to talks to restart production and that Barrick and its partner China’s Zijin Mining Group could retain an ownership stake.

Previously they each held 47.5 per cent of Barrick Niugini Ltd, which operated the mine as a joint-venture. Landowner group Mineral Resources Enga held the rest.

Barrick has questioned the state’s capacity to operate Porgera where it projected margins of 50 percent or higher for this year.

 

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