EITI – Preparing for Greater Transparency in the Mining Sector Roger Gunson, Executive Manager Regulatory Operations Mineral Resources Authority 23rd September 2015

Achieved independence in 1975 Population of 7 million +, mainly of Melanesian culture Official languages: English, Tok Pisin – over 850 language groups Currency: Kina & Toea – derived from historic use of ‘shell money’ $USD1.00 = K0.3695 Mineral export receipts represent over 50% of GDP During the 1970’s & 1980’s PNG hosted two of the worlds largest gold & copper mines: Panguna & Ok Tedi

Port Moresby

It now hosts 2 world class gold & copper prospects: Frieda River & Wafi-Golpu The PNG mining regulatory authority is the Mineral Resources Authority (MRA), based at Mining Haus in the capital Port Moresby MRA is self-funded through production and alluvial gold export levies (0.25%), tenement rents and tenement administration fees

MINERAL RESOURCES AUTHORITY FUNCTIONS •

To advise the Minister on matters relating to mining, and the management, exploitation and development of PNG’s mineral resources

•

To oversee the administration and enforcement of the Mining Act 1992, Mining (Safety) Act 1977, the Ok Tedi Acts and the Ok Tedi Agreement, the Mining (Bougainville Copper Agreement) Act 1967 and any other legislation relating to mining

•

To negotiate mining development contracts as agent for the State

•

To act as agent for the State in relation to any international agreement relating to mining

•

On behalf of the State to administer and be responsible for the administration of any public investment programme relating to mining

ORGANISATION CHART MINERAL RESOURCES AUTHORITY ACT 2005 Managing Director Chairman

Administrative Responsibility

MINING (SAFETY) ACT 1977

MINING ACT 1992 MINING ADVISORY COUNCIL

REGISTRAR

CHIEF MINING WARDEN

TECHNICAL ASSESSMENT BRANCH

MINES INSPECTORATE BRANCH

GOLD & COPPER: IN IT’S 31ST YEAR OF OPERATION, NOW 100% STATE OWNED & LOCATED AT 2000M ON MT FUBILAN WHERE RAINFALL EXCEEDS 12M PA

288 Mt @ 0.85% Cu & 0.91 g/t Au

• Currently producing Gold, Silver, Copper, Nickel & Cobalt • Significant alluvial gold & silver deposits • Hosts the world’s 1st offshore deep sea mine • PNG is located within the Pacific ‘Rim of Fire’ with significant geothermal resources which are defined as a ‘mineral’ • Further world class discoveries of gold, copper & nickel • New mineral discoveries of molybdenum, heavy mineral sands and coal.

Mining Production Levy Company (Income) Tax Dividend Withholding Tax Royalty

Special Mining Lease Tax Credit Scheme State Equity Participation

• 0.25% of assessable income or value of alluvial gold exports

• 30 % •10 % • 2% on net smelter returns • No additional profit or capital gains taxes • No restrictions on repatriation of profits • May enjoy negotiated tax advantage during “investment recovery period” • Money spent on approved related projects = tax deduction • The State has an option in all exploration licenses to take up to 30% equity in any PNG Mining development • Equity payment based on ‘un-recouped sunk costs’

GOLD: WORLD’S 3RD LARGEST PRODUCER – LOCATED IN A VOLCANIC ISLAND CRATER & PART POWERED BY GEOTHERMAL ENERGY. OWNED & OPERATED BY NEWCREST.

40m oz resource. 700,000 oz + pa. Hidden Valley mine & the advanced WafiGolpu deposit are owned/managed through the Morobe Mining Joint Venture comprising Newcrest and Harmony Gold, South Africa.

MRA

700 600 500 400 300 200 100 0

Sep 2014 586

Oct 2014 565

Nov 2014 607

Dec 2014 567

Jan 2015 609

Feb 2015 565

Mar 2015 561

Apr 2015 570

May 2015 558

Jun 2015 546

Jul 2015 508

Aug 2015 551

Active Tenement Renewal Applications

111

107

108

107

95

90

101

104

91

98

85

91

New Applications

154

126

171

144

194

159

163

170

159

165

133

176

Active Tenements

321

332

328

316

320

316

297

296

308

283

290

284

Total

Note: Figure does not include overdue New and Renewal Applications (Applications lodged before 2011), Applications put on Hold and Conversions.

CHINESE OWNED NICKEL & COBALT MINE & REFINERY – COMMENCED PRODUCTION IN DECEMBER 2012

143 Mt @ 1% Ni & 0.1% Co The mine site is 125kms from the coastal refinery and is connected by a slurry pipeline. A deep Sea Tailings Placement system is used for mine waste.

EXPLORATION EXPENDITURE – TOP 10 ADVANCED EXPLORATION TENEMENTS 200 180 160 PGK in Millions

140 120 100 80 60 40 20 0 1st Bi‐Annual

2nd Bi‐Annual

3rd Bi‐Annual

4th Bi‐Annual

Bi‐Annual Total (PGK)

179,033,501

116,739,271

177,220,427

127,215,649

 Grand Total (PGK) 600,208,848

2013 2014

102,240,560 76,792,942

116,739,271 0

140,409,605 36,810,822

26,567,659 100,647,991

385,957,094 214,251,755

Several major new players have entered the PNG mining sector in the past 12 months. MRA has a focus on mineral diversification and geophysics studies: •

Pan Aust completed the acquisition of 80% of the Frieda River project from Glencore/Xstrata in late 2014.

•

K92 completed its acquisition from Barrick Kainantu of the Kainantu underground gold & copper mine in February 2015

•

Anglo American completed a joint venture/farm-in with Highlands Pacific to take its Star Mountains project into advanced exploration/feasibility

•

Barrick announced on 26 May 2015 a strategic partnership with Chinese mining group Zijin Mining acquiring 50% of the Porgera mine

•

Niugini Nickel commenced a feasibility study into the viability of direct exports from Wowo Gap

•

Mayur Iron &Titan Metals are moving to feasibility on their Amazon Bay & Malaulaua heavy mineral sands deposits. Katana has completed feasibility on its Salamaua deposits.

•

Waterford Coal have released a comprehensive report on the coal resources of PNG. Prospects in the Gulf Province are encouraging.

• Alluvial or artisanal mining is a very active sector in PNG with certain regulatory ‘reservations’ for citizens • Estimates indicate over 100,000 actively mine within this sector • Tenements for small scale miners may be held under an Alluvial Mining Lease (AML) or a Mining Lease (for alluvial purposes (ML)) • Commercial arrangements are secured through registered ‘Tribute Agreements’ • To further promote the sector, the Small Scale Mining Branch (SSMB), hosts and annual Alluvial Mining Convention & Trade Show in Lae • MRA, in conjunction with the SSMB, has an aspirational goal to double alluvial production & revenue by 2020.

Revenue From Export Of Alluvial Au and Ag ‐ 2011 to  2014

Alluvial Au and Ag Exported ‐ 2011 to 2014 140

400 120

100

300 PGK in Millions

Ounces (oz) Thousands

350

80

250

200

60 150

40

100

50

20

0 0

2011(Jan‐Dec)

2012(Jan‐Dec)

2013(Jan‐Dec)

2014(Jan‐Dec)

Alluvial Gold (oz)

102,770

94,305

97,587

119,847

Alluvial Silver (oz)

36,105

53,208

44,647

48,983

2011(Jan‐ Dec)

2012(Jan‐ Dec)

2013(Jan‐ Dec)

2014(Jan‐ Dec)

MRA Silver Value (PGK)

2,865,182

3,314,302

1,871,832

2,141,483

MRA Gold Value (PGK)

360,268,574

311,836,471

298,448,999

373,395,269

MEMORANDUM OF AGREEMENT/MINING DEVELOPMENT CONTRACT REQUIREMENTS Developer: •

Community Development Fund

•

Employment & Training

•

Business Development Assistance

•

Goods & Services Procurement

•

Fiscal Receipts & Expenditure Reporting (EITI)

•

Environmental & Sustainability Management

•

Rehabilitation & Mine Closure

Government: •

Royalties & Benefit Distribution (EITI)

•

Special Support Grants

•

Tax Credit Scheme

• During the past 12 months, the following new policies have been developed and submitted to government: • Geothermal Policy • Mine Closure Policy • Involuntary Resettlement Policy • Offshore Mining Policy • Sustainable Mining Policy • Mining Policy • The legislation review includes the Mining Act 1992, Mining (Safety) Act 1977 and respective Regulations • The process has reached the final draft phase in respect of the policies and Mining Act. • Expectations are that the policies will obtain approval and the legislation will be passed in the current year with a 1 year transitional implementation period

ROYALTY PAYMENTS 2% of FOB sales revenue and paid on a monthly basis directly to beneficiaries by mining companies Paid on the basis of the distribution agreed to under Memoranda of Agreements for each project Some MOAs have been reviewed hence distribution will change as soon as the revised agreements are signed Beneficiaries are Landowners, Provincial, District and Local Level Governments

TABLE 1.1 MINING PRODUCTION AND ROYALTY SUMMARY Mine Project

Period

Production  Gold (ounces)

Silver (ounces) Copper (tonnes)

PGK

PGK

34,772,088,976

661,542,031

23,286,067,706

465,598,347

721,009,635

14,420,193

1,021,944,942

20,438,899

1986‐2014

11,692,554

Lihir

1997‐2014

11,406,766

Tolukuma 

2003‐2014

426,456

Simberi

2008‐2014

364,470

Mt. Sinivit

2008‐2013

26,245

6,263

74,877,638

1,497,553

Hidden Valley

2009‐2014

782,000

6,116,342

2,232,394,033

44,647,881

Porgera

1990‐2010

16,876,041

3,034,909

41,574,531

35,950,505

Ramu Nico

4,297,190

Royalties Paid

Ok Tedi Mining Limited

Total

25,776,754

Net Revenue for  Royalty 

1,016,237

315,101,039 4,297,190

62,108,382,930

Still on Ramp up stage ‐ not paying any royalties yet

1,523,245,942

PAYMENTS OF MINING ROYALTIES BY PROJECT

TABLE 1.2 ROYALTY BENEFICIARY SUMMARY Mining Project

Period

Royalties Paid to State (PGK)

(Years)

Provincial Government 

Ok Tedi Mining Limited 

1986‐2014

380,616,766

Lihir Gold Limited

1997‐2014

147,647,283

131,724,060

Tolukuma Gold Limited

2003‐2014

3,268,795

1,369,558

18,553,412

Simberi Gold Mine

2008‐2014

1,980,893

7,644,515

Mt. Sinivit

2008‐2013

Hidden Valley

2011‐2014

11,938,480

Porgera Joint Venture 

1990‐2010

164,279,526

TOTAL

Ramu Nico

Local Level Governemnt 

Landowners Districts 

PGK 280,925,265

71,892,816

83,240,068

1,750,000

707,750,850

Still in Ramp up stage - Not paying any royalty yet

8,929,631

4,134,856

19,645,189 150,821,513

144,004,143

76,027,673

562,579,961

NOTES (IN RELATION TO TABLES 1.1 AND 1.2) 1. Figures in the above table are based on records contained in statutory reports received by MRA. There is some missing data which is not captured in the figures above, therefore these figures must not be taken as verified data. 2. The data needs verification with its respective mining company and possible audit. 3. The cumulative figures are reflective of figures from commencement of production for each of the mines to 2014, except for Tolukuma (2003 - 2014) and Porgera (1990 - 2010) 4. Mt Sinivit is still under care and maintenance thus its figures are reflective of years from 2008 - 2013 only.

5. Ramu Nico, is not yet paying any royalties as it is not at the required production capacity level.