Wide-ranging reforms to overhaul PNG mining sector

Under the Mining Act, the state may take up a participating interest in a mining development; however, the size of this participating interest is not specifically set out in the Act. 

The Bill will introduce specific sections that provide for the state to acquire up to 30% equity in any mining project and a share of the mine's products. The 30% equity may include a stake in the mining development and extraction of the mineral, refining and processing facilities, any technological developments associated with the project and any commercial ventures utilising the country's minerals (which we assume is a reference to gold refineries that may be set up under a lease for mining refinery discussed further below).

The cost of acquiring the 30% equity will be deferred and subsequently recovered from the project's future earnings, and a state equity option agreement will detail the percentage repayment, interest rates, and other terms of the deferred payment, including hedging provisions.

The Bill also includes provisions for granting a portion of the state's equity to landowners and affected provincial governments, to be held in trust and managed by the Mineral Resources Development Company.

Currently the holder of a mining lease or a special mining lease is required to pay a royalty to the state equal to 2% of the value of mined product. Furthermore, every producer of minerals is also required to pay the Mineral Resources Authority a levy of 0.5% of the value of assessable income of a mining project.

The Bill will introduce new royalty provisions providing that:

• the holder of a mining lease will have to pay a royalty of 5% where the state takes up equity in a mining project; and
• where the state does not take up equity in a mining project, the holder of a mining lease will have to pay a royalty of 10% of the gross revenue for the life of the mine.

The state has the prerogative to decide whether to retain or distribute the royalty.

Royalties not paid within a specified timeframe may lead to lease cancellation. Additionally, the Bill includes guidelines for distributing royalties to eligible beneficiaries in both on-shore and onshore areas.

The Bill introduces comprehensive compensation provisions, aimed at ensuring fair treatment and adequate compensation for landowners affected by mining activities.

Landowners will now be entitled to compensation for resettlement costs and disruptions to agriculture or fisheries, and only those identified as landowners in annual studies are eligible for compensation.

Compensation agreements will now have to account for potential changes in landowner structures based on annual studies to be undertaken, we think, by tenement holders. Tenement holders will now have to keep detailed records of all compensation payments.

The Bill will also expand the groups to which a developer must pay compensation, to include groups outside of any tenements that may be held by a developer. The new groups include:

• landowners within whose land the boundaries of the corridor of a riverine area of impact run through or through their local level government(s) or the provincial government(s); and
• up to seven local level government wards on the coast nearest an offshore mining site, known as the 'coastal area of benefit'.

The Bill does not otherwise provide any indication of the scale of potential impacts on these sites for the purposes of determining compensation payable.

The Bill will introduce a new scale for the classification of mines as small-scale, medium-scale and large-scale mines. Medium- and large-scale mines may be undertaken under mining leases, as there will no longer be any references to special mining leases.

The Bill will introduce some new kinds of licences and change the terms of some existing ones:

In his speech at the 2024 PNG CORE Mining and Petroleum conference, the Prime Minister, the Hon. James Marape, highlighted his Government's focus on downstream processing in all industries. It appears that the Government has now sought to introduce downstream processing of minerals through this new licence in the Bill.

The Bill proposes to introduce the requirement that mining leaseholders in PNG must offer at least 50% of their mine products to local smelters, refineries, or other secondary processing plants, if such facilities exist and can process the products competitively. The relevant provisions allow for agreements between tenement holders and local processors on commercially competitive terms. Moreover, the Bill will permit the state to establish a gold bullion bank for storing its gold assets or pooling gold reserves from its equity share in mining projects. The Bill contains no other details about a gold bullion bank or the storing of gold assests and we expect that other new laws or consequential amendments of existing laws, may be made to give effect to these provisions.

Part IX of the Bill introduces provisions relating to mine rehabilitation and closure and financial assurance.

This part of the Bill will introduce the requirement for a Rehabilitation and Mining Closure Plan (RMCP), in a prescribed form, to be completed and submitted to the MRA as a precondition to the application for a mining lease.

An applicant for a mining lease, other than the state applicant, must provide proof of readily available funds in its operating bank account of no less than 50% of the total projected capital costs upon lodgement of the application, as a precondition to the grant of a mining lease (section 62(a)(v)). We assume that the reference to 'operating bank account' means the bank account of a licence holder in a bank in PNG. 

Furthermore, the Bill provides that the holder of a mining lease whose RMCP has been approved must submit financial assurance that supports the performance of the RMCP obligations, to ensure that the state may not be liable for meeting the costs of the performance of closure obligations.

Under the Bill, the holder of a mining lease whose RMCP is approved, will not be able to commence any mining or related operations until this financial assurance has been submitted.

The financial assurance must be 20% of the total RMCP cost of implementation, and should include a letter of credit; insurance company bond; security interests in unencumbered assets; or other forms of financial assurance. The remaining 80% of the full cost is expected to be paid by the mining lease holder in annual instalments into a trust fund, established for the purpose, two years before the planned closure. This amount must be reviewed and updated every time the RMCP is updated.

The Bill contemplates undersea mining occurring, and will introduce detailed provisions as to maritime compliance and environmental management relating to offshore mining. The Bill expressly provides that its procedures and requirements will apply to the exploration and mining of minerals located offshore in the same way as they apply to the exploration for and the mining of minerals located onshore.

The Bill contains peculiar language around riverine tailings disposal not being an 'option' for mine waste disposal for mining leases granted from the date of its enactment. This could mean riverine tailings disposal will not be permitted under the new Mining Act, although that could be a matter for interpretation.

Currently, a full-scale social mapping and landowner identification study is required before the grant of a mining lease or special mining lease. The Bill will now introduce new requirements for the plans listed below, which will include the underlying studies related to those plans. These plans must be submitted with various tenement applications as indicated below.

The Bill will also give the Mining Advisory Council wide powers to exempt any applicant from the requirement to prepare and submit any of these plans:

The Bill introduces the requirement for the preparation of a resettlement action plan as a prerequisite to applying for a mining lease, unless the mining lease area being applied for consists of only offshore areas. This proposed plan must include compensation assistance for the affected landowners, and must take into consideration the sustainability of the welfare and livelihood of the affected landowners. The granting of a mining lease and its associated tenements will be on the condition that the tenement holder complies with its approved resettlement action plan.

The Mining Advisory Council may exempt an applicant from this requirement.

Under the Bill, fly-in fly-out and ship-in ship-out employment arrangements to areas outside of PNG, for employees employed in a mining development, will be prohibited. Such arrangements shall only be made for employees, both local and expatriates, within PNG. Exceptions can be made on a case-by-case basis.

It will be an offence under the Bill if the holder of the lease fails to comply. The Mining Advisory Council may exempt an applicant from this requirement.