The unmusical gold waltz

By FRANK SENGE KOLMA
PART 1

THE price of gold on Monday, April 8, was US$2,329.93 (K8,961) per ounce.
One gram of the precious metal on the day fetched US$74 (K285.60).
A kilogram was worth US$74,908.93 (K288,111).
The rates are calculated at today’s rate of US$0.26 to one Kina.
Every prediction is for gold to trend upward in the immediate to near term.
Global markets leaders such as Bloomberg, Goldman Sachs, World Bank and JP Morgan Chase and Co all predict that gold will be nearer US$3,000 (K11,538) per ounce at the end of 2024 and trending ever upwards between now and 2030. One forecast has gold topping at US$7,000 (K26,923) by then.
It is no wonder then that gold has become the centre of attention in Papua New Guinea.
The focus is not on the price of gold or what it will fetch but on a certain National Gold Corporation (project and shareholder) agreement, signed in October 2021 between the State and a private consortium, Refinery Holdings Pte Ltd (RHPL), registered in Singapore.
A Gold Bullion Policy was rushed through 2022 by the Department of Commerce and Industry and launched on May 12, 2023 by Prime Minister James Marape.
A year later in February this year, a National Gold Corporation Bill 2022 and the National Gold Corporation (project and shareholder agreements) bill was presented to Parliament and await debate and possible passage at next month’s sitting of Parliament.
The bills are designed to legitimise the agreement of 2021.
Normally, a policy and legislation accompanied by regulations must be in place to set the socio-economic and legal frameworks before any major project of such magnitude is undertaken.
A proper cost-benefit analysis or business and financial models of this project, if they have been undertaken, remain a business and State secret for the present.
The agreement has not been made public, although a National Court direction had been obtained compelling the State to do so.
It is not lost on opponents of the National Gold Corporation project that the policy and law have been driven, and some say rushed, merely to legitimise a private consortium’s project agreement.
The two bills before Parliament are altogether controversial because they seek to legitimise the agreement of 2021; give the business under exclusive arrangements for an exclusive period protected by law; circumvent powers of the Central Bank and create a gold police force among others.
This is the scene that greets the reader and confounds the populace, especially because this is a project affecting a very strategic national asset. The private proponents of the proposal have chosen to remain in the background, pushing to the fore political proponents to take the heat off.
It is a bad strategy. Politics in PNG is guaranteed to always sour any deal, social or economic.
Finance Minister Renbo Paita appears the principal proponent, claiming vehemently that the proposal is only good for PNG but an army of nay-sayers are against him.
Prime Minister James Marape, after the initial flurry of support for the agreement and the company, has mellowed in the face of strident opposition to a position of “nothing is final yet”. Of particular note is the position taken by the PNG Chamber of Resources and Energy (PNG CORE), the entity whose membership is most directly affected by this proposal.
Uncharacteristically, CORE has chosen to make its opposition public, boldly abandoning its traditional approach to measures of this nature, to put its positions by private lobby. Fortunately, the chamber has, for its president, a citizen in Anthony Smare. You cannot deport Smare.
The questions are many as are the issues for and against in this, the Great Gold Debate as we shall call it, and we shall examine each carefully as we arrive at them.
The debate regarding the National Gold Corporation has its beginnings in 2012 in the government of prime minister Peter O’Neill.
Yet, it was not under O’Neill but Marape that this agreement and all it proposes have come to light.
For this first conversation, we fast forward to Thursday, May 30, 2019 when former Finance minister and Member for Tari Pori (James Marape) took government as Prime Minister in a change orchestrated on the floor of Parliament. On the day, gold was trading at US$1,287.10.
We mention this date and gold together because over the next few years of his tenure, Marape and gold were and are still paired in an unintended and unmusical waltz which might, at its conclusion, determine his political future.
In April 2020, the Marape Government refused to renew the special mining lease (SML1) at Porgera gold mine for Canadian miner Barrick, and PNG’s second biggest gold mine was forced shut.
Porgera, at the time, was ranked in the top 10 of the world’s gold mines, producing an average 400,000 ounces of gold annually.
Exactly a year later, gold hit an all-time high at US$2,000 per ounce in April 2021 amid rising asset prices across the world, Investopedia reports.
This extraordinary increase was also attributed to the economic impact of the Covid-19 pandemic, fiscal stimulus measures, and low interest rates.
For three full years, with the gold prices above US$2,000, Porgera remained shut. A new mining lease (SML13) was concluded and granted to New Porgera Limited in December last year and first pour of gold occurred at the mine on Feb 23. Full production is expected to commence in July this year.
While this was going on, under the prime minister’s mantra to “take back PNG”, Governor General Sir Bob Dadae on Oct 29, 2021 signed into effect an agreement called the National Gold Refinery and Mint Project Agreement.
Marape said at the signing: “The project starts today and will establish, for the first time in PNG, a downstream processing and value-adding industry for gold, one of the country’s most valuable natural resource exports.
“The project will put PNG on the world map, so that it is rightfully recognised in both gold mining and gold refining industries, and in global precious metals and finance markets, as one of the world’s most important gold-producing countries.”
Marape announced that the project would establish four new world-class gold businesses, namely:

• NATIONAL gold refinery to refine all of PNG’s gold and precious metals and produce international standard gold and silver bullion bars;
• NATIONAL Mint to mint PNG’s own currency and a new National Bird of Paradise legal tender and investment grade gold and precious metal currency coin;
•  NATIONAL Gold Bank to provide dedicated gold and precious metals banking and trading services to the PNG mining industry; and
• NATIONAL Gold to market PNG gold and precious metals and value-added gold bullion bars, investment coins and other products to global investors.

Then secretary for Treasury, Dairi Vele, signed the agreement on behalf of the State. A James Scobie signed on behalf of a Refinery Holdings Pte Ltd as its managing director and Australian Michael Boyd signed as its chairman.
In parting, PM Marape said that for the first time all the profits, taxes, new US dollar foreign exchange inflows, employment, and related benefits from the refining of gold and precious metals would stay in PNG.
He expected, at the time, for all gold mined in PNG to be refined in-country by 2025.
Marape’s comments, while it finds resonance with many who share his resources nationalism sentiments, at the same time it unleashes fresh sovereign risk concerns as Refinery Holdings Pte Ltd is unknown in the world of gold and precious metals refining.
Clauses contained in the agreement, proposing to place exclusivity in the business and for an extended time period in one untested company, rightly raises confidence concerns.
Operator of PNG’s biggest gold mine at Lihir, Newcrest, told the Australian Financial Review at the time that the PNG government would need to show that gold refining in the country can be secure and commercially competitive before forcing mining companies to refine their gold in PNG.
Newcrest, which has since sold all its interest to US gold giant, Newmont, produces gold in an intermediate form called “dore” and ships it to the Perth Mint for further refining into pure gold.
Lihir produces between 800,000 and 900,000 ounces of gold per year.

Tomorrow:
The gold project proponents