Barrick Gold Corp. is considering legal action against Papua New Guinea after its government sought control of the Porgera mine and refused to renew Barrick’s mining lease, citing environmental infractions.
Located in the remote highlands of the South Pacific country, Porgera is a joint venture between Barrick, China’s Zijin Mining Group and the Papua New Guinea government.
In a statement on Friday, Barrick said that Papua New Guinea’s move to seize control of Porgera was “tantamount to nationalization,“ and “in violation of the government’s legal obligations.”
The Toronto-based miner said it intends to “pursue all legal avenues” to challenge the decision.
After mulling a sale of Porgera a couple of years ago, Barrick later committed to keeping it, and recently had talked up its prospects. Porgera accounts for slightly less than 5 per cent of Barrick’s annual gold production and has roughly 10 years worth of mine life remaining.
Papua New Guinea Prime Minister James Marape told reporters on Friday that the government had "every right to refuse the lease,” and did so because of environmental, resettlement, “and many, many other legacy issues.”
Mr. Marape came to power last year after running a campaign partly based on economic nationalism, pledging to review agreements with foreign operators of its resource assets to ensure the country wasn’t getting a raw deal.
He provided no details on how much, if anything, the country might pay Barrick and its Chinese partner in compensation for Porgera.
In an note to clients on Friday, Josh Wolfson, an analyst with RBC Dominion Securities, pegged Porgera’s valuation at $1.2-billion at current gold prices.
The lease expired last year, but mining had continued a Porgera under a court-approved extension. Since then, Barrick had been in talks with the Papua New Guinea government about a renewal, pledging to deliver more than half of the economic benefits to the country’s stakeholders.
Through the years Porgera, which went into production in 1990, has generated plenty of controversy.
“Porgera is associated with heightened legacy environmental, security and social issues,” Mr. Wolfson wrote.
Barrick acquired a majority stake in the mine after its 2006 acquisition of fellow Canadian miner Placer Dome Inc.
In 2011, Barrick security guards were accused of rape at the mine. After an internal investigation into the allegations, Barrick fired a number of employees and offered counselling and medical care to women who alleged they were sexually assaulted.
Barrick has also been criticized for discharging tailings from Porgera into local rivers. But the practice, which began under Placer Dome’s ownership, is legal in Papua New Guinea and was decided upon because the company says it poses the lowest risk to the environment.
On Friday, Barrick further defended its environmental record at Porgera, saying the Papua New Guinea Conservation and Environmental Protection Authority has regularly audited the mine and found it to be compliant.
In 2018, under executive chairman John Thornton, Barrick considered selling Porgera, but after Mark Bristow became chief executive in 2019 the company said it would keep the mine.
In February, Barrick said Porgera had the potential to become a “Tier 1” asset – one that is long life, low cost and a large producer.
The company had expected the mine to account for about 255,000 ounces of its gold output this year, with a projected all-in sustaining cost of roughly US$985 an ounce.
Kerry Smith, an analyst with Haywood Securities Inc., expressed optimism that Barrick and Papua New Guinea will patch up their differences.
“This is all political posturing by the government in our view,” he wrote in a note. “We expect resolution is achievable.”
On Friday, Barrick shares rose 56 cents, or 1.5 per cent, to close at $38.21 on the Toronto Stock Exchange.
With files from Reuters
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