Barrick Gold Corp. is taking further legal action against Papua New Guinea after the world’s second-biggest gold producer was forced to shut down gold production in the South Pacific country after its request to extend its mining lease was rejected.
On Friday, Toronto-based Barrick said in a news release that it has launched an action against Papua New Guinea before the World Bank’s International Centre for Settlement of Investment Disputes in an attempt to recover damages as a result of the mine being shut down.
In April, Barrick suspended production at the Porgera gold mine and laid off 2,700 workers.
Barrick alleges that Papua New Guinea is violating both the terms of the Bilateral Investment Treaty between that country and Australia, and international law around foreign investment.
Porgera is a joint venture between Barrick, China’s Zijin Mining Group and the Papua New Guinea government.
In April, Papua New Guinea’s Prime Minister James Marape said the government was seeking full control of Porgera, accusing Barrick of environmental infractions and alleging it owed US$191-million in back taxes. Barrick said both claims are groundless.
The move by Mr. Marape’s government against Barrick did not come out of the blue. In 2019, he ran an election campaign pledging to seek more lucrative agreements with foreign operators of the country’s resource assets.
Barrick’s decision to pursue international arbitration against Papua New Guinea comes on top of its continuing efforts to persuade the country’s National Court of Justice to quash the government’s decision not to renew the lease.
The dispute has echoes of an earlier spat between the company and the East African country of Tanzania that dragged on for years. In 2017, Tanzania banned a subsidiary of Barrick from exporting gold concentrate and later demanded US$200-billion in back taxes. Earlier this year, Barrick finalized an agreement that saw it agree to more stringent profit-sharing terms with Tanzania, and the payment of a US$300-million fine.
Bill Harris, partner with Avenue Investment management in Toronto, which owns shares in Barrick, doesn’t think that the current fracas between Barrick and Papua New Guinea will last nearly as long. He cites the track record of Mark Bristow, in putting out one operational fire after another since taking over as the company’s chief executive last year, including solving the longstanding standoff in Tanzania.
“He came in and cleaned it up, and it was also very much government pushing back,” Mr. Harris said.
After considering a sale of Porgera a couple of years ago, Barrick lately has talked up the asset, saying it had the potential to become a “Tier-1” mine. Porgera went into production in 1990 and has about a decade of production left.
The mine accounts for a little less than 5 per cent of Barrick’s annual gold production. But with an all in-sustaining cost of about US$985 an ounce, Porgera is plenty profitable at current gold prices.
Like many other major gold companies, Barrick is benefiting from a sustained bull market in bullion. On Friday, gold traded just above US$1,800 an ounce, only about 5 per cent below the all-time high of US$1,900 in late 2011. Historically sought out as a haven investment, gold has benefited from the extraordinary tumult in the global economy this year stemming from the coronavirus shock.
The rising gold price may turn out to be double-edged sword for many Western gold companies that operate in developing countries.
Avenue’s Mr. Harris believes that the hardball tactics that countries such as Tanzania and Papua New Guinea have exhibited will become more prevalent. With many gold mines producing vastly more cash flow than a few years ago, foreign governments will feel they have extra leverage to push for improved terms with Canadian mining companies, he said.
“You would imagine that every one of these contracts is going to have to be renegotiated,” he said.
Shares in Barrick, which have surged more than 50 per cent this year, fell by 1.8 per cent on the Toronto Stock Exchange to close at $36.82 on Friday.
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