EDITORIAL PAGE — The unilateral edge

Papua New Guinea, a dependable partner in mining (until now at least), is sending confusing signals to the rest of the mining world. The latest such message was the announcement by the PNG government that it wants a bigger stake in the Lihir gold project.

In so doing, a proposed deal between Venezuelan Goldfields (Vengold) and RTZ, the British resource giant, was effectively stopped dead in its tracks. Vengold had planned to buy into the project, a potential 620,000-oz.-per-year producer.

Developments of the past two weeks seem to have surprised both major players, the PNG government and RTZ. PNG spokesmen expressed surprise at RTZ’s announcement of a deal with Vengold.

But while RTZ was wooing Vengold, the island government, without RTZ’s knowledge, was enticing potential new partners. It had been offering an additional 20% slice of the Lihir pie which, according to RTZ, the government did not have.

The only mention of Lihir in RTZ’s 1992 annual report notes that RTZ (through Kennecott) held 80%. Niugini Mining, a Battle Mountain subsidiary and Lihir discoverer, holds the remaining 20%. RTZ acknowledged the PNG government can exercise its “right to purchase a participating interest in the project” — presumably the 30% interest RTZ mentioned in recent press statements. A PNG spokesman, citing frustration over RTZ’s “lack of progress” in advancing Lihir, said the government had informed RTZ earlier this year of its plan to peddle an additional 20% interest to another willing co-venturer. But RTZ says it was not aware that PNG could contractually go beyond the 30% stake.

What a muddle! Clearly, the island government and the multi-national miner do not see eye to eye. Vengold, meanwhile, is left completely in the cold. This is not PNG’s first such difficulty with private-sector players. The Porgera mine, for one, comes to mind. Dissatisfied with only a 10% interest in the project, PNG secured another 15% by forcing each of its private-sector partners — Placer Dome, Renison Goldfields and Highlands Gold — to hand over a 5% interest in the mine.

The government alleged it deserved a bigger stake in the mine because its private-sector partners had withheld information prior to the granting of government approvals.

After the companies reluctantly signed the new deal, PNG’s mines ministry stated “it is now satisfied that the increases in resources at Porgera over the past three years were the result of ongoing exploration and technical reassessment.”

At the time, Placer’s Hugh Leggatt conceded: “We were not willing sellers, but I think we made the best of the situation.”

Finally, there is the Bougainville copper mine, partly owned by RTZ and the PNG government. It has been closed since 1988. “Militant action by disaffected residents,” according to RTZ, led to the closure. Re-commissioning economics aside, the PNG government seems powerless to bring it back on stream.

In all this, we are not wagging an accusing finger at Papua New Guinea. For all we know, their grievances over Porgera and Lihir may be well founded. Having said that, private-sector partners cannot behave in the unilateral way the PNG government has; the courts are the usual forum for private-sector disputes.

Furthermore, should the island country continue doing business in this vein, the industry will cast a baleful eye on further exploration potential.