Nautilus Minerals suspends work on PNG seafloor mining project | Asia Pacific

Nautilus Minerals suspends work on PNG seafloor mining project

Nautilus Minerals suspends work on PNG seafloor mining project

Updated 14 November 2012, 22:06 AEDT

The Canadian mining company, Nautilus Minerals, has suspended work on a seafloor mining project in Papua New Guinea.

The company' s been in a dispute with the PNG government over the cost of developing the project.

Nautilus claims it's already owed $25 million, but the government has refused to pay, arguing it's Nautilus that should bear the costs.

News of the suspension prompted a 40 percent drop in Nautilus' share price and more than 60 jobs have been cut.

So is the PNG mining project doomed to fail ?

Associate Professor Colin Filer from the Crawford School of Public Policy at ANU's College of Asia and Pacific is a specialist in mining issues associated with Papua New Guinea.

Interviewer: Richard Ewart

Speaker: Associate Professor Colin Filer from the Crawford School of Public Policy at ANU's College of Asia and Pacific

FILER: The project's become very contentious over the course of the past 12 months and clearly there's a lot of political and popular opposition to it. The dispute, however, has lasted at least that long between the government and Nautilius with regard to the government's equity stake in the project and it seems the government has been trying to wangle its way out of whatever commitment it might have made to purchase equity in the project and take a share of the development costs.

EWART: So in essence, does Nautilius now go back to square one and look to finance this project in a different way and marginalising the PNG Government to some degree?

FILER:: Hmm, well many people would say that the PNG Government shouldn't be purchasing equity in any mining or petroleum project and the saga of the LNG Project is a case in point of how that can go very sadly wrong.

The government has for the past few years at least made a notional commitment to purchase equity in these projects at its own cost, but in this case, it seems to have decided that this wasn't such a good idea after all.

EWART: So why do you think that this situation has come about? I mean it seems to me that there is a basic lack of trust here, that perhaps the Papua New Guinea Government is keen that the country should plainly benefit from a project like this, but perhaps is a little suspicious of the motives of the company involved?

FILER: I'm not sure there's suspicion about motives. I think there is simply a recognition now on the part of the government perhaps to late, but buying equity, taking the option to purchase equity in every single mining and petroleum project that comes along is not necessarily good policy. And in this particular case, the issue is compounded by the fact that the government has really never developed a policy framework for development of seabed mining projects. It should have done so and was on the point of doing so about ten years ago, but the policy framework is still not there and this is one of the reasons why provincial governments and local interest groups in this particular case have voiced opposition to the project and that voice has got stronger and stronger over the past few months, because nobody knows quite what how they stand to benefit from development of this project.

EWART: So is this a case to some degree of Nautilius not doing its due diligence if there were already those doubts existing?

FILER: No, I don't think it's anything to do with due diligence. The fact is that Nautilius is trying to develop a new kind of mining project in a context where the government hasn't set out the rules in any clear way and this has simply led to a lot of confusion and disputation amongst the various stakeholders within the country, which, of course, has made life more difficult for Nautilius, because they thought perhaps that they had a clear commitment from the National Government to take its share of the development costs, purchase equity in the project and basically therefore provide a measure of security for the development.

EWART: So can this project, let's come back to my starting point. I mean can this project go ahead in reality now and if so, what will it take to make it work?

FILER: Well, to secure additional finance for development of the project without the state equity and the expression of political support that that would imply from a National Government is going to be quite difficult, because Papua New Guinea is a pretty hazardous place to do business whatever sector you're in and if the government appears to have volunteered the kind of financial support, which it is now withdrawing, then other potential investors are going think twice before they buy into the project.

EWART: And you mentioned earlier the situation as far as the LNG Project is concerned. I mean that now is involving a massive cost blowout, around about three million dollars is the estimate. I mean is ?

FILER: Three billion I believe.

EWART: Indeed, is it getting ludicrously difficult perhaps to do business in Papua New Guinea under those conditions?

FILER: Well, the LNG Project agreements are in place and the government is certainly obliged to honour the agreements it has made to purchase equity in that project. But what it now has to do is to raise a very substantial amount of additional money over and beyond what it had to raise already in order to carry its share of an increased development cost, which has gone from 16 billion to 19 billion as of today and had already increased beyond the original estimates during a previous phase in the construction of the project.

EWART: So not a terribly happy picture, when plainly you would think that the priority for the Papua New Guinea Government is to see these projects developed so that they can benefit as a nation?

FILER: Eh yes, but what this latest increase in the LNG construction costs means is that it defers the point at which the PNG Government itself will start to receive significant taxes and dividends from the project, because every increase in the project development costs postpones the point at which the project will start to make a profit and the government, therefore will start to collect revenues from it.

EWART: So are we talking in essence really about what you might call lack of experience as it were in working on schemes of this nature and coming back to the seafloor mining project. Of course, this is new technology, largely untested technology. So I guess everybody is literally in unchartered waters?

FILER: Well, with the seabed mining project, there would certainly be a higher element of risk in the investment, just from a technological point of view and an economic point of view than there would be for an onshore mining project. There's little doubt about that. And that should have been the reason why the government would have thought twice originally before wanting to take an equity share in it. But it doesn't seem to have occurred to them or if it did occur to them, it occurred to them after they had made some kind of commitment or agreement which is now the subject of legal dispute with Nautilius.

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