THE INDEPENDENT STATE OF PAPUA NEW GUINEA

SPCSPC-EU EDF10 DEEP SEA MINERALS (DSM) PROJECT INAUGURAL REGIONAL WORKSHOP
(6 8 June 2011 Tanoa Internaional Hotel, Nadi, Fiji)

DEPARTMENT OF MINERAL POLICY & GEOHAZARDS MANAGEMENT

AND

MINERAL RESOURCES AUTHORITY

PRESENTATIONS
1. OVERVIEW OF THE REVIEW OF PNG MINERAL POLICY AND LEGISLATION Harry Kore Director (DMPGM - Mineral Policy & Legislation Division) 2. OVERVIEW OF THE DRAFT OFFSHORE MINING POLICY Steve Raaymakers Consultant (DMPGM - Offshore Mineral Policy) 3. PNG S CLAIM FOR EXTENDED CONTINENTAL SHELF AND ITS IMPLICATIONS ON THE POLICY DEVELOPMENT Gregory Roaveneo Assistant Director (DMPGM - Policy Advisory Branch) 4. THE EXPLORATION AND MINING PROCESSES AND POTENTIALS Jerry Naime Manager (MRA - Exploration Coordination Branch) 5. EQUITY PARTICIPATION ON SOLWARA 1 Shadrach Himata Deputy Secretary (DMPGM) 6. GEOHAZARDS MANAGEMENT INITIATIVES, CONTRIBUTIONS AND LIMKAGES TO OFFSHORE MINING John Arumba Director (DMPGM - Geohazards Management Division)

DMPGM
DEPARTMENT OF MINERAL POLICY & GEOHAZARDS MANAGEMENT

SPCSPC-EU EDF10 DEEP SEA MINERALS (DSM) PROJECT INAUGURAL REGIONAL WORKSHOP
(6 8 June 2011 Tanoa Internaional Hotel, Nadi, Fiji)

OVERVIEW OF THE PNG MINERAL POLICY AND LEGISLATION REVIEW

Harry Kore Director (Mineral Policy & Legislation Division)

courtesy of Nautilus Minerals Niugini Limited

INSTITUTIONAL STRUCTURE
NEC Decision No. 164 of 17th Sept 2004  Approved restructure of former Dept of Mining  Established and MRA (2007) Regulator of the mining industry Deal with geological survey, tenement administration, mine safety, project coordination DMPGM (2009) Development of Mineral Policy and Legislation Management of Geological Hazards

OUR VISION
By 2015 we will have a globally competitive mineral policy and legislative framework and a state of the art geohazards management system

OUR MISSION
We exist to improve the quality of life and safety of our people in Papua New Guinea through effective Mineral Policies and reduction of Geological Risks

REVIEW PROCESS
 2009 Announcement by Deputy PM & Mining Minister (22/05/09) Planning and sourcing of funds and assistance Workshop on Review  2010

Invited Public Comments on draft Legislations and Policy Established Commentary Matrix Identification of Predominant Issues Ongoing consultations
 2011 Engagement of international Consultants PNG Regional Forum Consultations (x 4) Finalization of the draft legislations and policies Final Selective Scrutiny Government process for Enactment

POLICY & LEGISLATIVE REVIEW 2011

Work currently in progress since 2009 (End July 2011) MINING ACT 1992 (per 2006 draft) MINING (SAFETY) ACT 1977 (per 2006 draft) MINERAL POLICY (per 2004 version) OFFSHORE MINERAL POLICY (per 1999 green paper) MINERAL RESOURCES AUTHORITY ACT 2005 Additions to the Mining Act (PARTS) PROSECUTION & PENALTIES PROVISION MINE CLOSURE PROVISION OFFSHORE MINING PROVISION

MINERAL POLICY & LEGISLATION Cont.

Work in Progress to 2015

DOWNSTREAM PROCESSING DEVELOPMENT POLICY MINE WASTE MANAGEMENT POLICY INVOLUNTARY RELOCATION POLICY MINE CLOSURE & SUSTAINABLE DEVELOPMENT POLICY STUDY ON COMPENSATION RATE STUDY ON ROYALTY SOCIAL IMPACT ASSESSMENT GUIDELINES GEOHAZARDS MANAGEMENT POLICY COAL SEAM METHANE POLICY GEOTHERMAL POLICY DATABASE FOR MINERAL POLICIES AND LEGISLATION

Consultants Engaged 2011

Ms. Ms. Diana Dalton Mineral Policy and Mining Act 1992
A skilled lawyer who was involved in the drafting of the current Mining Act 1992. She has done similar work for about 37 different countries and is currently the chair of the petroleum regulating body in Canada.

Mr. Mr. Geoff King Mining (Safety) Act 1977

Has vast experiences in PNG serving the State. A very senior and experience lawyer involved in the drafting of a number of other legislations in PNG as well as the Oil & Gas Act 1998 as well as providing advice to the State on LNG matters. Well experienced in the Petroleum sector.

Mr. Mr. Steve Raaymakers Offshore Mineral Policy

A well qualified individual who is the principal of Ecostrategic; a consulting firm engaged throughout the world in marine and environmental matters. Has vast experience in maritime issues and is currently drafting the ten (10) pieces of legislations for the National Maritime Safety Authority.

INSIGHTS INTO THE MINING ACT REVIEW

TENEMENT ADMINISTRATION Merging of an SML with the ML Mining Retention Licence Online application and approval processing Expeditious consideration of licence applications State Equity Participation Expeditious renewal of licence applications Tenure of Licences Limitation on the number of exploration licences

MINING ACT REVIEW

COMPLIANCE REQUIREMENTS Mining Advisory Council functions and independence Social mapping and landowner identification Mining Wardens additional powers Royalty Reporting, information and audit requirements Improved compliance requirements Prosecution for breaches of the Mining Act Contracts and Agreements under the Mining regime Mine Closure provisions General Alignments Petromin, MAC, royalties, etc

MINING ACT REVIEW

POLICY REQUIREMENTS Community awareness and consultations Prov. Govt. and Landowner participation Alternative dispute resolution process Accountability for MOA obligations Benefits distribution Clarity on the various benefit streams

NATIONAL GOVERNMENT REVENUE STREAMS

1. FISCAL PROVISIONS Corporate Income Tax  30% resident companies  40% non-resident companies Other Types of Taxes  Interest Withholding Tax (15%)  Dividend Withholding Tax (10%)  Salaries & Wages Tax  Production Levy (0.25% MRA) 2. STATE EQUITY PARTICIPATION

PROVINCIAL GOVERNMENT AND LANDOWNERS

 1. Royalty  2. Compensation  3. Equity Participation  4. Business Opportunities  5. Employment Opportunities  6. Education and Training  7. Special Support Grants  8. Tax Credit Scheme  9. Infrastructure Development  10. Community Development and Assistance

General Comments on Offshore Mining Policy

CURRENT LAW: Section 6 LAND AVAILABLE FOR EXPLORATION AND MINING Subject to this Act, all land in the State, including all water lying over that land, is available for exploration and mining and the grant of tenements over it. REVISED LAW: LAW: General provisions that would provide for the conduct of offshore mineral exploration and mining. Regulations to be developed to cater for specific areas that can be regulated upon. NEW POLICY: POLICY: Need to develop a Policy Guideline to set out the parameters within which a developer should conduct its business in PNG PUBLIC DEMAND: DEMAND: Policy Guideline must be developed immediately to give some level of comfort to our people that offshore mining will be regulated

CONCLUSION
 The process allowed a wider range of stakeholders to offer valuable commentary  Consultation forums process were organized to avoid confrontations and conflicts  Stakeholders were encouraged to take ownership by contributing directly to the Review Exercise  We are confident of achieving our goal!

Improving The Quality of Life And Safety of Our People

Hck10042011

Steve

Overview of PNGs eCS Claims

Gregory Roaveneo Department of Mineral Policy and Geohazards Management

7 June 2011, Tanoa International Hotel, Nadi Fiji

Eauripik Rise 

Mussau Ridge Ontong Java Platau

Technical Prerequisites and Considerations 1. Delimitation of Maritime Zones and Boundaries 2. Deadline of May 2009 Achieved 3. Maritime Zones Bill (Draft)

j1

A DEVELOPING COUNTRY S CHALENGES IN PERMITTING / REGULATION UNDERWATER MINING PNG EXPERIENCE

PRESENTATION BY MINERAL RESOURCES AUTHORITY PAPUA NEW GUINEA

Slide 24 j1
jerry, 6/7/2011

BACKGROUND / AKNOWLEDGEMENT

 Papua New Guinea has permitted its first underwater mine. Nautilus Minerals (PNG) Limited is the company permitted to operate the Solwara 1 project. The successful permitting of the activity was due to the existence of a broad legislative framework and the collaborative efforts of stakeholders.  Challenges faced included the lack of specific guidelines or policies for underwater mining; lack of existing technology and/or mining method; lack of benefit sharing mechanism for such a project and management of the perceptions of local communities that fear environmental degradation by the mining project.  This presentation shares the experience of Papua New Guinea s first under water mine. A background of the country, the project and the legislative framework are presented. Followed by the challenges and approach taken to permit the project.
6/14/2011 Minerals for Life 25

Papua New Guinea (more familiarly known as PNG) lies in the southwest Pacific, just below the equator, between Asia and Australia. It comprises more than 600 islands and covers over 474,000km2. The country possesses a wide variety of landscapes; rugged highlands over 1000m forms the core of the mainland, flanked by rainforest clad foothills, savanna, and wide swamps. Numerous active volcanoes and geothermal areas stud the islands.

Full name: The Independent State of Papua New Guinea Land area: 462,840 sq km (180,000 sq mi) Population: 6 million; 85% of whom are rural based People: 95% Melanesian, 5% Polynesian, Micronesian, Chinese. Language: 800 indigenous languages plus Pidgin, Motu and English. Legal system:Based on English common law. Government:Constitutional monarchy with a Parliamentary Democracy. GDP: K6.3 billion (approx US$1.6 billion). GDP per head:US$2500. Inflation: 15%. Major industries: Coffee, copra, copper, gold, silver, palm oil processing, logging. Trading partners: Australia, Japan, USA, China. Europe

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Name of Mine Bougainville Copper (also called Panguna Mine) Ok Tedi Copper Mine Misima Gold/Silver

Type of Mining License Special Mining Lease

Law & Regulation Permitted under Mining (Bougainville Copper Agreement) Act + Mining Safety Act Mining (Ok Tedi Agreement) Act 1976 + Mining Safety Act Mining Act + Mining Safety Act+ Environment Act 2000 Mining Act 1992+ Mining Safety Act+ Environment Act 2000 Mining Act 1992 + Mining Safety Act + Environment Act 2000 Mining Act 1992 + Mining Safety Act + Environment Act 2000 Mining Act 1992 + Mining Safety Act + Environment Act 2000

Year of first grant 1969

Status of operation Pre-maturely closed due to civil unrest

Special Mining Lease

1981

Planning for closure in 2013 but possible extension to 2020. Operations ceased and under rehabilitation since May 2004. Yet to relinquish lease. In Operation

Special Mining Lease with a Mining Development Agreement

1987

Porgera Gold

Special Mining Lease with a Mining Development Contract (note the change from Mining Development Agreement) Special Mining Lease with a Mining Development Contract

1989

Lihir Gold

1995

In Operation

Tolukuma Gold

Mining Lease With a Memorandum of Agreement between company, government and landholders. Mining Lease With a Memorandum of Agreement between company, government and landholders.

1994

In Operation

Hidden Valley Gold

2005

In Operation

Solwara 1

Mining Lease Currently Negoting a Memorandum of Agreement with Developer and the Provincial Government

Mining Act 1992 Mining Safety Act Environment Act 2000

2011

Financial Arrangement Construction of Equuipments / Tools

Facts and Figures

Mineral dependant economy (60% total export receipts 2010). 61.5 tonnes Au, 57 tonnes Ag, 154.7,000 tonnes Cu produced in 2010. Contribution from 3x large mines, 2x medium mines, 2x small mines and 70,000 artisanal miners. 4x large mines to commence production in the next 5 years. By 2014, Gold output ~90 tonnes and ~174,000 tonnes Copper (Base case scenario). Diversification of mineral base (Co, Ni & Mo).
6/14/2011 Minerals for Life 28

142

144

146

148

150

152

154

156

PAPUA NEW GUINEA Exploration Licences to July, 2007

1473

1472
NEW IRELAND

WEST SEPIK EAST SEPIK MANUS

1326

1558 1556 1449 609 1170 1557 1457 485 1458 1381 1425 1476 1196 1475 1374 1554

1574

1413 1391 1559 1398 1560 1373 1461 1212 1468 1350 1543 1444 1235 58 1337 1583 1339 1344 1024 1093 1349 1575 1420 1397
ENGA

1501 1502 1573

1500 1482 1483

1386 1588

1383 1477 1470 1484 1486 1488 1491

WEST NEW BRITAIN

1307

1459 1329 1436 1441

1485 1561 1570 1446 1450 1562 1453 1304 1416

MADANG

1542 1492

1541 1571 1495 1496

1469 1452 1474 1451 1564

1490 1428 1422

1487 1489 1480 1509 1429 1481 1512 1513 1510

1555 1021 1331

1479 1494 1478 1432 1565

1493

1497 1499 1498 1430 1351 1395 1563 1586

1587 1356 1362

1140

1312 1392

1460 1335 193 1545 1400 1546 1503

1506 1504 1505 1508 1507

1511 1431 1419

581 1438 1330

I R I A N J A Y A (Indonesia)

1437 EL 1313 1427

1578 1320 1584 454 1308 1343 WESTERN 858 1467 HIGHLANDS
SOUTHERN HIGHLANDS

1418 1360 1445 1077 1462 1043

NORTH SOLOMONS

1456 1426 1423 1115

CHIMBU

1334 1342 1341

1178 1401 693 1049 470 1399 1369 1105 440

1345 1514 1515

MOROBE

1322

1408
EAST NEW BRITAIN 6

7a 5 4 32 1 6 7b

1384 1353

EASTERN HIGHLANDS

1316 1103
1548 1435 1365 1370 1363 1442 1434 1553
GULF

1377

WESTERN

1411

1340 497 1580 1193 677 1305 1568 1380 1585 1028 1403 1366
8

1371 1352 1440 580 894 1379 1348

1409 1264

1297 1271 1284 1327 683 1577 1390 1547

ORO

1520 1465 1279 1455 1552 1439 1165 1415 1454 1424 1576 1372 1463 1394 1324 1361 1091 1529 1069 1396 1025 1070 1527 1528 1572 1388 1569 1530 1389 1531 1323 1347 1421 1533
MILNE BAY

1540 1522 1523 1521

1581 1172 1525 1526

1292

Licences Key
Exploration Licence Under Application Exploration Licence Under Renewal Current Exploration Licence Ministerial Reserve

1579 1544 1466 1412 1582 1367 1551 1404 1550

1524 1539 1517 1516 1518 1387 1532 1519 1536 1535 1534 1537 1538
10

1355

1433

CENTRAL

100

200 km

1346 1567 1414

154

12

6/14/2011

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144

146

Minerals for Life

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150

152

30

156

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Mineral Project life cycle

L CE C

Exploration Licence (EL)

Exploration

Exploration

Resource JORC Statement Resource

6/14/2011

DEVELOPME

DE

DEVELOPME

SES

Development Licence (ML, SML)

Relinquishment - Closure

SES

Feasibility

Approvals

Construction

Operation

Decom & Rehab.

Post Monitoring

Relinquishment

LS

Pre/Full Feasibility
Mining Method Processing Method FEED Project Financing Statutory Approvals Environment Mine Safety NEC (ML, SML) Stakeholders Consent Development Forum SML MDC - MOA - Comp. Agmt ML MOA - Comp.Agmt Operation & Production Decom & Rehab Post Monitoring

Construction

Comm.

Relinquishment

Cashflows
Capex Mine Life Revenue Op.Costs NPV IRR Pay Back

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GOVERNMENT APPROVAL PROCESS MEMORANDUM OF AGREEMENT

PRE-FORUM MEETINGS

DEVELOPMENT FORUM

MEMORANDUM OF AGREEMENT

PROPOSAL FOR DEVELOPMENT MINING DEVELOPMENT CONTRACT NEGO

MINING MINISTER SUBMITS DEV. PROPOSAL, MOA, SML AND MDC TO NEC NEC ADVICES HEAD OF STATE TO EXECUTE

MINING DEVELOPMENT CONTRACT

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CHALLENGES (Case Study on Sowara 1)

EL granted in 1997 Submittied ML application, Feasibility Study & Proposals for Development in 2008 Due Diligence, Appraisals, Reviews & Visits took almost 2 years. Public and Wide Awareness and Consultation ML granted by Minister in 2011 Development Forum commenced for Memorandum of Agreement

FUTURE CHALLENGES
Need for Underwater Mining Policy and other associated guidelines Beneficiaries from the off shore mining project Benefit Distribution Mechanisms Management of Stakeholder Expectations

Concluding Remarks
PNG took up the challenge after identifying, reviewing and analyzing the appropriate risks There needs to be proper definition of DSM for the purposes of distinguishing the levels of activity. Do not necessarily follow the PNG way however learn from it. Wide and Public Consultation is KEY!

THANKYOU

_____________________
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STATE EQUITY PARTICIPATION IN THE SOLWARA 1 PROJECT

7th June 2011 Tanoa International Hotel Nadi, Fiji

SHADRACH HIMATA Deputy Secretary Department of Mineral Policy and Geohazards Management Papua New Guinea

Presentation Overview
Government Policy on Equity Participation for Mining Projects Project Definition Extent of Equity Participation Timeframe for participation Value State is buying into State Participation in the Solwara 1 Project

Government Policy on Equity

Section 17 ( c ) of Mining Act 1992, provides for the acquisition by the State either directly or indirectly of a participating interest in a mining development. PNG s Mineral Policy The State may elect to acquire up to 30% participating interest in mining projects on a fully contributing baisi with no financial carry. To date this has only been exercised on SML projects. The decision on whether or not to participate is made at the grant of the Mining Lease (ML). Under the Option Agreement signed by Orogen Minerals Limited with the State, Orogen had the right, but not the obligation, to acquire from the State a 25% interest in all future mining development projects until the year 2021. (The State, through its wholly-owned subsidiary MRDC, holds 51% shareholding in Orogen). Landowners in SML projects areas are entitled to 5% equity in the project to come from the State s share of equity. The cost of equity will be negotiated on a case by case basis. In the absence of Orogen today, the State has nominated another new entity of State, Petromin PNG Holdings Limited, to take up the State s 30% equity option in the Solwara1 project. Petromin was established by State to manage State s interest in mining, oil and gas projects. Under the Benefit Sharing Agreement (MOA) for the Solwara Equity distribution will be detailed.

Mining Project Definition

A project that is granted under a mining development licence, i.e; ML or SML The Project definition is fundamental to cost
considerations and value for equity participation. For the Solwara1 project it is the project granted under ML 154.

Extent of State Participation

The State will exercise its 30% equity option in the full value chain of the project. In the Solwara1 case, the project refers to ML 154. That means the State will have an undivided beneficial interest (expressed as a percentage) as a tenant in common in all Project properties and assets.

Timeframe for Equity Participation

 The decision on whether or not to participate is made at the grant of the development licence (ML or SML).  The Solwara1 was a special case where the State exercised its option after the ML was granted.  Prior to grant of ML there were still unknowns and undefined risks to the project. Hence, the State was not in a privilege position to make an immediate investment decision prior to grant of licence. However, the State has made a decision in principle to take up equity in the project soon whenever it is ready to do so.  State s participation signals confidence in the future prospects of the projects and as a responsible government provide a sense of security for the offshore tenement and sharing the risks of a pioneering project in the hope of better returns.  The project was being financed purely by equity partners up to the point of grant and fund raising was required to raise capital to build and integrate the technology. The development licence and title to the tenement was necessary to secure debt financing.  Petromin and Nautilus have signed a State Equity Option Agreement on 29th March which detailed the timeframe of State s participation.

Mineral Project cycle Covered under current legal framework.

LICENCING PHASES

Exploration Licence

(EL)

Development Licence

(ML, SML)

Relinquishment - Closure

DEVELOPMENT PHASES

Exploration

Feasibility

Approvals

Construction

Operation

Decom & Rehab.

Post Monitoring

DEVELOPMENT DETAILS

Pre/Full Feasibility
Mining Method Processing Method FEED Project Financing Statutory Approvals Environment Mine Safety NEC (ML, SML) Stakeholders Consent Development Forum SML MDC - MOA - Comp. Agmt ML MOA - Comp.Agmt Operation & Production Decom & Rehab Post Monitoring

JORC Resource

Resource Statement

Construction

Comm.

Relinquishment

Cashflows
Capex Mine Life Revenue Op.Costs NPV IRR Pay Back

Solwara 1 Project Approach

Note: some aspects between exploration and construction are yet to be addressed.

Value State Is Buying Into

The State is really buying into the Sunk Cost of the Project to date. The Sunk Cost refers to all Allowable Capital Expenditures (ACE) and Allowable Exploration Expenditures (AEE) spent on a Specific Tenement. Such expenditures are normally ring-fenced to the specific tenement. For the Solwara1 project, the sunk cost refers to ACE and AEE before the grant of ML and ACE only after the grant.

ACE, AEE

Grant of ML

ACE

Full Value Chain Participation in the Solwara1 Project

The mining arrangement for the Solwara1 project consist of two Joint Venture (JV) Arrangements. The Mining JV and the Marine JV.  The State has negotiated its rights to take up 30% equity in the both JV. For the Mining JV, the State will take up the full 30% upfront. For the Marine JV, the State will take up an initial 5% and progressively take up the balance in future.

SOLWARA PROJECT OPERATIONAL ARRANGEMENT ML 154

30/70 MARINE JV 30/70

MINING JV

FULL VALUE CHAIN PARTICIPATION

THANK YOU

Department of Mineral Policy and Geohazards Management

An Overview of Geohazards Management Division

June 2011 Nadi , Fiji

John Arumba

Outline of Talk 1. Geohazards Management Division 2. Key Result Areas 3. Ongoing Projects 4. Collaboration with other Institutions 5. Partnership with PIC 6. Linkages of Geohazards to Offshore Mining

Geohazards Management Division

Geohazards Management Division is responsible for monitoring & assessing geological hazards like Volcano, Earthquakes/ Tsunamis and Landslide plus other forms of mass movements Division provides advice on mitigation measures to relevant authorities and communities and where possible provide early warnings of the effects of these hazards. The Division comprises 3 Branches; Rabaul Volcanological Observatory (RVO) Port Moresby Geophysical Observatory (PMGO) Engineering Geology (EG)

Key Result Areas

RVO Volcano monitoring & eruption forecasting Risk & hazard mapping & assessment on volcanoes Geological & geophysical studies of volcanoes PMGO Strategic assessment of earthquake & tsunami hazards through monitoring Undertake earthquake & tsunami awareness Provide advice and early warning EG Monitoring of landslides and mass erosion events Field assessments and mapping of landslide areas Awareness programmes on landslides Provide geotechnical advice

Ongoing Projects
1. 2. 3. 4. Nationwide Seismic Monitoring Network- EU Funded and managed by SOPAC Disaster Risk Management Mainstreaming in PNG UNDP/SOPAC Strengthening Natural Hazard Risk Assessment Capacity in PNG- AusAID/ GA RVO Twinning Programme- AusAID/GA

Collaboration with Other Institutions

1. Comprehensive nuclear Test Ban Treaty Organization (CTBTO)/ RVO -Establishment of Infrasound (IS40) & Auxillary Seismic Station (AS76) at CCI in Rabaul The installations will be part of the IMS world-wide network 2. Earth Observatory of Singapore (EOS)/ RVO -Install 3 seismic stations & 1 electronic tiltmeter around the Mt Ulawun volcano 3. University of Natural Resources & Environment (UNRE)/ DMPGM -Establishment of a School of Earth sciences to teach geohazards

Partnership with Pacific Island Countries

PNG would very much like to partner with countries of the Pacific in so far as disaster is concerned. PNG through RVO assisted the Vanuatu Government Geohazards Section with equipment and personnel to investigate & monitor the Ambrym Volcano in May 2009 PNG further wants to ensure the concept of Melanesian Volcano Network (MVN) is realized. This is a vehicle which will ensure countries of the Pacific Island States that are prone to the same disaster share ideas and assist one another.

Linkages of Geohazards to Offshore Mining

Offshore EL s lie more or less in areas of high seismicity Through our RVO and PMGO offices we can be able to inform and issue early warnings of impending volcanic and earthquake activities and the aftermath consequences like tsunami to companies operating in the area to take precautionary measures.

THANK YOU