WEWAK – Resources firm Pan Aust (wholly owned by the Chinese state company, Guangdong Rising Assets Management, GRAM), has lost its way with the Frieda River copper-gold project in Papua New Guinea’s Sandaun Province.
It is now time for the PNG government to exercise leadership and rein in control over the Frieda asset if the PNG is to sustain its free education and health policies and lift the rest of the country out of poverty, disease and ignorance.
The view from Frieda is now very different compared with the corporate carnage of 2013 following Glencore’s hostile takeover of Xstrata Mining. In that epic battle for world copper supremacy, Mike Davis’s Xstrata lost to Ivan Glasenberg’s Glencore and with it went a chunk of PNG’s national asset, the K260 billion Frieda mine.
Glasenberg has gone on to become the king of copper and head of the number one mining house in the world.
But then, for a deposit of just K80 million, little known Australian miner Pan Aust Ltd moved in and acquired Frieda from Glencore while PNG government advisers and ministers slept on the job despite warnings from industry that the government should exercise control and reclaim ownership over its strategic asset.
Pan Aust went on to the sell out to GRAM in 2015 for a reported K1.2 billion although officially the deal was closed at K450 million.
GRAM is owned by the municipality of the city of Guangzhau in southern China, although the deal maker in this transaction was a leading Australian Chinese billionaire Dr Chau Chak Wing, the subject of a current controversy because of allegations that he is an agent of the Chinese Communist Party.
Additionally, the influential South China Morning Post reported in September last year that the chairman of GRAM, Li Jinming, as well as the CEO and chief financial officer had been arrested and are facing prosecution in China for failing to account for a number of acquisitions made by GRAM in Australia, including Pan Aust, leading to a loss by GRAM of more than K3.2 billion.
None of these corporate maneuverings went unnoticed by the government of China and eventually Glencore was forced to sell a number of its copper assets to China in order to keep selling its copper ore to the communist country.
I suspect the sale of the Frieda copper mine may have been part of an arrangement between Glencore and the government of China for a number of its assets to be sold to Chinese-controlled companies.
But the question that now needs to be asked in PNG following the arrest of the GRAM directors is what can the PNG government do with Frieda?
Last week, the PNG Mineral Resources Authority reported that Pan Aust had advised it of the withdrawal of an application for the mine development license over Frieda that was filed in 2016.
I suspect the real reason for this is that Pan Aust does not have the required capital to follow through with the development of Frieda Mine since the arrest of the GRAM executives in China and the freeze on GRAM’s activities pending finalisation of court proceedings in China.
Pan Aust and its junior partner Highlands Pacific are already in arbitration over the issue of the costs relating to each partners contribution to the feasibility study.
In the wake of this total mess, an opportunity exists for the PNG government to open dialogue directly with the government of China to revisit the Frieda project.
Already two leading Chinese state companies - China Energy Engineering Ltd and China Railway Yunnan Construction & Development Ltd - have expressed interest in developing the infrastructure associated with the mine.
The PNG government and the provincial governments of West and East Sepik - the ministers of the two provinces in particular - should take the lead in opening dialogue with China on the Frieda project.
How the Frieda project will be developed is part of the unfolding resource war being waged worldwide between private capital (represented by figures such as Glasenberg, Donald Trump and Malcolm Turnbull) and powerful state actors such as the gvernment of China and other savvy emerging states such as Russia and Indonesia.
The leading US-based mining journal Behre Dolbear reported last week that the Republic of Congo, Ghana, Tanzania, Zambia and Mauritania have recently enacted new legislation apportioning greater revenues from mining in favour of the state to the rejection of Barrick Gold in Tanzania and Glencore in Congo.
Over the last six months we have also seen the rise of resource nationalism in Indonesia with a direct challenge to BHP Billiton and Freeport Copper to divest up to 51% of their interest in the Grasberg mine to the Indonesian state.
At the time of writing, BHP has agreed to sell its 40% stake to the state and current negotiations continue on the quantum of compensation for environmental pollution by Freeport.
While there is a much kneejerk reaction by our neighbours about Chinese checkbook diplomacy in the region, it must be remembered that China is Australia’s number one trading partner.
Despite just 70 years ago China being rolled over by Japan after a long period of being pushed around by colonial powers, it has emerged in recent times as a super power extending its hand of friendship to countries around the world as it builds a new world order with itself at the centre.
“Developing countries where 90% of the world lives are at a crossroad,” says the leading black African woman of our generation, Zambian economist, lawyer and banker Dambisa Moyo. “They are facing a choice between the United States model of democracy and private capitalism or the Chinese model of state capitalism and no democracy.”
This may be too unequivocal as many third world countries including PNG are now better poised to consider bartering our copper, gold and other mineral wealth for infrastructures such as roads, ports, railways, universities and hospitals rather than simply allowing private capital through direct foreign investment.
Our experience over 40 years has been dismal as highlighted by reports such as that by Jubilee Australia. As PNG struggles to build its next generation of mines, the young lawyers and technocrats advising our leaders must take it upon themselves not to repeat the mistakes of the past but to look at recent deals between China and a number of counties in Africa and negotiate a new mining development contract for PNG that we all can be proud of.