Gold refining, a business of slim margins, the real PNG take from a former refiner
Tue Mar 26 2024
QUESTIONS continue to be raised on the proposed National Gold Corporation Bill of 2022.
There seem to be so many glaring queries than answers of a venture that is a first for the country at the proposed national level, but not a new one in the local industry from, especially for those that once operated the now shelved Metals Refinery Operations (MRO).
Some have come out to tell exactly how it is to refine gold in an economy like PNG and the experiences and valid concerns that either make it a success or one of the greatest disasters in the country’s economic history.
The following is Part 1, of a 2 Part series, based on conversations with the previous management of Metals Refining Operations whose identity has been withheld upon their request.
These are the comments of a real refinery operation in PNG and is something all can take note regarding this endeavour.
QUESTION
What are your comments on the proposed legislation and institutions relating to the ‘control’ of gold in PNG?
ANSWER
Former Management of Metals Refinery Operations
“Much of the gold produced in the country is exported as a component in a concentrate with other metals, such as by Ok Tedi and K92, and is extracted overseas, it is not suitable as input material for a gold refinery, and therefore not accessible.
“The proposed legislation numbers are based off exports statistics, not on the reality of what gold is actually accessible.
“Gold refining is a marginal business financially, very small margins, so only profitable with a high throughput – this is why there are not many gold refineries in the world. The Perth Mint has a throughput of 27.5 million ounces of gold & silver.
“Non profitability is also the reason that PNG’s first gold refinery, Metals Refining Operations that operated in the 1980’s, was ultimately not successful. The MRO building in Gordons/Waigani is now mothballed and owned by Pacific Balance Fund/Melanesian Trust Services Limited.
“Most gold refineries around the world are privately owned – because they are financially risky activities, not secure enough for Government investment.
“Australia, the second largest gold producer in the world, has only two accredited gold refineries that process gold from within Australia and other countries in the Asia Pacific region.
QUESTION
Will the proposed PNG gold refinery be properly accredited? Will there be a sufficient throughput to justify a business case? vs an emotional ‘national content’ cause?
ANSWER
Former Management of Metals Refinery Operations
“The holding of physical gold as a store of national wealth/reserves is a function of the Bank of PNG, and of all central banks around the world, not private companies.
“One could ask why precious metal (gold, silver & platinum) currencies for so many countries around the world are minted by the Perth Mint? – because once again it is a commercially marginal operation, it’s cheaper to get someone else to do it for you.
“Security of storage and transport of gold will always be an issue in PNG, inevitably leading to very high insurance premiums, again increasing costs.
“Most mines and especially their financiers want payments in physical gold or US$ equivalent. Having to do this within PNG will be an extra cost burden, compared to doing it elsewhere in the world. It will serve as yet another disincentive to the mining industry.
“In reality the only PNG gold that will be accessible to a local refinery will be the small-scale village level alluvial gold and those ‘pure’ gold mines (Porgera, Hidden Valley & Lihir) whose end products are dore bars of varying proportions of gold and silver.
QUESTION
So, is this a viable business venture for PNG on a national front?
“In summary apart from security & insurance concerns, neither a gold refining nor minting of coinage enterprise is likely to be a profitable or even break-even business proposition in PNG given the amount gold that it realistically would have access to.
“The presence or absence of this new gold management regime will have no effect whatsoever on the wealth of the country, which is dominated by the activities of private sector companies. If anything, the extra local overhead and regulatory costs will diminish the value of the country’s resources.
“So why should the Government incur the expense of establishing a secure gold refinery and minting operation that is not going to be profitable or even break even? There is no financial business case and there are more worthy applications for Government funds like health, education, water supplies etc…
“As they say “don’t scratch where it doesn’t itch”.
Source: https://www.postcourier.com.pg/