PNG seeks 50% of Lihir project, surprised Vengold left in

The government of Papua New Guinea is thwarting an agreement allowing Venezuelan Goldfields (VSE) to acquire a 20% interest in the Lihir Island gold project (T.N.M., Aug. 16/93).

Just days after announcing plans to acquire the interest from RTZ (NYSE) for US$60 million, Vengold said it was “surprised” to learn the PNG government wanted to boost its stake in the project to 50% from 30%. RTZ also planned to sell a 16% interest to Niugini Mining for US$48 million. Niugini, a subsidiary of Battle Mountain Gold (NYSE), was to increase to 30% its interest in the project, which it discovered a decade ago. The deposit is widely considered to be the world’s largest undeveloped gold resource. RTZ and Vengold intended to form a holding company which would operate and own 40% of the project. RTZ would have a 50.1% interest while Vengold would hold the remainder.

But those plans are in limbo pending the outcome of negotiations between the PNG government, RTZ and Niugini. Frank Kolma, press secretary to PNG Prime Minister Paias Wingti, said Vengold will not be part of those discussions. He said the PNG government had pushed for development of Lihir since 1986 and became frustrated by RTZ’s “lack of faith” in the project. The major company originally held an 80% interest, with Niugini holding the remainder. “We were told the project was marginal, more exploration had to be done, and it would be highly unlikely to find a third (industry) party participant unless certain conditions were met,” Kolma added.

He said the PNG government, early this year, urged RTZ to come up with submissions for development and that RTZ’s “lack of progress” prompted the PNG government to acquire the 30% interest available to it. The government also gave RTZ a 4-week deadline (plus a 1-week extension) to come up with another industry participant.

“RTZ did not come up with a partner, and we notified the company in May of this year that we wanted to acquire the additional 20% interest and find our own industry partner,” Kolma said. (This partner would be able to acquire 20% of the project, thus reducing the government’s stake back to its original 30%.)

The government’s negotiations with other parties, including a large Malaysian mining firm, were “well-advanced,” Kolma added. “We had no trouble finding companies interested in participating.”

Kolma said the PNG government was surprised to hear of RTZ’s agreement with Vengold, particularly as a PNG delegation had visited London to inform the company of its interest in acquiring the additional 20% interest. This was followed by an official letter from the prime minister to RTZ in late June. It appears the PNG government may have concerns about the suitability of Vengold as a partner in the Lihir project. “We had information that there were environmental concerns related to this company, but that is not the issue here,” Kolma said. “RTZ’s conduct was mischievous, and sufficient for the government to take its course of action.”

On Aug. 12, RTZ received a copy of a statement in which PNG’s mines minister announced the government’s decision to take a 50% interest in Lihir. The company said several aspects of the statement “came as a considerable surprise,” particularly that the government had been negotiating with other parties interested in participating. The company’s understanding was that the PNG government was legally entitled to participate with up to a 30% interest. At this stage, the PNG government had not negotiated any terms upon which it was to acquire the additional 20% from RTZ.

Since June, 1992, when his coalition party was elected to power, Prime Minister Wingti has taken a tough stand with regard to other mining companies active in the country. Earlier this year, the government was able to increase to 30% from 10% its interest in the Porgera joint-venture gold mine developed by Placer Dome. The government was advised by Robert Needham, a former Placer employee who is currently managing director of the PNG’s Mineral Resources Development.

Kolma defused suggestions that the government’s recent actions might scare off investment in the country. “We are not talking expropriation here,” he said. “The Porgera issue was settled by gentlemanly business negotiations and Lihir will be done in the same manner.”

He said a committee is working hard to resolve the issue with RTZ, as the government wants to see the project move forward by the end of this year. “But we stand by our decision that we will find our own third party,” he stressed.

Meanwhile, Vengold appears to be left in the lurch. President Ian Telfer said the company and RTZ are in discussions to resolve the matter. He pointed out that the company is newly formed and has no environmental problems of any kind. And he said Robert Friedland (associated with Galactic Resources and the problem-plagued Summitville mine) is a Vengold shareholder only, not an officer or director.