How Barrick hopes to win back its `social licence' in Papua New Guinea
Mining executives often talk about the importance of having a “social licence” to operate, yet it's rare to hear them acknowledge when they don't have one.
Barrick Gold Corp.'s chief executive Mark Bristow says it happened to his company in Papua New Guinea, where its Porgera mine had been pumping out gold for nearly three decades, even as accusations about human rights and environmental abuses in the surrounding communities have festered.
Ultimately, last April, Toronto-based Barrick was forced to put the mine on care and maintenance, essentially ceasing operations, when the government declined to renew its permit. Since then, Bristow has made countless trips to the island nation to meet with Prime Minister James Marape, including four since December. This month, the company announced a new binding deal: It will increase Papua New Guinea's stake in the entity that owns the mine to 51 per cent from five per cent, making Barrick a minority owner in the mine it operates there.
Bristow, who took the helm of Barrick in 2019, acknowledged the company had neglected its relationship with the community — although he never commented on the accusations of abuses — and stressed that he wants to build a mining company “that's acceptable to future generations.”
He said the terms of his new partnership framework in Papua New Guinea show the path, even though many people remain skeptical that he or anyone could ever win back trust in the community.
“Generally, you can operate in the majority of mineral-endowed countries in the world, provided that you're prepared to recognize and build a licence to operate,” Bristow told the Financial Post.
“And what happened in Papua New Guinea is, we lost that.”
Porgera, a high-elevation open pit and underground mine that produced 598,000 ounces of gold in 2019 at an all-in sustaining cost of US$1,002 per ounce, has the potential to continue for another two decades, and is a “world class asset,” according to Bristow.
Since Barrick acquired the mine in 2006, it has developed a notorious reputation. In 2009, Norway's sovereign wealth fund said it was divesting its roughly US$184-million position in Barrick because of the environmental problems associated with the mine. For years, activists have shown up at the company's annual meeting to decry the conditions around the mine.
They say the company dumps mine tailings laden with mercury and other toxins into a local tributary, which has contaminated fresh water, destroyed local agriculture, and led to brutal encounters with private and public security forces when impoverished local residents crossed the river, or panned for gold in the tailings.
“This is a wild place,” said Bristow, who declined to comment on the accusations, but added, “If we stepped away from this, it would quickly degenerate into something too ghastly to imagine.”
His new partnership agreement comes at a time that gold prices are elevated, at US$1,735 per ounce, and governments in many countries with emerging economies are demanding greater returns from foreign extractive companies.
Bristow says Barrick is looking to build back trust, and that the new deal will do that in several ways. In addition to raising Papua New Guinea's ownership stake — which includes various stakeholders including the national and provincial governments, as well as some landowners and others — to a majority, Barrick and its joint venture partner, China's Zijin Mining Group Co Ltd, will see their respective shares decline to 24.5 per cent each, from 47.5 per cent.
As well, Bristow said Papua New Guinea's stakeholders would receive 53 per cent of the economic benefits; and that the government is guaranteed tax payments, even as Barrick and Zijin prepare to invest close to US$1 billion to improve the mine in the next few years.
“There's not many countries that (let) you get away with more than 50 per cent of the economics no matter what you own,” said Bristow, adding, “That's a paradigm that the market is going to have to get its head around.”
There is some precedent in the gold sector: In 2018, U.S.-based Freeport-McMoran Inc. struck a deal that gives Indonesia a roughly 51-per-cent stake in its Grasberg mine, one of the largest copper and gold mines in the world.
But Bristow insisted that the deal he struck in Papua New Guinea differs as it guarantees that the government would receive tax revenues, regardless of whether the costs of capital improvements to the mine have been recouped.
Too often, he said miners strike deals that allow them to defer paying taxes until they've paid down the capital costs of building or improving a mine.
Not all the details of the economic agreement with Papua New Guinea have been released yet, though, and Bristow said there are still several steps remaining before the mine can be reopened and the deal can be implemented.
Catherine Coumans, research co-ordinator for Mining Watch Canada, who has been an outspoken critic of the company, expressed skepticism about the deal, saying that the landowners she has spoken to were not consulted.
“It doesn't address the groundswell of anger and frustration coming up from the people who have to live with this mine,” said Coumans.