RAMU NICKEL MINE PROJECT – RIPPING PNG OFF BIG TIME

By Sam Jay Kaupa - Mining Engineer

History/Ownership

First discovered in 1962, Highlands Gold Limited in 1992 assumed the management of the current joint venture. An intensive period of geological exploration and engineering led to a feasibility study and in 1996 the establishment of the Ramu Nickel Joint Venture to prepare a bankable feasibility study. 

In 2000 the project was granted its Special Mining License and in 2005 Metallurgical Corporation of China Limited (MCC) joined the joint venture and was responsible for financing and construction of the project. The Ramu mine and Basamuk process plant is a joint venture between Highlands (8.56%), the PNG Government and Landowners (6.44%) and MCC Ramu Nico Ltd (85%). MCC holds a 61% interest in MCC Ramu Nico Ltd, with the remaining 39% held by a number of other Chinese syndicates

Highlands' interest in the project which will increase to 11.3% at no cost after internal project debt has been repaid from operating cash flow. Highlands also has an option to acquire an additional 9.25% at fair market value which could increase its interest to 20.55%. MCC operates the project on behalf of the other partners (sleeping)

Project

The Project integrates mining, beneficiation and refining is composed of late-rite open-pit mining, 135km slurry pipeline, high pressure acid leaching, deep sea tailings placement (DSTP) as well as a number of supporting facilities. 

The Project produces nickel/cobalt intermediate product, in which the aggregate nickel metal accounts for 31,000 tonnes per year and cobalt 3,000 tonnes per year. The large scale construction commenced in 2008 and completed by early 2011 when trial mining began. They are now into the 8th year of full production.

MCC’s massive revenue

Between 2013 and 2017, MCC made a revenue of K15.9b and by annualising Q1 2018 numbers, MCC will have sold nickel and cobalt to Chinese markets valued at $US 8.2b (K27.3b), against a capital cost of only $US 2.1b to build the mine. This year along MCC will make a revenue of K11.4b from sales which is 70% of PNG’s annual budget – just from one mine. What if you include earnings from Lihir, Porgera, Ok Tedi and Hidden Valley? You can do the math but I tell you it’s not a joke. (see attachment)

MCC capitalized on the existence of inadequate governance and legal frameworks, weak enforcement of tax legislation and imprudent revenue management by the PNG government and completely fooled and screwed this country up. 

Now that the Nickel and cobalt prices went ballistic to 20% since the start of 2018 and will continue, according to analysts, the PNG Gov’t (for the love of God) must not play politics and make serious efforts to improve the establishment and enforcement of strong governance and fiscal frameworks to capture these horrendous acts by foreigners, who under the pretext of development and investment continue to rape and pillage this country into poverty.

Tax Evasion & Transfer Pricing
MCC conveniently avoided paying taxes, royalties and dividends due to the absence of stringent laws to counter aggressive tax planning and tax evasion. In such a scenario, MCC applies illegal methods to reduce their taxable income by knowingly and illegally misrepresenting their transactions. MCC’s predominant market is in China, dealing with companies mostly owned by the Chinese Government. 

They illegally operate on a transfer pricing arrangement where MCC sells the MHP at artificially lower prices and because these transactions are deemed internal, they are not subject to ordinary market pricing and used by these companies to shift profits to low-tax jurisdictions/tax havens. As tax is based on profits - they conveniently avoid it.

Royalty Calculations – Formula dubious and deceptive

Since reaching the nameplate capacity in 2015 which automatically should invoke royalty payments, MCC has never declared a profit and avoided paying royalties. The royalty calculation is very dubious (and I argued that when I was in MRA during the formula review session) because so many off shore hidden costs were included to minimize the profit.

 They did that. Why wasn’t royalty calculated based on free on board (FOB) revenue? People in MRA should explain why royalties are calculated in that manner. External costs should never be included. So now we have evidence that the overseas hidden costs belong to related holding companies thus transfer pricing is going on by these cunning Chinese.

Ring-Fencing

Someone tell me if MMC and other mining companies (esp. Newcrest who are now doing serious explorations and trying to start up Wafi-Golpu) are not ring fencing their profits. This means they are using profits from their operating mines to fund their other entities doing exploration work, start up new mines and make acquisitions without being operated as a separate entity?

 To most companies this is a protection-based transfer of assets/profits from one destination to another, usually through the use of offshore accounting to protect the profits from inclusion in the mining company’s calculable net worth and thus conveniently lower taxes paid? This is daylight robbery.

Conclusion

It is time now to wake up and see what these multinational companies are doing to us Papua New Guineans. Right now when the PNG Parliament in the process of passing the revised Mining Act, assessment and approval of the SML applications (including EIS and EP for Freida and Wafi-Golpu), we cannot sit back and relax as if everything is honky doray. 

Landowners and stakeholders should not be sleeping while the undercurrents are alive. Government and Landowner groups should be seeking information and consult PNG experts to guide us into making sure that we get this right this time around for us and our future generations. We should not give into biased views and advise from the PNG Chamber of Mines and Petroleum. They are as bad, even worse than the investors themselves. 

At the end of the day, I would have wasted my time writing all these up if people are not seriously looking at what is wrong with the status quo. Remember one mine alone can fund the National Budget – easily if we do it right. Now is the time. Not tomorrow. Paying back debts will be a walk in the park. Think about it.

I don’t hold any personal grudges with any company- I speak as a concerned and disgusted patriotic Papua New Guinean.

Sam Kaupa
Mining Engineer
Port Moresby (PNG)

*(All data sourced from published MCC reports, official websites and main stream media.)