PNG CORE President Anthony Smaré has expressed great scepticism over the profit and revenue projections of the proposed gold refinery and mint project by the small Singaporean company Refinery Holdings Pte Ltd and their Papua New Guinean promoters, labelling the financial projections as “highly dubious” and not grounded in any realistic understanding of the refining industry or the gold industry per se.
Mr Smaré has warned leaders and thinking Papua New Guineans not to believe the misleading numbers being put out by the project promoters.
“Anybody with any experience in the gold business knows that gold refining is a very difficult business model, with razor thin margins and it requires significant volumes to carve out any meaningful profit. Any gold expert would know this, and PNG is lucky to have many of its own local gold industry experts who could have been consulted at any time to verify these numbers.”
Based on the numbers they have shared, it appears that the promoters of the proposed Gold Corporation are effectively claiming that they will make nearly three times the profit of Australia’s largest refinery and mint, despite processing less than 8% of the volume of the Australian refinery.
The foreign proponents of this project claim that from PNG’s annual gold production (last year was around 1.5 million ounces) the State will receive around USD287 million in corporate income tax over 15 years from the proposed National Gold Corporation. Based on these projections, we are calculating that they are projecting an average annual profit of around USD63.8milllion (PGK241m).
But consider that Australia’s largest refinery and mint, Perth Mint, despite processing 16 million ounces of gold and silver, only generated a profit of USD26.2 million (AUD40 million) in 2023, due to the significantly high costs associated with the business model. A profit margin of 0.17%.
In 2022, Papua New Guinea produced approximately 1.4 million ounces (Mozs) of gold.
However, around 500,000 ounces were produced as part of copper flotation concentrates from mines like Ok Tedi and Kainantu. This means that the actual dore production (pure gold) available for refining was only 900,000 ounces.
Additionally, there is an estimated 100,000 ounces of alluvial gold production annually. The restart of Porgera could potentially add 500,000 ounces per year when in full production. However, neither the development of Wafi Golpu nor the expansion of Kainantu will significantly contribute to gold dore production as both mines primarily produce a copper-gold flotation concentrate, which requires treatment through a copper smelter to recover the copper and gold metals.
Furthermore, Simberi produces approximately 100,000 ounces per year. If it continues to operate at same levels, it will produce a low-grade flotation concentrate from treating sulphide containing around 100 g/t gold. This concentrate would also require treatment by a smelter and would not directly feed into a bullion refinery.
Overall, the potential feed for a gold bullion refinery in Papua New Guinea would be approximately 1.5 million ounces per year. Assuming similar profit margins as the Perth Mint in 2023 (0.17%) and that all the gold in PNG were all refined at a refinery in country, this indicates that the PNG Refinery would only make a profit of A$3.7 million (PGK9.3m) before repayment of capital.
The generation of profit would be reliant on sales of bullion coins, medallions, and bars outside of the country. This in turn would be reliant on the refinery having appropriate accreditation which a PNG refinery producing less than 1.5 million ounces would find difficult to achieve. The economics of a mint and refinery model on PNG’s existing production is extremely challenging unless one is buying gold at prices significantly lower than world gold prices or what current PNG producers and exporters are currently getting for gold sales.
PNG CORE is seriously concerned that the current commercial arrangements that was set in motion by the Shareholders Agreement has led to the creation of a very dangerous Bill, that creates a gold monopoly over critical national industry, gives away certain sovereign powers, undermines key state agencies and institutions, and poses a risk to rights and liberties of Papua New Guineans, all in favour of a foreign controlled entity on the basis of a business case that was founded upon unrealistic and unachievable financial projections.