IN 2018, the resources industries contributed to more than 25pc of Papua New Guinea’s (PNG) GDP, and 80pc of its export revenue, and the industry employed about 20,000 people.
As a post-colonial nation, development in PNG has lagged behind the rest of Asia due to the wildness of the terrain, the challenges of remote locations, and lack of cheap, reliable electricity and infrastructure.
One of the biggest infrastructure hurdles has been the lack of a domestic concrete plant that will allow PNG to transition its infrastructure and construction projects from traditional, locally sourced building materials to modern methods using concrete.
Mayur Resources executive director Tim Crossley said that this transition had been well documented.
“If you look at the development of an emerging nation, there is a very clear line between GDP growth and electrification and there is a very clear line between GDP growth and cement demand or concrete demand,” he said.
Because most of the mines in PNG, both existing and proposed, are located in very remote parts of the country where power and infrastructure are limited, security can be problematic, and logistics can be a nightmare, among other problems – meaning the cost of operations tend to be high.
“PNG is still very low on the development curve, GDP is in the low US$2000s per capita and hence there is often unavailability of the skills needed – the upscale skill sets,” Mr Crossley said.
Another challenge was that land in PNG is often held under customary titles, which often required negotiations with many different groups, however when finesse was used, Mr Crossley said the process could be a lot easier.
“You have to go about it in the right way – in a respectful way and respect that it is their land – I think we have demonstrated that it can happen without project delays, I think we have demonstrated that it can happen quite quickly,” he said.
But the biggest challenge comes from two of the stumbling blocks of nation building – reliable, cheap electricity and remoteness.
“For mining companies trying to develop projects in remote locations, that remoteness and lack of infrastructure are a huge challenge,” he said.
“They are logistically challenged, infrastructure challenged and it is a high-cost to support them with helicopters and the like.
“Primarily, and one of the key reasons that the Mayaur portfolio is on the coast or on islands, is because it is very costly to run these sorts of projects in the middle of the island, so we’ve made the decision to stay out of that.
“As the nation’s GDP grows, and PNG is coming from a very low base, if you look globally where to where the opportunities for strong GDP growth, PNG is clearly one of those strong opportunities.
“It has lagged behind the rest of Asia, but PNG is entering a super cycle of robust growth that will take it above 6pc per annum of GDP per capita growth by 2024-2025.”
Mayur Resources hopes that growth rate will in turn drive demand for cement as infrastructure projects shift from locally supplied materials, with construction projects moving away from traditionally sourced material and wood and people begin building houses using cement based construction techniques.
Currently, PNG is uses about 60kg of cement per capita, whereas the rest of the developing world is using they are using 250-600kg per capita.
This massive disparity is caused not only by a lack of cement in PNG, but also because of the prohibitively expensive prices involved in importing it.
On July 3, the company lodged its application with the Mineral Resource Authority for the Central Cement and Lime project in Central Province, where it hopes to establish PNG’s first domestic concrete plant.
This represents one of the final hurdles for the company to be granted the mining lease, and significantly de-risks the project.
Mr Crossley said that the reason a cement plant like CCL had not already been established in PNG was because of the high capital intensity required to start a project of such scale.
“I don’t think anyone has looked at a project like this in the same way that we have,” he said.
“If you look at trying to build a cement plant or a clinker plant like CCL you would find it very hard to justify that investment solely based on the PNG demand pool because the PNG market is 300,000-400,000t.
“To build a plant of that size, and to allow for growth, the capital intensity would pretty much kill it.”
Mr Crossley said that the difference for Mayur Resources was that while it was fundamentally a project for import replacement in PNG, to justify that project and get it to a world-class scale, the company also allowed for about 1-1.2mt of exports.
“We’re on the coast, next to deep water and the Australian market is next to us and has been increasing its imports for the last decade now,” Mr Crossley said.
“That enables us to have the volume pull-through to justify the scale; now over time as the PNG market grows, we have two choices, we can slow down the exports as the PNG market grows, or we can replicate the plant and double capacity.
“Those are the options that are available to us in the future.”
Mr Crossley said that the project was moving at a fast pace, and from a resources perspective was largely de-risked.
The company has completed nearly all of our landholder discussions.
“So long as we follow the necessary steps, there should be no risk in acquiring the mining lease, then it’s really about financing,” he said.
The difficulties attributed to working with the government and with local landholders was something that Mr Crossley was eager to dispel.
“The political process works – the great thing about PNG is that it is a former British colony, so it has British laws, it has a Westminster government and the spoken language is English, so it ticks a lot of boxes for companies like ours who’re headquartered in Australia but have their interests in PNG,” he said.
“A case in point for the success of the PNG political process would have to be the success of the last election with the change from the O’Neill Government to the Marape Government.
“In the lead-up to the election there was some uncertainty, but the political process worked perfectly.
“We don’t see the sovereign risk or the potential of the project to be nationalised.
“There is no evidence that that will happen in PNG – the tenure security in PNG the government is very supportive of development of new companies, we get excellent support and I don’t see a lot of the challenges that others seem to talk about.”
Looking forward, 2019 is shaping up to be an exciting year for Mayur resources.
The cement plant is scheduled to be operational by the end of 2019, and the company’s power plant has the potential to greatly benefit the electrification of the country as it moves toward the 70pc electrification by 2030 goal.
“If you look at the portfolio of projects that we’re doing, we are fundamentally a first mover in two sectors: one being energy and one being building materials with CCL,” Mr Crossley said.
“Both of those commodities are important elements to any developing nation that is going through industrialisation.”
