Mayur Resources’ vision to establish coal mining among Papua New Guinea’s pantheon of copper, gold, nickel and LNG can only be described as ambitious.
Although the country is not historically known for the resource, the company sees it playing a role in not only economic activity but also as a catalyst in expanding PNG’s industrial capacity through affordable and reliable electricity generation.
It plans to do this by vertically integrating its mining operations with coal-fired power plants which it hopes to construct – in conjunction with the national utility PNG Power – in Port Moresby, Madang and Lae.
What gives coal an added impetus is the government’s target of electrifying 70% of PNG by 2030, a move requiring a threefold increase in electricity supply according to ANZ’s Powering PNG into the Asian Century report, which was compiled by Port Jacksons Partners.
It states there was room for improvement “for almost every type of electricity user” and that overall electricity performance is was described as the “poorest in the region” and comparable to that of Cambodia. “Most people – rural and remote urban users comprising over 85% of the population – cannot connect to the national grid nor benefit from ‘owner-operator’ capacity with average consumption much lower than benchmarks representing only modest use of electrical appliances,” according to the report. “For those connected to the grid, electricity supply is expensive and unreliable.”
This is a constant issue faced by many businesses which have to mitigate power outages with diesel-fired generators.
Major resource projects and large agricultural players also have to depend on their own sources of power generation to sustain operations.
Electricity infrastructure was identified during the United Kingdom-Papua New Guinea Trade and Investment Forum in London as an area ripe for foreign investment.
During the event, ExxonMobil managing director Andrew Barry said it was important for the company to support government efforts to improve PNG’s power supply “which will in turn facilitate the growth of business within the country.”
LNG-fired power stations are a way to reach government targets however much of the commodity is earmarked for exports.
Mayur managing director Paul Mulder said he believed PNG’s exposure to international investors was beneficial for country’s resources sector despite being a relatively new jurisdiction.
He described London as a “mature and extensive” capital market and said the PNG delegation was very accommodating and inviting to investors, which reflected the amount of interest Mayur received from private equity groups.
“It is traditionally known for copper and gold, and has recently diversified into nickel and LNG but as the country continues to develop there will be other commodities which will be discovered and developed,” Mulder said.
“We see PNG as being a very resource rich country that’s only really discovering its potential. At the moment it does not use coal-fired power generation because historically it has never been known for coal.”
Mulder believes investments in PNG coal will considerably boost the country’s electricity supply and not only satisfy government targets, but provide Papua New Guinean economy with the power it needs for future growth.
“What people need is affordable and reliable power, which is what coal-fired power generation is.”
“There is domestic demand for it and if you look at any developed or developing economy, stable and affordable energy has been at the core of their development.
“Germany, America, China, India and Australia are examples of coal-fired power being at the centre of their developing economies.
“The fact is PNG’s coal is just much cleaner at 3% ash versus its First World counterparts.”
In itself, coal mining would be an addition to PNG’s resource inventory with ready markets in Asia and Australia.
Mayur sees the country as Asia’s next ‘coal frontier’ with many geological and operational similarities to coal mines in Indonesia, in particular Kalimantan and southern Sumatra.
Ranked as one of the top 10 global producers, much of Indonesia’s coal is exported to China and India and accounts for 85% of the government’s mining revenue according to website Indonesia Investments.
Mulder said PNG coal is some of the highest quality coal in Asia with 3% ash and 0.5% sulphur content – three to four times lower than Australian coal exports – and that the ‘Kalimantan model’ of trucking then barging coal downriver to awaiting cargo ships can easily be applied to mining operations.
Although there is scope for Mayur to export to overseas, Mulder also said PNG would effectively have first option on the coal it extracts from its Gulf province tenements.
“We are ideally located to the Asian market and the minerals that we do have are strategically located in and on the coast,” he said.
“From a logistics point of view that’s very important, and geologically our resources are ‘at-surface’ which from an economic perspective is quite unique.
“There’s no need for expensive railways and ports and our priority is to provide Papua New Guineans the benefit of the coal first rather than exporting it offshore and having another country getting the benefit of those resources by providing a new industry and jobs for the people of PNG.”
Despite sounding like a 19th Century mode of transportation, using barges significantly reduces project infrastructure costs and takes advantage of the rivers – the ‘natural highways’ – present in the area, most notably the Purari and Vailala rivers.
Competitive labour costs and exclusive acquisition and exploration rights for areas adjacent to Mayur’s current tenements has fuelled Mulder’s optimism of PNG’s potential as a coal producing country.
This feeds into the company’s plans to develop a low-cost precinct in the Papuan basin and pioneer a domestic captive coal-fired power industry to compete with other, more expensive, energy sources.
“We’ve been the first to delineate resources and demonstrate that we have easily got enough coal in the area we’ve drilled for a 50 megawatt power station for 30 years,” he said.
Although diesel fuel accounts for about 40% of all electricity generation in PNG, it can be needlessly expensive – up to five times the price of coal-fired power generation – for most Papua New Guineans.
“While PNG has power sources, the challenges are reliability of supply and achieving the cheapest energy possible,” Mulder said.
“So what do people do when they don’t have that access to that electricity? They cut down trees and burn them for heat, cooking and light. When you burn wood for heat and light it is a third as efficient as an energy source like coal for the same application and has far higher carbon dioxide emissions.”
It is a view echoed in the ANZ report, which stated that 92% of rural Papua New Guineans relyiedon “outdated, costly and unsafe energy sources such as kerosene, biomass and candles”.
Mayur believes coal-fired power generation could provide between 10-15c per kilowatt hour, which is cheaper than the 35c per kilowatt hour for diesel-powered generation.
Mayur is looking to collaborate with PNG Power to achieve this and targeting the country’s industrial centres to base their power plants.
“We’re not doing this solo. Some people have tried to go it alone, outside the PNG power regime but our plan is to enter an arrangement with the government,” Mulder said.
“In doing that, we believe cities such as Port Moresby, Lae and Madang will be the key areas that will benefit, and resource projects in close proximity to them which are currently using diesel-fired generation or a mix of other high cost energy sources.
“The key here is being able to provide new diversified energy source that is coal of a superior quality compared to what our First World neighbours use and is a fraction of the current cost; this in turn will also provide a big opportunity to expand the PNG manufacturing sector.
“I believe these resource projects, when taking into consideration logistics, would be more than willing to look at coal versus having to create their own diesel-fired generation if there is adequate capacity through PNG Power which is cost effective.”
The knock-on-effect of having affordable and reliable electricity in industrial areas, coupled with competitive labour costs could open up new manufacturing opportunities for the economy.
Mayur’s mineral sands tenements – which are along the shoreline and delta regions of Gulf province – are well placed to capitalise on this, with Mulder suggesting PNG could also become a steel producing country. “We have found an iron grade of 60% in the mineral sands and in the medium term our objective is to combine the coal and the iron from the mineral sands for steel making,” Mulder said.
Once again Asia is seen as the export market, but Mayur’s strategy of value adding its resources in PNG would mean the company will keep any eye out for its domestic market.
Despite the effects of low commodity prices still lingering, Mulder believes low labour costs and energy production will give Mayur the edge it needs against its competitors.
“While we’ll still export raw materials, we’ll do our very best to vertically integrate, value capture and value add in PNG,” he said.
“We see broader Asia and PNG obviously having a need. Our cost base will be so low that we’ll be at the bottom end of the global cost curve and able to competitively provide steel into Asia.
“When you look at Indonesia, it imports 10 million tonnes of steel per annum, it doesn’t have enough for its domestic needs.”
“The reality is we are a very low-cost source of material, and people will buy it; the higher cost producer gets pushed out and are the first people to go broke.”
Mayur’s vision for PNG is ambitious both in scale and scope, and being able to provide a source of affordable and reliable electricity can further enhance the country’s economic growth and spur the development of new industries.
