Resource Taxation And Project Feasibility: The Misima Gold Mine, Papua, New Guinea

This paper is about the feasibility of a gold mine in Papua New Guinea (PNG), with particular emphasis on fiscal issues involved in a mining project. The study begins by considering the market for gold and a description of the technical aspects of the Misima gold mine in PNG. The financial analysis of the project covers both the total investment and the owners’ perspectives. As grade selection is a significant issue in an extractive project, the case where the grade selection profile follows the path of discounted prices is also examined. A sensitivity analysis is performed on the parameters of the project that are likely to vary over time. The economic analysis is done after estimating the economic costs of capital, foreign exchange, and labor for the PNG economy. Results are also obtained for the case when the entire investment may be treated as incremental. The social analysis identifies the externalities generated by the project and assigns them to the various agents in the economy. A risk analysis is completed for those variables that are relatively uncertain and have a high impact on the project. Alternatively forms of fiscal regimes prevalent in the mining sector and their effect both on the variability of the government revenue, as well as on the investor’s earnings, are also considered. Finally, the tax-like disincentives caused by an overvalued exchange rate in the resource-owning countries are demonstrated.