The Papua New Guinean government’s extraordinary decision to effectively nationalise the Porgera Gold Mine may open the door for the People’s Republic of China to step up its aggressive push to acquire mining interests in our closest neighbour.

The Porgera mine is in Enga province in PNG’s northern highlands, a region notorious for tribal fighting, illegal mining and general lawlessness. It is owned by the Porgera Joint Venture—a partnership between Barrick Gold and the China-based Zijin Mining Group—which is listed on the Shanghai and Hong Kong stock exchanges. The mine is operated by Barrick, which is headquartered in Canada and is the world’s largest gold producer.

The joint venture has been seeking a 20-year extension of its special mining lease and the PNG government has been sending mixed signals on the issue for many months.

But late last Friday, Prime Minister James Marape announced that the lease would not be renewed and ‘negotiations’ would be held with the joint venture with a view to the mine being transferred to the government.

Led by Barrick, the consortium has flatly refused to agree to the transfer and threatened to take legal action to secure the lease extension.

The PNG government’s decision will further erode investor confidence already damaged by an economy in crisis, a deteriorating fiscal situation and the earlier failure to reach agreements with proponents of the Papua LNG project and the Wafi-Golpu copper and gold project. Both were being negotiated when Marape was elected prime minister in May 2019.

It will also create a significant quandary for the country’s international supporters, notably the International Monetary Fund, the World Bank and Australia, which have been urging the PNG government to focus on major investment in the resource sector to begin the daunting task of securing the nation’s economic and fiscal future.

There’s no doubt that the decision was driven by Marape’s policy of ‘economic nationalism’. He frequently talks about ‘taking PNG back’, though it’s not been clear exactly what that means.

The decision to nationalise the mine has also been driven by public pressure on Marape and his government. In recent years, domestic and international environmental and anti-mining groups have conducted a sustained social media campaign against Porgera and Barrick over the environmental and social impacts of the mine and claims of a heavy-handed approach by police and joint venture security staff.

Marape referred to these issues when justifying the refusal to renew the lease.

Social media is a powerful weapon in PNG. It helped bring down the last prime minister, Peter O’Neill, and it has started, albeit slowly, on Marape over political corruption and resource development and management issues. He has been criticised for not acting fast enough on promises he made before and after his election as prime minister.

The joint venture has operated in a difficult environment for years and hasn’t adequately addressed the aggressive social media campaign it has faced.

But it was entitled to believe, on the basis of initial statements from the new government and a court decision in its favour in August 2019, that its lease would be renewed, albeit with more demanding conditions.

However, anyone who has followed the many, and often confusing, statements from the prime minister and senior ministers over the past 11 months would have registered doubt that the lease would be renewed, and certainly not without higher revenue sharing, taxation and other imposts.

But the government’s refusal to further discuss a new lease, and its announcement that the state would take over the ownership and operation of the mine, have sent shock waves beyond PNG and alarmed existing mining, oil and gas operators, most of which have substantial Australian equity and management.

The big question now is who will actually run this giant mining operation.

PNG’s government could not run something this complex in such a politically and socially difficult part of the nation. That points to China as the likely operator and probably owner of the mine with the agreement of the PNG government.

Zijin Mining Group has links to the Chinese Communist Party and holds a 47.5% share in the joint venture along with Barrick. How it responds to the decision will be an important gauge.

China has been aggressively pursuing activity in the Highlands Region, which is home to 40% of PNG’s population and is rich in oil, gas, gold, silver and copper.

Acquiring a large gold and silver mine would unquestionably be attractive for China, and if that doesn’t happen then running it would be the next best thing. China is already the majority owner and operator of the Ramu Nickel Mine in Madang Province.

The Marape government’s attitude to Chinese ownership or management is hard to read. The O’Neill government’s pro-China policy in non-resource areas hasn’t been changed by Marape. There’s no doubt the PRC influence is strong, and growing.

How should Australia respond to this nationalisation exercise?

Even though there’s no Australian equity involvement in this joint venture, the negative impact on confidence in the mining, oil and gas sectors, in which there is massive Australian involvement, cannot be ignored.

If Australia is to continue to generously support PNG in its extremely difficult circumstances, we need to insist that investor confidence be secured, and not be smashed even further.

That will happen if this decision is not reversed.