Newcrest Lihir explains royalty breakup

New Irelanders have received over half a billion kina in royalties from the Lihir gold mine up to March 2018.

Royalties were paid by Newcrest Lihir (Lihir Gold Limited) to the New Ireland Provincial Government (NIPG), the Nimamar Local Level Government (NLLG) which the Lihir group of islands come under, and traditional block owners of the Special Mining Lease (SML) area of Lihir mine. 

In a statement, Newcrest said NIPG received 50 percent of the royalties which equates to K340 million while the NLLG was paid K203 million (30 percent) and the block Owners or landholders of the SML were paid K135 million

“A royalty is defined by the Papua New Guinea Mining Act as payments by a mining company to the State based on 2 percent of the value of all gold sold by the company,” said the firm.

“The Mining Act further says that it is up to the State to decide how it wants to redistribute the royalties.”

When Lihir mine started, the National Government signed a Memorandum of Agreement (MOA) with the NIPG, the NLLG and the Lihir Mining Area Landowner Association (LMALA) – who represented the block owners – to distribute the Lihir royalties as follows: 

  • 50 percent be paid to NIPG 
  • 30 percent be paid to NLLG
  • 20 percent be paid directly to the SML block owners  

The MOA further states that the 50 percent portion for the NIPG be divided as follows: 

  • 20 percent to the Namatanai District for infrastructure projects and programs pursuant to its Districts and Provincial Development Plans. (Lihir comes under the jurisdiction of the Nimamar Local Level Government in the Namatanai District)
  • 20 percent to the Kavieng District for infrastructure projects and programs pursuant to its Districts and Provincial Development Plans
  • 10 percent for general administration as well as for the administration of the MOA obligations.    

For the 30 percent NLLG portion of total royalties, the MOA states that it be distributed further as follows:  

  • 20 percent to be spent on community development projects and programs
  • 10 percent to be spent on long term growth-driven investments.    

SML block owners portion 

All royalty payments to block owners are made ‘net of tax’. Once tax has been deducted, the royalty portion is paid to the SML block executives.

“The block executives have agreed an arrangement with LMALA for Newcrest Lihir or LGL to deduct 20 percent portion each month for savings,” says the firm.

“This 20 percent portion is paid into a Financial Savings Scheme now managed by Mineral Resources Lihir Capital Ltd, under an arrangement with LMALA. The remaining 80 percent net of tax is paid directly to the SML block executives to distribute to SML block owners.” 

‘Net of Tax’ refers to a 5 percent royalty tax that has been paid to the Internal Revenue Commission (IRC) since 1997 when the mine began producing gold and paying royalties.   

“Newcrest Lihir contributes to the social and economic progress of Papua New Guinea (PNG), New Ireland Province and Lihir by delivering sustainable and socially responsible outcomes. This means listening to people’s needs, enabling and empowering its employees and the local communities, and protecting the environment through safe, operationally disciplined and efficient practices - all consistent with the Mining Development Contract (MDC). 

“The operation is committed to open and honest communication, in the way it does business, through government reports and other information channels such as fact sheets. 

“Newcrest Lihir honours the MOA and other agreements and complies with all laws of PNG, pays royalties every month and reports this payment to the Mineral Resources Authority (MRA) as well as to other relevant government agencies such as the Internal Revenue Commission. 

“Newcrest Lihir (and Newcrest Mining Limited) promote good governance, transparency and commerciality as part of the company’s social obligation to ensure mine-derived benefits reach all Lihirian people and New Irelanders through various benefit streams including direct cash compensation, employment and training, business spin-off activities, compensation payments, legacy commitments and village development scheme projects.” 

Press release