Why Production Sharing Never Works
Production sharing contracts have always been specific to oil and gas and therefore never works in the mining sector. This, according to the CEO of Global Miner, Barrick Gold, who added that the highest risk in gas and oil is exploration and once you put it in infrastructure, you just pump forever.
“This is where production sharing is a classic example, whereas mining, mines don’t have the lives of gas fields and the real risk is the construction risk where all the money goes. “You spend 100 million dollars developing feasibility in a mine and spend billions of dollars in building it".
The more than 30-year old in the mining industry said the viability in the sectors in gas and oil where these work have also taken a hit, especially during this health crisis.
Mr. Bristow added that some countries also introduced product sharing contracts - but to liabilities. This was also relayed by John Chambers General Manager of Santos PNG during a webinar when looking at the proposed scheme to this sector.
“It is not that production sharing contracts won’t work - it is just that sometimes it gets complicated. It works on oil and gas because they have a huge capital on a big upstream income while in a mining project, it has an ongoing rolling capital,” he said. “When you work in the mining industry, you keep putting money so the huge share goes to the contractors and investors.”
The government stressed how important this really is for all to benefit, but has given a new direction to veer away from the operated system of concessional licensing. This is where 100 per cent of the government’s natural resources are transferred to developers where they grant the government a 22.5 per cent for the petroleum space and a 30 per cent option in mining.