Last night, PNG Industry News issued a comprehensive article about PNG Treasury Secretary Simon Tosali. The article conveys that it is very unlikely the PNG government will raise its stake in InterOil's project beyond 22.5%, leaving significant room for a blockbuster deal to be closed with a major for a very large stake in the resource by the beginning of March. Despite the lack of any evidence that the PNG government would increase its stake in the project without providing fair market payment terms, the concern that it would do so has resulted in almost a 30 point decline in the stock price; so this article should further alleviate any concerns and fuel the stock higher. Also, the article exalts the fiscal and legal policies in PNG related to resource projects as well as the way in which the country handles LNG negotiations, a very important consideration when contemplating what the majors are willing to pay for IOC's gas. Here are some of the important quotes from the article. As you'll see, a managing director from Goldman Sachs speaks highly of PNG in the last quote - interesting given that they were a significant shareholder of IOC. The entire piece is available on the PNG Industry News website and is titled "The firm grasp of Tosali".
" Tosali told the Sydney conference that financing of the government's share of resource projects - it can take up to 30% equity in any mining venture or 22.5% in an oil or gas project - has been one of the "most difficult" challenges facing government"
"Tosali disclosed that another option open to the government was to pay for its equity share out of project cash flows, which had been done in the past, but this option was one generally opposed by project developers facing the burden of high development costs."
"PNG needed high levels of investment for roads and other infrastructure but it needed to remain "fiscally responsible" with a need for "a balanced approach", Tosali reiterated, without any particular reference to the 2013 budget he played a key role in drafting."
"What the PNG government and its partners in the $US19 billion PNG LNG project had shown was that the legal work needed to be done once and done right; it also set firm targets and handled the LNG negotiations with "military precision", said Peter Field, executive director for portfolio management at the Australian government-owned Export Finance and Insurance Corporation (EFIC)."
"The $US14 billion debt component the partners raised was "a great compliment to PNG", he said."
"Investment banker Anthony Miller, managing director of Goldman Sachs, said PNG presented a contrast in terms of fiscal and legal regulations as compared with Australia. He believed "Australia should feel humble" in seeing the manner and efficacy with which the PNG government handles its resource projects."
Sentiment: Strong Buy