PNG Tax Dispute Puts St Barbara’s Simberi Mine Financials Under Pressure

Background to the Dispute

St Barbara Limited’s subsidiary, Simberi Gold, has lodged a formal objection against a substantial tax assessment issued by the Papua New Guinea Internal Revenue Commission (IRC). The contested assessment totals PGK456.1 million (approximately AUD 179 million), comprising additional income tax, penalties, and deemed withholding tax (DWT) related to revisions of Allowable Capital Expenditure (ACE) and capital distributions over the 2017 to 2021 period.

The dispute follows earlier ASX announcements in December 2024, with Simberi Gold rejecting the IRC’s application of tax legislation and arguing that the assessments contain multiple calculation errors and misinterpretations of the PNG Income Tax Act.

Key Points of Contention

Simberi Gold has identified errors totaling PGK64 million in the IRC’s ACE deduction calculations, including the omission of pre-production capital, incorrect attribution of carry-forward ACE to loss-making years, and erroneous reclassification of short-life ACE to long-life ACE. These errors have inflated the tax and penalty figures significantly.

After adjusting for these errors, the company states that only PGK88.1 million remains in dispute regarding the IRC’s contention over accelerated ACE deductions under section 155E(4) of the PNG Income Tax Act. This section relates to the anticipated completion of the oxide mine life within four years, a point Simberi Gold argues is supported by operational realities and public disclosures.

Additionally, the IRC’s assessment of deemed withholding tax on capital distributions is challenged. Simberi Gold contends that the IRC incorrectly applied DWT to adjusted taxable income rather than the disputed capital distribution amount, resulting in an overstatement of PGK35.9 million. The company maintains there is no legal basis for taxing profits as dividends in years where accumulated losses exist.

Government and Regulatory Support

St Barbara acknowledges the support from key PNG government bodies, including the Office of the Prime Minister, Mineral Resources Authority, Kumul Minerals Holdings Limited, and the PNG Chamber of Resources and Energy. The Australian High Commission to PNG has also been involved, underscoring the diplomatic sensitivity and importance of resolving the matter swiftly.

The IRC Commissioner has assured that Simberi Gold’s objection will be reviewed independently of the audit team that conducted the initial assessment, addressing concerns about potential conflicts of interest, given the lead audit officer’s prior employment with St Barbara.

Management’s Perspective

CEO Andrew Strelein emphasized that St Barbara and Simberi Gold have made full and transparent disclosures, strongly rejecting any implication of tax evasion or fraud. He highlighted the operational constraints at the Simberi Mine, noting that the current processing facility cannot treat sulphide ore without new investment and permits, which supports the company’s position on the appropriate mine life for ACE claims.

Strelein also expressed reassurance at the alignment between PNG government entities and St Barbara on the urgency of clarifying the tax dispute, particularly given the uncertainty and reputational impact caused by the IRC’s initial announcement.

Next Steps and Market Implications

The objection is now under formal consideration by the IRC Commissioner, with a response expected in due course. The outcome will be closely watched by investors, as it carries significant financial implications for St Barbara and could influence perceptions of regulatory risk in PNG’s mining sector.

While the company remains committed to resolving the dispute amicably, the complexity of the tax issues and the substantial sums involved suggest a potentially protracted process. Market participants will be monitoring developments for any signs of escalation or resolution.