The active history of foreign investment in the mining industry has
resulted in Australia emerging as a major world producer of a range of
mineral commodities. The current contribution to the national economy
represented by mineral production and export revenues would not have
occurred without both capital and expertise provided by foreign investors
in the past. The initial foreign investment has led to the formation of
Australian majority owned and controlled multi-national mining groups
such as BHP Limited, CRA Limited and MIM Holdings Limited. These
Australian companies, and others, are playing a significant part as foreign
investors in the mining industries of Papua New Guinea (PNG) and
Indonesia. The study examines issues of importance in foreign investment in each
of the countries. It concludes that in Indonesia, the nationalisation of the
Dutch mining industry in 1957 did much to deter foreign investment. The
remarkable degree of policy stability brought about by the Contract of
Works system since 1967 has gone a long way to restoring that
confidence. The level of investment in the Indonesian mining sector is
steadily increasing. Its attraction to Australian investors is a combination
of policy stability, favourable fiscal terms, geological prospectivity for a
range of commodities and proximity to Asian markets to the north. PNG has a stable policy regime which until recently has been free from
political interference at the administrative level. As such, investors were
developing confidence in the system and investment was progressively
increasing as evidenced by growing exploration expenditures up to 1988.
The 1989 Bougainville revolution caused a re-assessment of PNG's
investment and country risk. The recent Mt Kare incident has further
raised concerns over the government's ability to guarantee internal
security. Foreign investors are faced with weighing concerns with the
risks of operation in PNG against the undoubted geological prospectivity
of the country. The fiscal regimes of Australia, Indonesia and PNG were compared by
means of a simulated open pit gold mine in each country. The effect of
taxation is examined by reference to the relative change in project internal
rates of return (IRR). The comparison of the relative differences between
pre-tax and post-tax IRRs provides a measure of the relative
attractiveness of each fiscal regime.