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Papua New Guinea is set to take control of Barrick Gold’s (TSX: ABX) (NYSE: GOLD) Porgera mine after refusing to extend the company’s lease on environmental and social grounds, Prime Minister James Marape said on Friday.

“In the best interests of the state, especially in lieu of the environmental damages, claims and resettlements issues, the Special Mining Lease will not be renewed,” Marape said.

The decision comes nine months after the mining lease expired. During that time, the world’s second largest gold miner has faced backlash from landowners and residents over what they claim are negative social, environmental and economic impacts from the mine.

Negotiations with Porgera’s operators were complicated further by a split among the landowners.

The manager of Porgera, Barrick Niugini Limited, applied for a permit extension in June 2017 that would have renewed its rights for 20 years and had been engaging with the government on the matter since then, Barrick said in the statement.

In response to a request from Marape, the company proposed in 2019 a benefit-sharing arrangement. The deal would have delivered more than half the economic benefits to PNG stakeholders, including the government, for 20 years, according to Barrick.

Tier One Potential

Barrick’s president and chief executive officer, Mark Bristow, had said last month that Porgera had “tier one potential” but faced many challenges in the form of “legacy issues and an unruly neighbourhood.”

The gold mine, located in PNG’s northern highlands region, is a joint venture between Barrick and Zijin Mining. Each own 47.5% of the mine, with the remaining 5% held by landowner group Mineral Resources Enga.

The government has said it plans to give a portion of Barrick and Zijin’s stakes to the national and provincial governments and to landowners.

“Once the transition phase has been completed, then the state will enter into owning and operating the mine after transition arrangements,” Marape said in a televised speech from the capital Port Moresby.

Porgera contributes to about 10% of the nation’s exports and employs over 3,300 Papua New Guinea nationals.

The open pit and underground gold mine sits at an altitude of 2,200-2,600 metres in Enga province, and is about 600 km northwest of Port Moresby.

“We don’t have many details on the implications of this decision yet, including the timing of transition,” Jackie Przybylowski of BMO Capital Markets said in a research note.

“Barrick has warned that it will pursue all legal avenues to challenge the government’s decision and to recover any damages. We expect that discretionary spending, such as development capex, will be minimized through the current period of uncertainty,” Przybylowski noted.

The mining analyst also said that “while removing Porgera from Barrick’s portfolio would have a negative financial impact, it would improve the ESG performance of the company’s portfolio going forward.”

“On its website, Barrick reports allegations of human rights violations in the region,” she pointed out, “including allegations of ‘extreme’ violence linked to local police forces or private security forces acting on behalf of the joint venture.”

Several other mining companies are waiting on government approval for new projects, including Australia’s Newcrest (ASX: NCM) for its Wafi Golpu gold and copper asset.