Papua New Guinean authorities have shut down a Chinese-owned nickel processing plant for breaching safety and mining laws, after the operator spilled tens of thousands of litres of toxic slurry into a bay in August.

Key points: The plant will remain closed until the Chinese operator fixes several issues

The plant will remain closed until the Chinese operator fixes several issues It spilled around 80,000 litres of slurry, turning the bay bright red

It spilled around 80,000 litres of slurry, turning the bay bright red Tests on the environmental damage have given mixed results

PNG's Mineral Resources Authority (MRA) chose to take punitive action against the Ramu Nico plant, which is majority owned by the Metallurgical Corporation of China (MCC), after it failed to fix problems the authority identified while investigating the spill.

These included incompetency among operators at the plant in PNG's Madang province, problems with the spillage containment system, and inadequate equipment maintenance.

The authority said the processing facility would not be permitted to reopen until these issues were fixed — effectively halting all of Ramu Nico's mining operations for the time being.

"They were given sixteen recommendations to rectify, and apparently six weeks down the line, we found that the operator has failed," MRA managing director Jerry Garry said.

Two reports into the environmental impact of the spill have turned up conflicting results. ( Supplied: Nigel Uyam )

On August 24, a pump failure at the mine's Basamuk Bay processing plant saw about 200,000 litres of toxic slurry spill out, with up to 80,000 litres making its way into the ocean — turning the water bright red, and staining the nearby shoreline.

While local officials have banned the sale of fish caught in the province following the spill, investigations into the resulting environmental damage have turned back markedly different results.

One scientific report commissioned by the provincial government said there was evidence of widespread contamination, however PNG's environmental authority has said it found heavy metal contamination was within acceptable levels.

'They didn't think of our lives'

A spokesman for the nickel mine's Chinese operator confirmed the shutdown order, and said the company was considering its legal options, Reuters reported.

Ramu Nico has previously apologised for the slurry spill, but has denied it caused any serious environmental damage.

The Ramu Nico mining operation has been subject to several controversies over the years. ( Facebook: Kessy Sawang, file )

While local villagers were happy to hear of the Ramu Nico closure, they told the ABC's Pacific Beat program they didn't think it went far enough, and called on the PNG Government to slap heavy penalties on the company.

Louis Medaing, whose village is near the nickel processing plant, said the facility should have been closed straight after the spill, which some in the community have linked to health problems and fish kills.

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"They didn't think of our lives, the Government has now realised and ordered the mine to be closed," he said.

"That refinery must not open until everything is sorted out, everything is settled."

The temporary closure is the latest in a string of controversies for the $2 billion Ramu Nico mining operation, which was China's first major resource project in Papua New Guinea when it opened in 2012.

Landowners had fought a legal battle to prevent the mine from disposing of its tailings in the ocean via a deep-sea pipeline, however this failed in the courts in 2010.

Plaintiffs in the case chose to fire their lawyer and abandon proceedings, a decision National Court Justice David Cannings said was "to a degree, suspicious".

He said "reasonable people" would question whether the plaintiffs had been intimidated, threatened or paid off.

There have also been fights between local staff and Chinese workers in the past, as well as attacks on the facilities, earlier slurry leaks, and one fatal workplace accident in 2016 that saw the mine temporarily closed.