Ok Tedi Mining has announced strong profits and dividends – important because it accounts for over four per cent of Papua New Guinea’s economy. But the future of the company, which has new shareholders, will depend on finding new reserves beyond the Ok Tedi mine’s projected six-year mine life.

The OTML mine pit on Mount Fubilan, Western Province. Credit: OTML

In some much-needed positive resources news, state-owned Ok Tedi Mining’s (OTML) 2019 annual review announced that its copper production increased by three per cent and gold by nine per cent compared to the previous year.

Ok Tedi generated K3.8 billion (US$1.1 billion) in total sales revenue in 2019, which was 36 per cent higher than in 2018. Moreover, costs were contained ‘within budgeted levels’.

The company thus generated K754 million (US$222 million) in after-tax profit, which was K288 million higher than in 2018. The company paid K400 million in dividends, and ‘contributed 4.1 per cent of PNG’s GDP.’ Its increased overseas revenue also made OTML an even more important supplier of foreign currency into the PNG’s financial system.

The report said the increase in the gold price of nine per cent more than offset the three per cent fall in the copper price last year. (According to Kina Securities, the copper price has fallen by 14.7 per cent so far this year but the gold price has risen by 15.1 per cent.)

The OTML report says the company generated sufficient cash to meet ongoing capital expenditure requirements (costing K140 million), to invest in waste stripping to secure future ore production (K320 million), to fund ongoing exploration costs aimed at extending the mine life (K67 million) and to invest a further K400 million in the Crusher Replacement Project (CRP).

‘The CRP, identified as a value opportunity in the 2016 strategic business plan, is a K800 million project that is due to be commissioned in mid-2020 and will drive the next “golden period” at Ok Tedi in 2022 and beyond,’ the report says.

Revenue and costs

Prime Minister James Marape formally hands over share certificates in OTML to three landowner companies last week, in the presence of OTML Managing Director Peter Graham (second from right). Credit: PM’s Facebook page

The report said the higher revenue was a result of the following factors:

• A 74 per cent reduction in copper concentrate inventory stocks which were ‘abnormally high at the end of 2018 due to the impact of dry weather in the last quarter of 2018’.
• The increase in the gold price, which had a greater effect than the fall in the copper price.
• An adjustment to the value of product sold based on price movements from the time of shipment to the time of finalisation (relating to opening stocks of concentrate inventories held).
• A strengthening of the US dollar against the kina.

Total operating costs in 2019 were K2.74 billion, which was K569 million higher than the previous year. This was partly attributable to ‘an increase in mine production of 17 per cent, additional maintenance expenditure on the mining fleet (which was substantially rebuilt in 2018), increased maintenance expenditure on the ageing processing facility to improve operational reliability, and a 40 per cent increase in exploration costs.’

The report says mine production has increased by 25 per cent in the last two years.

Total awarded contracts to PNG companies were valued at K1.43 billion. Seventy one per cent of the total value of goods and 48 per cent of the service contracts came from PNG businesses.

The future of the mine

OTML’s results follow the recent issuing of 33% of the equity in the company to three landowner companies based in the mine-affected areas of Western Province, Mineral Resources Ok Tedi No.2 (12 per cent equity), Mineral Resources CMCA Holdings (12 per cent) and Mineral Resources Star Mountain (9 per cent). The State will retain 67% of equity in the company.

In granting the free equity, Prime Minister James Marape observed that the landowners ‘have been generous with their approval for mine to continue, despite environmental damages’.

With the Mount Fubilan mine expected to run out of reserves sometime between 2026 and 2028, the ongoing value of OTML to its new shareholders will largely depend on work being conducted to extend the mine life and find new resource.

‘Efforts to identify additional economic resources remain a high priority and our investment in exploration will be maintained,’ says OTML’s Managing Director Peter Graham.

Exploration work is being conducted in multiple locations both within and outside the Ok Tedi mine’s special mining lease area. OTML’s annal review suggest it is making a priority of the ‘Townsville’ gold and copper prospect immediately to the north of the existing lease.