It’s been an ‘momentous’ year for Ok Tedi Mining Limited, according its CEO, Nigel Parker. Business Advantage PNG’s Andrew Wilkins spoke to him about a tough year for Papua New Guinea’s largest mine – and its likely future.

Ok Tedi Mining’s Nigel Parker

In something of understatement, Nigel Parker describes 2013 as the most ‘interesting’ of the seven years he has spent with Ok Tedi Mining Limited (OTML), the company that runs the massive Ok Tedi mine in Papua New Guinea’s Western Province.

Price falls

First of all, the global prices for the copper, gold and silver the mine produces has fallen dramatically this year.

‘It’s just like riding a tiger,’ he observes. ‘World metal prices have been all over the place since March this year. Our budgeted copper price was $3.50 a pound this year, but the copper price has been US$3.00 to US$3.20 a pound. Our budgeted gold price was US$1650 an ounce, and it’s languishing between US$1300 to US$1350, while our silver budget was US$32.00 an ounce and that’s been languishing between US$18 and US$22.

‘The difference between what we budgeted for and what we’ve been achieving has had a big cash impact going straight through the business.’

Operational issues

Global factors aside, the mine has also been faced with major operational issues that have slowed production.

‘One of our processing mills split its ends back in May, so we lost two months while that was all re-welded and re-set up. This pushed us into our low-grade stockpiles of ore and that impacted output as well, big time … Our primary crusher had an unscheduled re-build too and that took us another month.’

Then there has been the rain. High rainfall at Tabubil, where the mine is situated, is not unusual—it averages between ten and 11 metres a year—but Parker describes this year’s rainfall as ‘extraordinary’. The mine suffered landslides and a bridge collapse, while its hydro power plant is still undergoing rehabilitation.

‘Our job is to run this business, and keep it operating. Whatever the shareholders do, the shareholders do.’

The weather affected the mine in another way too. Ok Tedi’s largest customer, the Philippine Associated Smelting and Refining Corporation (PASAR), suffered heavy structural damage in Super Typhoon Haiyan and is out of action, leaving one of OTML’s ships unable to unload its cargo.

‘It’s been quite a momentous year!’ admits Parker.

State takeover

The other major issue for OTML has been its effective nationalisation, an event Parker says hasn’t actually had an impact on business:

‘The Prime Minister has made a consistent commentary that the mine will be independently managed with an independent board. We still haven’t got a full independent Board in place yet, and that will take some time.

‘From management’s point of view, that’s a shareholder matter and that’s the approach we’ve taken all through this year. Our job is to run this business, and keep it operating. Whatever the shareholders do, the shareholders do.’

Extending the life of the Ok Tedi mine

The Ok Tedi mine. Credit: PNGSDP

Twelve months ago, Parker had just completed an exhaustive schedule of community meetings to get up the landowners’ agreements to extending the mine’s life. Twelve months on, is the extension still moving ahead?

‘We submitted a Change Notice to the State in September 2012, saying we wanted to continue mining … but we needed to change essentially two things—widen the pit shell and change the way we discharge the waste,’ says Parker.

‘The Department of the Environment wanted a third party consultant to have a look at the environmental aspects of the feasibility study. That study has now just been completed. We think that we’ll get the final clearance early in the new year, which will extend the mine life up to 2025.’

As part of the changes, OTML’s controversial disposal of mine tailings into the Ok Tedi River may end.

‘Within two years, we’ll know whether or not we’ve got an engineered solution for a tailing storage facility,’ says Parker. ‘There is still a lot of work to be done on that, but we’re well advanced in our initial positioning on it.’

Down-sizing

Meanwhile, the mine is undergoing a transition to a smaller operation that has been years in the planning, with its original ore reserves in decline. In 2010, the mine produced 160,000 tonnes of copper; this year 100,000.

‘We’ll be producing about two-thirds of what our traditional output’s been, which means we have to adjust our cost structures to match,’ Parker explains.

To save money on vessel charter costs, OTML is having four cargo boats built to ship ore. It has also decided to start owning and maintaining its own mining and exploration equipment from mid-2014.

Reducing the cost of the mine’s workforce is the next task.

While some jobs will the lost, Parker says ‘it’s not just the actual labour cost itself, it’s all about rosters, accommodation, terms and conditions … we’re taking a holistic view on our workforce costs.’

‘We’re only looking at about a 12% reduction in the workforce, but cost-wise it’s about 33%.’

Another casualty has been OTML’s exploration program, which has been cut back significantly to focus just on areas within the mine lease.

‘Strangely enough, we’re falling over small pockets of ore that were not in our resource statement,’ says Parker. ‘We’re actively engaged in exploring near-mine, as we call it … It’s a highly prospective area.’

More uncertainty to come?

So, does Parker foresee more riding of tigers over the coming year?

‘We’re just in the process of doing our budget for the next three years. We’re settling on copper at US$3.00 a pound, gold at US$1300 an ounce and silver at US$20 an ounce. The treatment and refining contracts [with metal smelters], of course, are a big unknown at this point.’

For all 2013’s challenges and the uncertainty ahead, Parker feels OTML is still well-placed:

‘Unlike other mining companies, Ok Tedi has no balance sheet debt. We have no leasing commitments. We don’t hedge our product. We’re not beholden to anybody, except the board and shareholders. So that puts us in quite a unique situation.

‘That being said, of course you still have to manage the cash in these tough times.’

Andrew Wilkins is Publishing Director at Business Advantage International.