The Chief Executive of Papua New Guinea’s Ok Tedi mine, Peter Graham, tells Business Advantage PNG that the company is now in the top quartile of global copper producers. He says revised company estimates indicate the mine—for many years one of PNG’s major sources of foreign exchange—should have a longer life.

Ok Tedi Mining’s Peter Graham

The company responsible for PNG’s largest operational mine is considering the mine’s future.

In a presentation to the PNG Mining and Petroleum Investment Conference, Ok Tedi Mining’s Graham said 600 scenarios for the copper mine were analysed.

From this, a ‘base’ case, ‘target’ case and a number of ‘optimistic’ cases were developed.

He said the ‘base’ case—which does not provide for any significant capital expenditure—is the highest confidence case:”essentially a run-out of probable reserves’.

The ‘target’ case represents the ‘intended outcome of the strategy’, while the optimistic case ‘provides insight into the full potential of the operations including additional ore resources in exploration and development programs.’

The company’s previous base case predicted that operations would continue to 2024, while the target case anticipated the mine life would be extended to 2030.

‘Commodity prices were also declining, threatening ongoing profitability.’

Graham says the company is now ‘looking to make the target case the base case and, in so doing, making the optimistic case a target case.’ If achieved, this will mean the mine life will be extended to 2030—far beyond previous expectations.

Graham added that the revised base case ‘will increase the net present value of the mine by about 40 per cent,’ while the revised target case potentially represents ‘a doubling of the value of the business.’

Shutdown

Graham says he faced some daunting challenges almost immediately when he became CEO. ‘I had been on the site for only six weeks when it became clear we would face a temporary shutdown of operations due to dry weather with loss of hydro power and riverine transport of concentrate out and supplies in.

‘Commodity prices were also declining, threatening ongoing profitability.

‘Graham says the first challenge was the relocation of more than 2000 families.’

‘Ok Tedi has a strong management team, a responsible workforce, and a supportive community and shareholders which helped us systematically identify what needed to be done to deal with the immediate crises and then recognise that adversity also presented opportunities.’

Challenges

The Ok Tedi mine. Credit: PNGSDP

Graham says the first challenge was the relocation of more than 2000 families from Tabubil and Kiunga to home villages. ‘Uncertainty made this a stressful exercise for all.’

Another priority was to reduce the cash outflow. ‘The company met with suppliers and customers to negotiate suspension of contracts.

‘We also met with community leaders, local businesses, schools and churches to prepare them for the impact of suspension of operations.

‘To retain our workforce and help sustain their families, workers were offered an allowance of 30 per cent of normal wages.

‘Ultimately, about 750 employees were retrenched (about one-third of the workforce) and plans were developed to move from a residential to FIFO [fly in, fly out] operation and different work rosters.’

Projects

Several large, high value projects were identified as potentially able to be completed, thus avoiding a planned partial shutdown of operations for several months in 2017 and enhancing operational reliability.

‘We were fortunate to be able to progressively move these major components up the Fly River as storms provided temporary flows.’

‘Ok Tedi is now hitting its strides and has restored profitability.’

Graham explained that Western Province communities also suffered during the dry weather period. ‘No royalties were paid, income for local businesses dried up, and schooling was disrupted. In many areas, there was a food crisis and Ok Tedi responded by donating K5 million to purchase and deliver rice to communities throughout the province.’

A more competitive business

Graham tells Business Advantage PNG that Ok Tedi is now ‘hitting its strides’ and has restored profitability. He describes Ok Tedi as a ‘proudly a PNG-owned company’.

He confirms the company’s unit cash operating costs are now in the best quartile of international copper producers. ‘Ok Tedi is now a more competitive business, again debt-free, and much stronger and able to deal with a low commodity price environment.

As a mature and historically profitable business, Graham says Ok Tedi had accumulated some practices and benefits that were uncompetitive. ‘We are more conscious of our competitors and will continuously improve. We have to continually strive to be a safe, reliable, productive and low-cost operation.’

‘Graham describes Ok Tedi as a “proudly a PNG-owned company”.’

Graham recognises the importance of visible leadership and open communication. When operations resumed in March 2016, Graham and his management team met with every employee to discuss the company vision and what he describes as the ‘Ok Tedi Way’—values, goals and objectives and expectations.

‘If people believe that you care for them, if they understand what needs to be done and why certain things are important to the business, they are more likely to respond positively.’ At the same time, Graham does not tolerate non-performers. ‘We all have different talents, but I expect every employee to give their best every day.’