The latest closure of the Ok Tedi mine reminds us that disruptions at major mining operations in Papua New Guinea are nothing new. While the closure is undoubtedly a setback, Business Advantage PNG’s survey of PNG’s other major mines suggests prospects for the mining sector as a whole are more positive.

Ok Tedi Mine. Credit: BAI

PNG’s Treasury Department noted in its July mid-year economic and fiscal outlook: ‘the mining and quarrying sector was anticipated to rebound in 2015 and grow at 10.8 per cent after a disappointing performance of negative 1.9 per cent in 2014.’

The latest temporary closure of the Ok Tedi mine, due to the impact of El Nino weather conditions, is expected to last until at least 2016 and undoubtedly hurts this outlook.

However, as the Treasury Department also forecasted, several mines in PNG have this year returned to normal production, or are ramping up towards peak performance.

Market conditions

While weather conditions are blamed for Ok Tedi’s problems, market conditions have led one of the PNG’s leading operators, Barrick Gold Corp, to shed what it believes are non-core assets in its portfolio. In PNG, this strategy included offloading a 50 percent share in the Porgera mine and a promising exploration project.

The Porgera gold mine in Enga province. Credit: Barrick Gold Corp.

Zijin Mining added to China’s presence in PNG’s mining industry when it bought Barrick’s share in Porgera, which produced about 500,000 ounces in 2014.

In 2015, the project partners expect Porgera to produce 500,000 to 550,000 ounces of gold, at costs of between US$1025 and US$1125 per ounce, for it to remain one of PNG’s leading gold mines.

Barrick also completed a significant deal to sell the Kainantu gold-copper project in Eastern Highlands to Canada’s Otterburn Resources Ltd, through subsidiary K92 Holdings International Ltd, for US$62 million.

Newcrest overcomes setbacks

Newcrest Mining Ltd, which has experienced several disruptions in PNG since acquiring the Lihir mine in 2010, is on track to drive the country’s gold production this year.

At the Australian company’s Hidden Valley joint venture with South Africa’s Harmony Gold, gold and silver mining was suspended after the death of a worker in July.

Despite this disruption, Hidden Valley is now firmly positioned as one of the leading producers of precious metals in PNG with targets of 250,000 ounces of gold and 3 million ounces of silver in 2015.

The Lihir gold mine. Credit: Newcrest

The incident at Hidden Valley occurred a month after Newcrest’s Lihir gold mine was shutdown for 36 hours due to a dispute over a landowner compensation package. Notwithstanding the shutdown, Newcrest reports that output at the Lihir mine will rise in 2015.

Simberi boosts St Barbara

Albeit a smaller operation, the Simberi mine in New Ireland Province is delivering significant production growth since output commenced last year, as planned by owner, St Barbara Ltd.

In the June quarter, output at Simberi moved comfortably beyond the 100,000 ounces per annum rate as production reached 27,000 ounces for the three-month period.

The project has added significant strength to the Australian company’s mine portfolio, a crucial part of its production guidance rising substantially to between 220,000 and 250,000 ounces. It also became a cash flow positive mine in December 2014.

At a corporate level, the company is also seeing benefits, with Standard & Poor’s noting, ‘St Barbara’s improving operating performance has boosted its cash flows and enabled the company to prepay US$54 million of its senior secured notes.’

St Barbara’s share value on the Australian Securities Exchange (ASX) increased significantly during the first half (from 10.5 cents to 57 cents at June 30) on the back of Simberi’s output, with production expected to increase further over the remainder of 2015.

Nickel rising

Meanwhile, production is still rising at PNG’s only nickel and cobalt mine at Ramu, Madang Province, which started production in 2012. In the June quarter, production reached 75% of planned capacity, with full capacity expected to be reached in 2016.

Future projects

World gold prices over the past 30 years.

Despite exploration and development promise, PNG will have to wait some time for any further additions to its mining profile.

The Morobe Mining Joint Venture (MMJV) between Harmony and Newcrest has forecast the Wafi-Golpu gold-copper project will be producing by the end of the decade.

After several delays, Nautilus Minerals has established a development path for the Solwara-1 copper-gold project in 2014, but does not expect it will reach production until about 2018.

Meanwhile, Pan Aust is expecting its US$45 million feasibility study into the promising Frieda River copper-gold project to be released in November 2015.

Beyond the increase in gold production, the industry will also be keenly watching the gold price, which has been trending downwards since peak prices in late 2012 (see chart above).