Minerals sector enjoys its winnings while industrialised world struggles with debt crises.

Papua New Guinea’s minerals sector has been sitting in a sweet spot in the past year, with prices for major commodities rising while much of the industrialised world is in a debt-induced funk. The gold price has risen from lows of $US1320 an ounce early in 2011 to sit around $US1800 in early 2012. Copper has recovered from lows of $3 per pound in the last quarter of 2011 to around $3.88 per pound in early 2012. The metal, which is a proxy for industrial production levels in China and elsewhere, is off its highs of $US4.50 a pound in early 2011 but is well up on lows of not much more than $US1 per pound three years ago.

Silver prices, at $US34 an ounce, are below the $US48 highs of 2011 but are well above levels of two years ago, and oil prices are also high. That’s all good news for PNG’s economy as mining and petroleum account for 80% of export income and employ around 30,000 people. The latest available figures have gold production at 2.15 million ounces, silver at 2.7 million ounces and copper concentrates at 160,000 tonnes.

Bougainville back?

One issue that has the mining industry talking is the indication from the president of the Autonomous Bougainville Government, John Momis, that the Panguna copper mine on Bougainville might be reopened in two or three years.

‘My view is …, the bulk of the people on Bougainville want the mine to be reopened,’ said Momis in a 2011 interview. ‘We want empowerment. Political power without economic power is nothing. The Bougainville copper mine must open under a new regime.’ He said the Bougainville Government is working with landowners to form an umbrella association to start talks on the mine’s future.

Mining and petroleum account for 80% of export income and employ around 30,000 people

The mine has been mothballed since its closure in 1989 following damage caused during a secessionist uprising; restarting it could cost upwards of $4 billion. But its owners, the Australian-listed Bougainville Copper (BCL, part of Rio Tinto) and the PNG Government, would be well rewarded for the investment as the deposit has a life of some 20 years and has a capacity to produce 180,000 tonnes of copper and 480,000 ounces of gold per year.

In a promising move, BCL’s Managing Director Peter Taylor visited Bougainville in May 2011—the first time a BCL executive has visited the island since the mine closure.

Morobe joint venture

Australia Newcrest Mining has a 50/50 partnership with South Africa’s Harmony Gold over two major mining projects in Morobe Province: Hidden Valley (silver/gold), which commenced operations in September 2010 and Wafi-Golpu (gold/copper). Resource size at the Wafi-Golpu deposit has been boosted, with gold reserves jumping from 16 million ounces to 26 million ounces and copper reserves are up from 4.9 to 9 million tonnes. The mine has a potential life of 30 years, with production expected to start in about five years’ time.

The two companies also have a portfolio of exploration activities together under the Morobe Mining Joint Ventures banner.

Ramu to produce in 2012

The $1.5 billion Ramu nickel and cobalt project in Madang Province will begin production in 2012 after the PNG Supreme Court gave the go-ahead for its planned dumping of tailings into the ocean. The project is expected to yield 31,150 tonnes of nickel and 3300 tonnes of cobalt a year for at least 20 years.

Ramu is 85% owned by the state-owned Metallurgical Corporation of China and consortium partners that plan to use the production to manufacture stainless steel in China. The project is being run by 8.5 % stakeholder Highlands Pacific whose chief executive, John Gooding, says he looks forward to the impact the opening would have on his company and PNG.

He says further exploration of the deposit could extend the life of the mine by 15 to 20 years.

Frieda feasibility

Highlands Pacific, along with Xstrata, is also behind the development of the Frieda prospect, in Sanduan Province, which is one of the Asia Pacific’s largest copper and gold deposits.

Highlands Pacific CEO John Gooding told Business Advantage that the project could be in production by 2017 ‘but that is obviously subject to final feasibility study results’. The study was extended by 11 months last year to look at the possibility of providing power for the mine from nearby natural gas fields.

The study will be completed in 2012 and Highlands will continue exploring the surrounding areas following Xstrata’s recent move to include the Nene deposit in the Frieda joint venture with the payment of $US10.8 million to Highlands Pacific. The company will also boost its exploration in prospective areas in the Star Mountains and ‘hopefully produce results which will illustrate the huge potential of this region to host a porphyry, copper, gold deposit,’ Gooding says. The Star Mountains prospects lie 20 km from the famed Ok Tedi mine.

Another China-PNG partnership

Another exciting development moving towards the production phase is Marengo Mining’s Yandera copper-molybdenum-gold project.

‘We’re looking to complete our feasibility study mid-2012 and we’ll be looking to get the engineering, procurement and construction contract in place towards the end of the year,’ Marengo’s Investor Relations Vice President Dean Richardson told Business Advantage.

Environmental and mining approvals should be in place by the third quarter of 2012 and ‘we’re looking at a two-year construction period, commissioning towards the end of 2015 and production in 2016’, Richardson says. Yandera’s resource estimate was boosted early in 2011 and Richardson says the company completed another 30 km of drilling last year. Yandera hopes to sign agreements in 2012 that will see China Nonferrous finance 70% of development costs, guarantee project construction at a fixed price and take a portion of the output of copper and molybdenum. That will allow Marengo to retain 70% of the project (with 30% going to the PNG Government) without carrying the risk of cost blowouts.

Challenges and breakthroughs

Newcrest, owners of the Lihir gold mine, alerted investors to production cuts early in 2012, saying there were plant problems caused by ‘long term under-investment in fixed plant maintenance’ before its purchase by Newcrest in 2010. Lihir output is expected to be down 60,000 ounces for the rest of the year but production may be disrupted by further maintenance needs. An AUD$1.23 billion upgrade of the Lihir plant is expected to be completed in 2012.

Kula Gold has boosted the reserve estimate at its Woodlark Island prospect, 250 km off the PNG mainland, by 20% to 700,000 ounces.

‘This substantial increase in our proven and probable reserves at a robust gold grade clearly demonstrates the strength and attractive economics of the Woodlark Island project,’ Kula Gold managing director Lee Spencer says. ‘We are confident our existing reserve base will be upgraded (by further development work). Subsequent increases of project ore reserves will further strengthen our project.’

This article first published in Business Advantage Papua New Guinea 2012/13