MAC: Mines and Communities

South Africans, Canadians Leading PNG Mining Expansion

Published by MAC on 2005-04-03

South Africans, Canadians Leading PNG Mining Expansion

By James Attwood, Dow Jones

3rd April 2005

South African, Canadian and U.K. companies are overshadowing their Australian counterparts in a new wave of mining projects moving ahead in Papua New Guinea.

In the wake of environmental and bureaucratic disasters surrounding Ok Tedi and other mines in PNG, authorities have made significant headway in recent years to attract exploration and development dollars back into the tiny economy.

The number of new exploration applications has grown from just five in 2002 to 45 last year, with the PNG Chamber of Mines & Petroleum expecting a similar number this year.

Exploration investment on new tenements has also risen sharply in the last three years, with this year's figure on track to exceed last year's US$24 million.

For South African miners, PNG's well-known geological potential and improving regulatory and law and order environment offer a way to diversify away from the strengthening rand and rising costs at home.

Harmony Gold Mining Co. Ltd. for example is preparing to start work on a 300,000 ounce a year open pit at its Hidden Valley project, just as 21,000 of its workers back home down tools in protest over cost cutting measures.

In the same tectonically active New Guinea Mobile Belt, Harmony's Wafi and Golpu projects are the subject of a pre-feasibility study.

The same belt also hosts world-class gold-copper deposits Ok Tedi and Porgera, and the underground vein gold deposits of Kainantu and Tolukuma.

Another company picking up ground in central PNG of late is London-listed Triple Plate Junction PLC.

The dotcomer-turned-gold junior has started drilling the Nevera prospect in the Crater Mountain joint venture and is looking at other prospects in PNG's New Ireland region to complement its activities in Vietnam.

Majors Also Zeroing In

The majors are also showing interest. According to Chamber of Mines Executive Director Greg Anderson two large companies have had PNG under the microscope for two to three years.

He said at least one is expected to move on joint venture exploration and development projects this year, joining Canadian heavyweights Noranda Inc. and Placer Dome Inc. in the country.

A handful of Australian companies are also active in existing and developing mines in the country: namely Lihir Gold Ltd. and Highlands Pacific Ltd.

However Australia's involvement in the current batch of new projects is low, considering the country's proximity and its advanced mining sector, analysts say.

"One of the reasons PNG has been starved of exploration investment over the past few years is Australia's view of risk," said David Haughton, Executive Director of Sydney-based firm Global Mining Research.

"Now the South Africans and other groups are perceiving it as less risky relative to other areas around the world, including their own - it's all about relative risk," he said.

"But to a degree Australians are being left behind in a relatively unexplored country with plenty of prospects for very significant discoveries," Haughton said.

"I can see quite a bit more activity being undertaken over the next few years."

Outdated Risk Perceptions Blamed

Anderson attributes Australian companies' reluctance to even look at opportunities in PNG to exaggerated media portrayals of the country's law and order issues.

The 1989 closure of Rio Tinto Plc.'s (RTP) giant Panguna copper mine in Bougainville due to attacks from secessionist rebels still looms large in the memory of many in the Australian industry.

"That's why we're targeting Canada since they have a much more cosmopolitan viewpoint than we get from Australia," Anderson said. "It's disappointing because Australia is our nearest neighbor and is supposed to be knowledgeable about PNG."

"When we actually get people to come and have a look they find what they've heard is grossly distorted," he said, giving the example of Perth-based junior Marengo Mining Ltd., which has just applied for first tenements.

On Tuesday Marengo unveiled a portfolio of copper and gold projects in PNG "amidst a growing revival of interest in new mining and exploration projects in that country."

Another would-be Australian miner in PNG is Allied Gold Ltd., which is looking to build a A$35 million gold mine and processing plant on Tabar Islands.

A development decision is targeted for midyear, with a view to commissioning around June next year, Managing Director Jeffrey Moore said.

Phase One is envisaged as a 60,000 ounce a year sulfide operation on Siberi Island, just 60 kilometers from the Lihir gold mine. But subsequent oxide mining and expected new finds "would turn it into the multimillion ounce project we think it can be," he said.

Allied is focussing exclusively on the Tabar Islands after years of wrangling to secure 100% ownership of the project.

Moore said the company feels comfortable in PNG as the government "heads in a very encouraging direction" after the mistakes of the past and implementing, for example, appropriate repatriation of royalties to landholders.

"The days of Ok Tedi- or Bougainville-size discoveries may be gone but this is the next wave of mining projects and the government is very keen for projects even of this size to be developed," he said.

But Some Thorny Issues Persist

While the government has improved the country's appeal to international miners via reforms to the tax and mining acts, and by its willingness to negotiate one-on-one incentives with would-be investors, some regulatory thorns persist.

Namely, the state has the right to take up to 30% equity in exploration projects by paying the commensurate portion of expenses - a right unlikely to be conceded in the foreseeable future given the nationalistic overtones surrounding it.

Then there are labor laws that create difficulties to secure high quality expatriate labor, an important factor when kicking off new projects.

In addition, the struggle continues for sustainable use of mining revenues by local communities and authorities, while the old skeletons of environmental concerns and landholder clashes still rattle from time to time.

But the new batch of projects and renewed exploration interest means PNG is well on the way to offsetting the effects of scheduled mine closures in coming years and regaining its mining momentum, Anderson said.

And the heady days of major new projects may not be too far away, he said, given China Metallurgical Construction Corp.'s possible entry into the long-delayed Ramu nickel project and the cheap power that would result from a proposed gas pipeline to Australia.

-By James Attwood, Dow Jones Newswires

-Edited by Ian Pemberton

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