Finding the positives in PNG

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 30 Nov 2015   Posted by admin


By Courtney Pearson

IN the wake of tough market conditions, few other countries have experienced such a roller coaster in minerals exploration as Papua New Guinea (PNG).

Mining is an integral part of PNG’s economy, driving growth and services through mineral export revenues.

Reflecting the worldwide downturn in mining, the PNG Government’s latest budget figures revealed that revenue from the country’s mining and petroleum tax fell from about PGK1.7 billion to PGK300 million. The 2015 supplementary budget included a 12 per cent fall in revenue.

PNG Treasury minister Patrick Pruaitch said that “sharply lower commodity prices” had forced the government to adopt prudent fiscal policies to safeguard the country’s growth record and prospects.

The PNG Government’s 2016 national budget theme is “Supporting Economic Growth through Fiscal Discipline”.

“These are challenging times not only for PNG, but for many economies around the world,” Mr Pruaitch said.

“The 2016 Budget has been framed amidst a weak global economy, relatively slower economic growth that has been constrained by the current El Nino drought, and low commodity prices.”

The drought caused a number of mines – including the massive Ok Tedi mine and Barrick Gold’s Porgera mine – to suspend or slow down operations. .

However, the PNG Chamber of Mines and Petroleum stated that the minerals sector was showing resilience in a period of consolidation.

“In contrast to the period prior to the recent decade-long boom, the PNG resources sector is exhibiting remarkable resilience with an optimistic outlook for the future if the government does not suddenly change the ground rules and create disincentives for new investments,” it stated.

Despite predictions in 2002 that the minerals sector would fade within the decade after the end of Ok Tedi’s and Porgera’s mine life, the two mines have defied the naysayers. The drought, however, will determine when production restarts.

The Ok Tedi mine has been suspended until weather conditions improve.

The Ok Tedi mine has been suspended until weather conditions improve.

Major players

Ok Tedi

State-owned company Ok Tedi Mining operates the open-pit copper, gold and silver mine in the Star Mountains in the Western Province.

The mine produces about 78,000t of ore and 80,000t of overburden each day, operating 24 hours a day, seven days a week. Each year, , Ok Tedi mines about 70 million tonnes of ore and waste material from the Mt Fubilan deposit.

The miner announced in August 2015 that it was suspending operations temporarily due to continuing dry weather and low water levels in the Fly River.

“The limitation imposed on river traffic resulting from the lack of rainfall in key catchment areas prevents the company from being able to ship concentrate production and therefore generate revenue,” Ok Tedi Mining stated.

“The company is also unable to reliably bring in food, fuel and other essential supplies.”

Nearly all the company’s employees were stood down with an allowance to help meet basic needs, with the remainder of the staff retained on site for care and maintenance of the facilities.

Ok Tedi Mining stated had not indicated how long the suspension would be in effect;Ok Tedi Mining managing director and chief executive Peter Graham said the company was monitoring key weather indicators closely.

“Presently, the expectation is that dry weather will continue into early 2016,” he said. “Though it is difficult to be certain with the timing of recommencement, we are considering an option where we may commence calling some employees back in February or March with a view to ramping to full production in April.

“This is, of course, dependent on the resumption of regular and reliable rainfall.”

Porgera

The Porgera open pit and underground gold mine in the Enga Province is about 130km west of Mount Hagen and 600km north-west of Port Moresby.

In the third quarter of 2015 the mine produced 134,000oz of gold, and by the end of the 2015 calendar year, Barrick Gold expected to produce between 400,000oz and 450,000oz of gold.

At the end of 2014, the company had 3 million ounces of proven and probable gold reserves and 4.1moz of measured and indicated gold resources at Porgera.

Barrick Gold originally owned 95 per cent of the Porgera project in joint venture with Mineral Resources Enga (5 per cent), however in June 2015 it sold half of its share to Chinese company Zijin Mining.

“A twenty-first century mining company with global reach and the intention to become an industry leader must, by definition, have a distinctive relationship with China,” Barrick Gold chairman John L Thornton said.

“This is particularly true in our industry, where China has become both the largest producer and consumer of gold, and a major source of capital and expertise for the mines of the future.”

The sale of the mine was part of Barrick Gold’s strategy to strengthen its balance sheet; it  used the profits from the transaction to pay debt.

At the end of October, Porgera mine was partially shut down for 16 days to save water; operations then resumed at the milling and processing plants.

“Recent drought conditions are not expected to have a material impact on production in 2015,” the company said in its third quarter results.

“We expect to increase our exploration budget at Porgera in 2016 to focus on underground targets which have been identified through a new geological model.”

The Porgera mine employs more than 2500 PNG residents.

Hidden Valley

Newcrest Mining has a strong presence in PNG, with the Hidden Valley and Lihir operations.

Hidden Valley is an open pit gold and silver mine comprising the Hidden Valley, Kaveroi and Hamata lodes.

In the 2015 financial year the mine produced 189,202oz of gold and about 1.78moz of silver.

At the end of November Newcrest revealed that the mine was “unprofitable and free cash flow [was] negative in the past financial year”.

As a result, the company deferred the next open pit waste stripping program.

In recent years the  Hidden Valley mine has been overshadowed by several fatal incidents. In July 2014 an employee was fatally injured in a road incident, temporarily suspending operations. A fatality was also recorded in December 2014.

“Newcrest considers any fatality to be unacceptable and is deeply concerned about there having been two fatalities in the last twelve months at Hidden Valley,” the company said in its June 2015 quarterly results.

Newcrest reported that it completed a major review of critical controls on high risk tasks following the fatalities.

Hidden Valley is an equal joint venture between Newcrest and Harmony Gold.

A gold pour at Newcrest Mining’s Lihir mine.

A gold pour at Newcrest Mining’s Lihir mine.

Lihir

Newcrest’s Lihir mine, on Aniolam Island 900km north-west of Port Moresby, is one of the largest gold mines in PNG. Gold mineralisation was discovered at Lihir in 1982; the mine has changed hands a number of times and was picked up by Newcrest in 2010.

In 2014 the mine produced more than 688,000oz of gold. Since production began in 1997 the mine has yielded more than 9moz of gold.

The deposit is within the Luise Caldera, an extinct volcanic crater that is geothermally active, and “one of the largest known gold deposits in the world”, Newcrest stated.

In June last year, operations at the mine were shut down for 36 hours after locals placed taboo ginger plants in the mining and processing areas to demonstrate a protest and call for talks with Newcrest.

It was understood that the local community were concerned about their benefits package and the mine development activities.

“On 14 May 2015, all parties agreed to an audit process, led and co-ordinated by the MRA [Mineral Resource Authority], including a review of commercial engagement processes and benefit allocation associated with landowner commercial activity,” Newcrest said in a statement.

“Newcrest is committed to working with landowners and all levels of government to create that outcome.”

Production guidance was unaffected for the 2015 financial year, which is between 770,000oz and 850,000oz. Lihir has an expected mine life of about 30 years.

Newcrest’s Golpu mine plan.

Newcrest’s Golpu mine plan.

Wafi-Golpu

The advanced Wafi-Golpu exploration project in the Morobe Province is an equal joint venture between Newcrest and Harmony Gold.

Wafi-Golpu includes the Golpu copper-gold porphyry deposit, the Nambonga copper-gold porphyry deposit and the Wafi high sulfidation epithermal gold deposit. The project has a gold resource of 20moz.

Newcrest described the project as an “exciting development option for PNG” with a world class copper-gold deposit. Once developed, it  would be PNG’s first large underground mine.

In December 2014 the joint venture approved a first stage feasibility study, following the successful 2012 pre-feasibility study.

Stage one was expected to cost US$2.3 billion, and would target the higher value portion of the ore body through two block caves. Annual production would peak in 2025 at 320,000oz of gold and 150,000t of copper.

Production was expected to begin in 2020 with a mine life of 27 years.

The stage one feasibility study and the updated pre-feasibility study for stage two were scheduled to be complete at the end of 2015.

The future

Despite unfavourable mining conditions, petroleum continues to be PNG’s saving grace.

The PNG LNG project began production in April 2014 and delivered its first cargo of LNG a month later.

The project comprises gas production and processing facilities in the Southern Highlands, Hela, Western, Gulf and Central Provinces of PNG. Liquefaction and storage facilities near Port Moresby have a capacity of 6.9mtpa.

PNG LNG is operated by ExxonMobil in a joint venture with Oil Search, the National Petroleum Company of LNG, Santos, Nippon Oil and the Mineral Resources Development Company.

While the current environment is unfavourable for mineral producers, the government is optimistic for the future and a turnaround in the market.

Mr Pruaitch said he was hopeful for the next year, with economic growth predicted.

“In 2016, PNG’s economic growth is projected to return to grow at 4.3 per cent, with some stimulus expected from agriculture, forestry and fisheries,” he said.

“A rebound will occur in the mining sector when Ok Tedi resumes operations when the drought ends in 2016.”