Cyprus to farm in at Frieda River project in PNG

Cyprus Amax Minerals (CYM-N) has entered into a Heads of Agreement with Australia’s Highlands Pacific to acquire a 75% interest in the large Frieda River copper-gold project in the mountains of Papua New Guinea (PNG).

The Colorado-based copper producer has agreed in principle to acquire a controlling interest in the project and become manager of the joint venture.

Cyprus will fund Highlands’ share of the final feasibility study, which is scheduled to be completed by 2000. The 1998 portion of the study — reserve definition drilling and engineering studies — will cost US$7 million.

Cyprus will contribute up to US$32 million for the completion of the feasibility study, and if it likes what it sees, will fund Highlands’ equity interest in the development in the form of a subordinated loan. Cyprus would then receive 75% of the project cash flow after servicing senior project debt. Highlands would receive a 5% net proceeds royalty if the spot price for copper is less than US$1 per lb, increasing on a sliding scale to 8% if copper tops US$1.50 per lb.

The transaction is subject to regulatory approval and preemptive rights held by the minority owner.

Currently, the Frieda River project is 86% controlled by Highlands, with the minority share held by a Japanese consortium, OMRD Frieda.

Frieda is one of the last undeveloped, large tonnage porphyry projects in PNG. It is situated in the northwestern part of the country, northwest of the Ok Tedi mine, a major producer, and northeast of the large Porgera-Mt. Kare deposits.

Mount Isa Mines (which later became Highlands Pacific) picked up the 149-sq.-km exploration license covering Frieda in 1968. Exploration since that time has located a primary porphyry target and a copper-gold skarn target.

Based on data from late 1996, the porphyry target contains a resource of more than 860 million tonnes grading 0.5% copper and 0.3 gram gold per tonne in three deposits: Koki, Ivaal and Horse.

Proven and probable reserves at the Nena skarn deposit comprise 52.8 million tonnes grading 2% copper and 0.7 gram gold, and another 12.8 million tonnes grading 1.4 grams gold and 0.1% copper. These resources were calculated using metal prices of US$375 per oz. gold and US95 cents per lb. copper.

Highlands Managing Director Ian Holzberger says he is excited to have Cyprus as a partner because of its experience in developing large-scale projects such as the US$1-billion El Abra copper mine in Chile.

The prefeasibility study completed by Highlands in 1996 estimates capital costs for Frieda to be in the same ballpark (US$1.1 to US$1.5 billion), a price tag too steep for Highlands alone.

At full production, Frieda could produce as much as 220,000 tonnes of copper and 330,000 oz. gold annually, with a mine life greater than 20 years.

Holzberger said the partnership with Cyprus allows Highlands to focus on development of other projects, including the Ramu nickel-cobalt project, also in PNG. Highlands owns a 65% interest in Ramu, a laterite deposit in Madang province, with the remainder held by Albuquerque, N.M.-based Nord Pacific (NPT-T). Highlands expects to complete a definitive feasibility study on Ramu this year.