EXPLORATION 1997 — PNG promotes the development of small mines

The mining industry in Papua New Guinea (PNG) is dominated by world-class deposits, mainly because the significant political risk and lack of infrastructure there have shaped the industry so that only large deposits stand the chance of being developed. Virtually no medium-sized deposits exist.

Lately, however, the PNG government has made a concerted effort to promote the development of smaller and medium-sized deposits, and several Australian companies have stepped forward to meet the challenge.

The re-emergence of medium-sized gold mines was signalled a year ago by the startup of Dome Resources’ Tolukuma operation.

Situated in the rugged Goilala area, 100 km north of Port Moresby in PNG’s central province, the mine is expected to produce more than 50,000 oz. gold this year.

Meanwhile, on Fergusson Island in the Milne Bay province, Union Mining and Macmin are operating the Wapolu gold mine as a 51-49 joint venture.

Construction began in 1995 and, with reserves estimated at 2 million tonnes grading 2.4 grams per tonne, the mine is expected to produce 1.1 million grams (34,000 oz.) in 1997. Moreover, significant refractory sulphide material beneath the main pit may provide ore for the future.

In the same province, on Woodlark Island, Auridiam Consolidated is earning a 100% interest in the Woodlark project, which contains an estimated 6.3 million tonnes of 1.7 grams gold, equivalent to 10.7 million grams (344,000 oz.). Development is expected to get under way this year.

In the Tabar Islands of the New Ireland province, American-listed Nord Pacific (NORFY-Q) is proving up reserves on its Simberi project. So far, the company has outlined minable oxide reserves totalling 4.4 million tonnes grading 1.5 grams, equivalent to 6.6 million grams (217,000 oz.).

Nord was granted a mining lease for the project in December 1996 and had hoped to begin construction this year, but the company decided to delay work pending receipt of additional environmental permits and stronger gold prices.

President Pierce Carson says Nord will continue to prove up additional oxide reserves in 1997, as well as evaluate the sulphide potential beneath the oxide cap.

Carson describes Simberi Island as a direct analog to the multi-million-ounce deposit on Lihir Island, 80 km to the east, and believes the chances for a discovery are therefore excellent.

On the eastern side of New Britain island, Macmin is earning a 90% interest in the Mt. Sinivit gold project (formerly known as Wild Dog). In February 1996, the company obtained a mining lease, and production is slated for the second quarter of 1997. The deposit contains minable reserves of 306,000 tonnes grading 4 grams per tonne, and is expected to produce 404,340 grams (13,000 oz.) per year. Macmin’s sister company, Vancouver-based New Guinea Gold (NGG-V), can acquire a 25% interest in this and several other PNG projects, plus a 70% equity interest in the best project.

These operations, while small even by North American standards, are expected to provide jobs and generate much-needed revenue for the government. They will also help bring about the government’s goal of decentralizing of industry by providing remote areas with roads, power lines and other infrastructure.

Big mines are king

Despite the proliferation of smaller mine projects, large operations still contribute substantially to PNG’s economy.

According to the Bank of PNG and the PNG National Statistics Office, mineral and petroleum exports accounted for 71.6% of the total exports in 1995.

Mining and petroleum are also primary contributors to the gross domestic product.

The Ok Tedi copper deposit in the Highlands accounted for 28% (more than US$700 million) of PNG’s total export earnings in 1995.

The largest development project is on Lihir island, where Lihir Gold (LIHRY-Q) is spending US$780 million to construct an open-pit mine, processing plant, wharf, housing, and airstrip.

The mammoth undertaking is nearly complete, and oxide production is expected by May, with sulphide production slated for October. Management expects to produce 175,000 oz. gold in 1997, rising to beyond 600,000 oz. annually over the next 15 years. Reserves stand at 104 million tonnes averaging 4.4 grams gold, equivalent to 14.7 million oz.

Under an arrangement unique to PNG, residents of Lihir will share in the profits of the mine. Local landowners entered into joint-venture agreements with the mine owners to provide vehicles, labor and supplies, giving everyone a stake in the success of the operation.

Based largely on output from Lihir and from the mines of other majors, including Placer Dome’s (PDG-T) Misima and Porgera operations, PNG ranks ninth in world gold production.

Even Bougainville, which was shut down in 1989 following a violent dispute with landowners, remains a huge deposit, with substantial reserves in the ground. (There is no word as to when mining there can be expected to resume.) For Highlands Gold, the Frieda-Nena copper-gold property and the Ramu nickel-cobalt projects promise to be sizable, with production scheduled for the near future.

The PNG government is taking other steps to invigorate the mining sector, including the partial privatization of the state-owned Mineral Resources Development. The government recently floated Orogen Minerals, which hold interests in many mining ventures around the country, on the Australian Stock Exchange.

Several North American junior companies have acquired prospecting concessions in the country and, over time, their exploration efforts are expected to result in a new generation of mines in the country.