Papua New Guinea continues to scare off miners

Aldridge Minerals (AGM-T) has added its name to a growing list of mining companies leaving or looking to leave Papua New Guinea (PNG).

The company will abandon its Kili Teke property in the country now that its license renewal has been denied.

Aldridge’s president and chief executive, Mario Caron, says the government offered no explanation as to why the renewal was denied.

“The rejection of our renewal application supports current management’s position that PNG is too volatile,” the company said in a statement.

Caron called the business environment in the country “difficult” and said it makes more sense for Aldridge to simply leave and focus on its Yenipazar project in Turkey than to dispute the government’s decision.

The move will only increase the tarnish on PNG’s reputation in the eyes of foreign investors. Nautilus Minerals (NUS-T) is currently locked in a dispute with the government over funding agreements on the development of its Solwara 1 seabed project and Xstrata (XTA-L) is looking to sell its share of the Frieda River copper project and is considering leaving the country altogether.

And while the news is by no means positive for Aldridge — the company did sink roughly $2.8 million into an exploration program at the project last year — it is also by no means a company killer.

Over the last few years Aldridge has put the bulk of its capital and attention into the development Yenipazar and its exit from PNG will free up more capital as Caron points out that the remoteness of Kili Teke — exploration was helicopter dependent — made it an expensive project to explore.

Evidence of Aldridge’s unease about the business climate in PNG could be read into its press release in February of this year where it said it was looking for a partner or a transaction that would let it realize some value from its investments in Kili Teke.

“Until we got notice of the non-renewal we were trying to find another party to joint venture with,” Caron says. “But the current market conditions meant there was no expression of interest. If there had been some interest we would have fought the decision, but instead we’ll focus on Yenipazar.”

The company is walking away from 338 sq km of ground in the Southern Highlands province of the country. Initially the permits covered even more ground but in 2009 the Aldridge was required to give up 25% of its 450 sq km as per PNG regulations.

The property sits roughly 50-km west of Barrick Gold (ABX-T, ABX-N) Porgera gold mine and 150-km east of the Ok Tedi copper-gold mine.

As for whether he believes there is a correlation between the weakening of the global economic condition and a rise in political risk, Caron argues that if anything the opposite is true.

“There are just some jurisdictions that are difficult in good and bad times,” Caron says. “There was a lot of talk about windfall taxes in the good times, so no, I don’t think the global economic downturn brings about a more difficult situation to do business in. If anything I think it opens up the eyes of some governments and they realize that they need to work with companies to generate economic growth.”

With PNG fading in its rear view mirror Aldridge will focus squarely on the development of Yenipazar. The project hosts a polymetallic VMS deposit containing gold, silver, copper, lead and zinc.

Caron, who has developed mining projects in countries as diverse as the Central African Republic and Vietnam, is enjoying the relative ease of doing business in Turkey.

“The government works in Turkey, and they’ve established a system where the rule of law prevails and there are other benefits to the project as well,” Caron says. “Infrastructure is not an issue as we have power, rail and road access. It’s very refreshing. The quality of man power and labour is excellent as well.”

The company is currently building on its December 2010 preliminary economic assessment that was released in December of 2010. It plans to have a feasibility study done by the end of the year that will outline a project that is 30% larger than the one envisioned in the PEA.

The PEA proposed mine throughput of 5,700 tonnes per day and capex of US$200 million. An updated resource estimate from June of this year outlined indicated resources of 26.6 million tonnes grading 1.04 grams gold, 31.3 grams silver, 0.3% copper, 1.04% lead and 1.4% zinc, or a gold equivalent grade of 3.05 grams.

Editorial note: The original story incorrectly stated that Nautilus was considering scrapping the development of its Solwara 1 seabed project due to the government’s refusal to pay its share of development costs. In fact, Nautilus says that a failure to resolve the issue would result in a slowdown of the project’s development.