PNG road show tries to ease investors’ fears

Porgera, Misima, Lihir and Ok Tedi are heavyweights among the world’s gold producers, or will soon be. As well, Kutubu and Hides are on the verge of making the same mark in hydrocarbons.

These mining projects are all in Papua New Guinea (PNG). While the public knows of this new nation’s precipitous mountains, its jungles and tribal groups, PNG is also a burgeoning nation poised to enter the 21st century. Rich in natural resources, PNG’s potential is scarcely known to the rest of the world.

It was to elaborate on this potential and to describe the government’s development incentives that a PNG contingent recently visited North America. One-day investment seminars, headed by Margaret Taylor, PNG ambassador to the U.S., visited Houston, New York, San Francisco and Toronto. More than 50 members of Toronto’s banking and mining community received an overview of the government’s stance with regard to offshore capital investment. The national government of PNG reserves the right to purchase 30% of the equity of any new mining development at cost (22.5% in the case of hydrocarbons), but the legal and taxation aspects are persuasive to the investor. What is more, the bureaucracy is streamlined. There are many examples of capital projects valued in the hundreds of million dollars receiving government approval in less than a year; some projects receive approval in less than 10 months.

PNG officials highlighted the democratic system of government inaugurated in 1975 along with their independence (PNG had been an Australian mandate since the end of the First World War). They also made special efforts to clarify the ugly situation that currently exists on the island of Bougainville, where an insurrection has proved embarrassing to the national government. To the PNG government, the insurrection resulted from unique circumstances. It arose from long-standing causes of a strictly local nature and these have been exacerbated by certain policies of the central government. The government implicitly accepts some of the responsibility for the situation and says it has gone to lengths to enact corrective legislation. The island of Bougainville has long had a separatist movement claiming strong social and political ties to the Solomon Islands, a chain of islands in which Bougainville is geographically a part.

Opening of Bougainville’s Panguna mine in 1972 by CRA Minerals gave a major boost to the separatists. Landowners and tribal leaders were dissatisfied with what they received for their mineral lands. They were further aggravated by the environmental impact of a 3-km-long open pit. The island’s politicians were dissatisfied with the proportion of mine tax revenue remitted to them by the PNG government.

Tensions rose, the separatist’s army declared the island independent in May, 1988 and the mine closed the following month. More than 100 lives were lost. The mine remains closed but support for the separatists is waning and the PNG believes a settlement is near.

Panguna is a world-class operation milling 51-53 million tons per year. In 1987, its last uninterrupted year, it produced 196,000 tons copper in concentrate and 970,000 oz. gold. Proven reserves amount to 547 million tons grading 0.42% copper and 0.016 oz. gold per ton. Probable reserves will add another quarter-billion tons at about the same grade. To date, 700 million tons have been mined. PNG interest is 19.1%.

Ok Tedi started operations in 1984 and is of similar stature producing comparable amounts of copper and gold from its massive porphyry deposit. The mine is located deep in the PNG interior and concentrates require river barging 500 miles to tidewater. The mine has several owners, including BHP and Amoco, each with a 30% stake. PNG interest is 20%.

Misima and Lihir are more accessible; both are located on islands. Placer Dome (TSE) owns 61% of Misima, PNG 20%. Annual production is 210,000 oz. gold and 2.1 million oz. silver.

Lihir is claimed to be the world’s largest gold deposit outside of South Africa and hosts 20 million oz. in reserves with the potential for doubling that amount. The first 10 years of production are expected to average 795,000 oz. per year. A US$1.2-million investment is involved with construction starting in 1993. RTZ is 80% owner of the project with Niugini Mining 20%. Participation by PNG has not so far been declared.

The latest producer is Porgera, which has a projected annual output of 900,000 oz. gold for its first six years. Owned 22.7% by Placer Dome (PNG interest 10%), this underground and open pit mine started production in late 1990.

For get-rich-quick artists who may have considered PNG made-to-measure for their schemes, Placer Chairman Fraser Fell’s recounting of the Porgera story would have precipitated a rapid reversal of thinking. The country has some of the finest geology in the world but it took 15 years of exhaustive work on the part of Placer and its partners to come up with a winner.