Bleak No More For PNG's Mining Business

South Africa's Durban Roodepoort Deep (DRD), one of the world's most heavily traded gold stocks, is a growing new force in Papua New Guinea's mining industry. It is having less luck with a bid for control of the 70-year-old Vatukoula Emperor Gold Mine in Fiji.

Lihir Island mine...has more reserves.

Until last year, its only PNG asset was the Tolukuma mine. It has since bought 20 percent of the Porgera gold mine. Annual production from the two mines has risen to 300,000 ounces, just under one-third of DRD's total gold production.

Directors of Emperor Mines Ltd, owner of the Vatukoula mine, in May advised shareholders to reject DRD's offer for all their shares.
Chairman Jim Wall said the company was committed to what was the largest expansion in Vatukoula's history, with about 400 more workers added to the existing force of 2250 workers.

Greg Anderson, executive director of the PNG Chamber of Mines and Petroleum, says that after a decline there's the beginnings of a definite upturn for Papua New Guinea's gold, silver and copper mining business, with cobalt and nickel to be added to the range of metals delivered by it to world markets.

In 1997, exploration and mining activity crashed due partly to what miners regarded as an unfair extra profits tax.

The future was darkened by the fact that the three most important mines, Misima, Porgera and Ok Tedi, were headed for eventual closure.

That was a bleak outlook for a country dependent on mining for up to 80 percent of its export revenue.

But now, Canadian and South African companies are moving in to replace departing Australian and American companies.

A Chinese company is preparing to sink US$650 million into cobalt and nickel mining. The greatest hope is for exports of gas to Australia.

In May, a big American company, Exxon, was expected to make a final decision about whether to proceed with Papua New Guinea's OilSearch Company on a US$3.5 billion investment to pipe gas to Queensland and perhaps also South Australia.

"We've got several smaller fields we hope will be add-ons this year, but they will not replace the ones that are closing. We were hoping for another major discovery but we haven't had that yet," Anderson says.

"The big hope for the long-term future is the need to export our gas. We have very large reserves and the project worked on for quite a few years is exports to Queensland and probably southeast Australia as well.

"It would be a US$3.5 billion project. It would be fantastic for PNG since it would underwrite the long-term hydrocarbon sector and would underwrite the economy in many respects because you would have a set income for probably 50 years. The other exciting thing about it is that once we've got that export pipeline in place, it promotes substantially the chances of another domestic onshore industry. There could be a spur pipeline very easily run to Port Moresby for downstream production here for all sorts of domestic usages. It would be a catalyst for a lot of things.

A new package of mining tax incentives was launched at the beginning of 2003 at the same time that commodity prices began rising.
"It gave us the ammunition to promote PNG internationally," Anderson says. "We have been promoting hard for four or five years also but it is very difficult at times of low commodity prices when things are hard in the exploration world to go out there into a highly competitive situation. We've got the geological potential, but the first thing people look at is the tax regime."

The great break for mining was the abolition of an additional profits tax that required miners to pay higher tax the higher their profitability went. "It was just nonsense when other businesses around town were making much larger profits. We've got a number of positive things which are actually incentives to exploration," Anderson says.

"We've since been promoting very hard with the state and have managed to have a revival. A number of small juniors have come in on the petroleum. We've got some new tenements taken up and on the mining side, we got not only a variety of new juniors, mainly out of Canada, but also attracted several majors out of South Africa."

Of Papua New Guinea's old mines, the Ok Tedi gold and copper mine is due to close in 2010, although it might run for a few extra years, Anderson says.

The Misima gold mine has closed and processing of low-grade ore will finish this year.

The Porgera open cut mine will probably close about 2006/07, although the milling of low-grade stock and underground mining will continue probably to about 2012/2014.

The Tolokuma gold mine, north of Port Moresby, has probably got five years mine life left, but Anderson says it's a small mine of the type that tends to keep going. "They are doing a lot of drilling, so we expect it to last because there is enormous potential for associated deposits there."

The huge Lihir Island mine is a young mine. "It's got 30 years plus and they found substantially more reserves since it started," Anderson says.

"We have three gold mines in the pipeline and one nickel/cobalt mine. The Kainantu mine in the Eastern Highlands is a Tolokuma size mine with similar deposits. Construction has started, they are building their access road and underground work has started. It will produce about 100,00 ounces of gold annually. It's small by our standards but by Australian standards it's quite significant.
"Hidden Valley, near the old gold mining centre of Wau, has just had a mining feasibility study submitted by a company called Abell, now owned by Harmony of South Africa."