panguna moratorium may be lifted says akoitai;-)))

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Papua New Guinea digs deep to revive mining sector
By Leora Moldofsky in Sydney
Published: January 19 2006 01:01 | Last updated: January 19 2006 01:01

When Highlands Pacific invested in Papua New Guinea in 1996, the Australian miner never expected it would be 10 years before its first project came on stream.


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Kainantu, its 95 per cent-owned gold project in PNG’s eastern highlands, which will produce 120,000 ounces a year, is about to produce the Australian-listed company’s first revenue flow when it begins production this month.

The hopes of Highland Pacific orginally lay with Ramu, a huge laterite nickel deposit. But by 2000, a stagnant metals market and lack of investor interest saw the Brisbane-based company turn its attention to gold.

The opening of Kainantu also marks a milestone for PNG. It is the first mine to be built in the South Pacific nation in almost a decade.

Minerals have played a pivotal role in the resource-rich but poor PNG, accounting for up to 75 per cent of its export income and about a third of its gross domestic product.

In the years following PNG’s independence from Australia in 1975, UK, US and Australian miners spent millions exploring and laying claim to the country’s vast untapped reserves of gold, copper and nickel.

But in 1989, Rio Tinto walked away from its Panguna copper mine on Bougainville Island after separatist rebels shut it down. The island and the rest of PNG had become embroiled in a fight over rights to the mine’s profits, which led to years of civil war.

Twelve years later, BHP Billiton also gave up on PNG, donating its majority share in OK Tedi – one of the world’s largest copper mines – to a local development fund after paying hundreds of millions of dollars in pollution compensation claims to local landowners.

In the decade to 2002, exploration spending had shrunk from $100m (€83m, £57m) to a record low of $2m, says Sam Akoitai, PNG’s mining minister.

“Mining was a dying industry when the present government came to power.”

The slump in world mineral prices was partly to blame. But so was a period of political instability and poor monetary management in PNG, says Ross Garnaut, a director of OK Tedi and chairman of the Australian-listed Lihir Gold, one of four mines operating in PNG.

Since 2002, however, the government of Michael Somare has capitalised on strong international demand and high commodity prices to reduce public debt, inflation and interest rates, stabilise the local currency, the kina, and move the budget back into surplus.

Taxation reforms, incentives and government and industry promotional efforts also have helped to attract exploration and development dollars back to the tiny economy, says Greg Anderson, executive director of the PNG Chamber of Mining and Petroleum.

“Canadian and South African firms are becoming significant players in PNG, as are the Chinese,” he says.

Along with Kainantu, three new mines are expected to come on stream in the next year. The largest will be Hidden Valley, a A$220m ($165m, €136m, £93m), 300,000 ounce-a-year gold mine owned by South African miner Harmony.

Such investments are eclipsed, however, by Ramu. Highland Pacific’s long delayed prospect has been widely expected to proceed since state-owned group China Metallurgical Construction Group agreed last year to fund the A$1bn development – China’s first overseas mine in the Asia Pacific region – in return for an 85 per cent stake and the project’s entire expected annual output of 328,000 tonnes of nickel and 3,200 tonnes of cobalt.

Exploration teams are also combing the country. “We’ve issued new 48 exploration licences and spending has increased to around 80m kina [about $28m, €23m, £16m],” says Mr Akoitai.

Exploitation of resources is still hampered by the rugged terrain and the high cost of developing infrastructure. Other potential deterrents include the state’s right to take up to 30 per cent equity in exploration projects, high crime levels and an alarming rise in HIV/Aids infections among the workforce.

Pollution problems also continue to plague OK Tedi, the nation’s biggest mine. If a solution cannot be found to newly discovered acid drainage into rivers, local landowners can vote to close the copper giant down.

The mine is scheduled to shut in 2012, and early closure would hit the PNG economy hard. In 2004, copper and gold exports from the mine accounted for a quarter of the country’s export earnings.

Even if a solution is found to the pollution problem, new projects such as Kainantu may not be sufficiently large to match the economic shortfall caused by the closure of mines. Another gold mine, Porgera, which produces 6,000 ounces a year and is owned by US group Placer Dome, is also due to close in 2009.

“That is why I am encouraging existing mines to conduct further exploration work,” says Mr Akoitai. “I believe we can prolong the life of such mines, so long as environmental problems can be addressed.”

His optimism does not extend to Panguna, the huge copper reserve that sparked the civil war. But the death last year of Bougainville rebel leader Francis Ona has rekindled hopes that a moratorium on further exploration on the island, now an autonomous region, may eventually be lifted, he says.