Papua New Guinea's Ok Tedi Mining Ltd is keen to buy a stake in Xstata Copper's 5.3 billion US dollar Frieda River project.
Ok Tedi Managing Director, Nigel Parker, says the company would like to move as soon as possible on the deal and will be talking with the PNG government in the near future.Radio Australia's Jemima Garrett recently returned from a visit to Ok Tedi and prepared this report.
Correspondent: Jemima Garrett
Speaker: Nigel Parker, Managing Director, Ok Tedi Mining Limited
GARRETT: Ok Tedi is unique among PNG mining companies.
Since the Canadian company Inmet sold out at the beginning of last year Ok Tedi has been 100%-owned for the benefit of Papua New Guineans.
The PNG government has a 37% stake and the PNG Sustainable Development Program Limited the rest.
But Ok Tedi is an old mine - even if the mine extension plan currently under consideration goes ahead - production is set to drop.
Ok Tedi Managing Director, Nigel Parker, is looking for new opportunities for the company.
PARKER: This is an extraordinarily valuable asset. We cannot let this asset die, otherwise the Papua New Guinea nation loses out.
GARRETT: Nigel Parker has been working with Professor Ross Garnaut, Chairman of both Ok Tedi and PNG Sustainable Development Program Ltd, to chart the way foreward.
PNGSDP has taken a stake in Highlands Pacific - a move which forges links to Highlands Pacific's exploration sites just 20 kilometres from Ok Tedi - and to Xstrata Copper's Frieda River deposit through Highlands' minority shareholding in the project.
Frieda River is a big prize. It is a world class copper and gold deposit even bigger than Ok Tedi's original resource.
Xstrata has made it clear it may be willing to sell part or all of its holding.
Nigel Parker says it is an investment that makes sense for Ok Tedi.
PARKER: Frieda River is 70 kilometres north of us. It has some very good results. It is like an Ok Tedi 30 odd years ago, in a pristine environment. We are interested in it. We are looking at the developments of that with its current shareholders -Xstrata in the main - but Highlands Pacific also has an 18% interest in that area so once the government has settled in and we start talking to the government, then I am sure that will become clearer to us as management as to what the State would like us to do in regards to that.
GARRETT: What would it take for Ok Tedi to be in a position to buy into Frieda River?
PARKER: It is simply the shareholder commitment to it. Our major shareholder PNGSD are very interested in it because of the benefits it would bring Papua New Guinea, particularly if Papua New Guinea's own mining and exploration company has a very large chunk of it. The state, with the new government of course, we'll have to assess the mood of the government as to whether they are committed to that, and if they are committed to that, then there is no reason why the Ok Tedi group can't become involved in that.
GARRETT: Ok Tedi is a crucial source of revenue for the PNG government.
In 2011, it received 496 million US dollars from Ok Tedi in taxes and levies and a further 64 million dollars in dividends.
The government has a clear interest in ensuring Ok Tedi's future but it will also need to consider the environmental impact of development at Frieda River.
Xstata is due to deliver its feasibility study on the Frieda River project next month.
Ok Tedi Managing Director, Nigel Parker, is keen to get on and make a bid.
I asked him when it might be feasible to act.
PARKER: We would like to think as soon as possible! But we are coming up towards Christmas, of course. We have a new government that is starting to settle in, heading towards budget process and has some other priorities, I would suspect.
GARETT: You mentioned that Frieda river is very similar to the situation of Ok Tedi. Frieda River is in the head waters of the Sepik River. Ok Tedi has had a catstrophic effect on the Fly River. How would you do things differently at Frieda River?
PARKER: You are absolutely correct. It is a pristine environment and in this day and age mining companies have to look totally different as to how they mine or exploit mineral resources. We are of the view that, with the gas resources here in the Western Province, we would first up generate power on this side and then transmit power through the Ok Tedi System and then up over the mountains so by using gas fired power, 160 odd megawatts, as opposed to damming pristine valleys and absorbing enormous areas, a la the Three Gorges dam in China, that would be our first view, that we would not look to interfere with the environment where we could use gas fired power. Then it gets down to whether it has to be open puit or whether we can go underground. I can't answer those questions at this point.
GARRETT: What about a tailings dam. That has been the big problem here. We have seen a mud river heading down towards the ocean at the mouth of the Fly River. What would you do a Frieda River?
PARKER: My understanding is that that is not the same issue on the Frieda River side, that off the mountain escarpments there is land down there that is well aligned to tailings dams and tailings treatment solutions.
GARRETT: Would you consider putting tailings into the river if the tailings dam didn't seem possible?
PARKER: I would suggest that the Board of OTML would be very sensitive towards that and, in fact, given the fact that the Sepik River is a pristine river that certainly would not be an option for us.
GARRETT: But you are not ruling it out?
PARKER: At this point, I could say to you that we would rule that out because in this day and age you can't move into this type of situation to put tailings and, in fact, in our own operation here we have an active project in play at the moment, looking at building a tailings dam, very close to the mine operations and we anticipate that within twelve months or so we will have a fairly good fix on whether we can actually do that now. Why we can do it as opposed to the BHP era is that, 30 odd years have moved on, engineering solutions have developed, tailings treatment solutions have developed. The Chinese have built the Three Gorges dam. They're putting highways under sedimentary flood plains so it's a totally different environment now