By Ian Bickis, special to The Northern Miner

For miners and explorers, PNG has long presented a tough trade-off between the two, requiring major commitments to access the rich deposits.

In the early 1930s the rugged island was the site of the world’s first major air-supported mining project, when Canadian miner Placer Development used modified Junkers planes to fly in dredge equipment to its Bulolo gold project. With individual payloads of less than 3 tonnes, the Junkers hauled in almost 36,000 tonnes of gear. The determination paid off, with the company pulling out some 1.3 million oz. gold from the river over the next 10 years.

Fast-forward to today and logistics is still one of the biggest barriers to operating in PNG. The whole country has about 3,000 km of paved roads, plus roughly 6,000 km of dirt ones in varying states of repair. (Compare that to Sweden, which has 573,000 km of roads squeezed into the same-sized country.)

The PNG government is aware of the barrier, with Prime Minister Peter O’Neill committing to improve the transportation network in a speech to Australia’s National Press Club last year.

“One of our greatest needs is to repair, upgrade and most certainly expand our economically vital infrastructure,” O’Neill said.

But the lure of riches has been a strong motivator for miners to overcome such challenges independently and develop some of the world’s biggest deposits. These include epithermal deposits like Newcrest Mining’s (NM-T, NMC-A) Lihir mine, which has already produced 9 million oz. gold and still has 33 million in reserves, and Barrick Gold’s (ABX-T, ABX-N) Porgera mine, which has produced over 17 million oz. gold and has over 6 million oz. in reserves.

The copper-gold porphyry systems are equally impressive, with the Wafi-Golpu joint venture between Newcrest and Harmony Gold (HMY-N) sitting on 28.5 million oz. gold and 20 billion lb. copper; Xstrata’s (XTA-L) Frieda River project hosting 14.8 million oz. gold and 20.7 billion lb. copper; and the Ok Tedi mine, now owned by the PNG government, already producing over 11 million oz. gold and 27 billion lb. copper since 1984, with years of mine life left.

Numbers like these put PNG as the third most geologically prospective place on earth in the Fraser Institute’s 2012 annual mining survey, at least when setting aside regulations and land-use policies.

The huge, untapped potential is what drew Marengo Mining (MRN-T, MGO-A) to the country in 2005.

“It was really just born out of looking for an opportunity for a junior company to do something quite exciting and have a project of significant value,” Dean Richardson, Marengo’s investor relations representative, said by phone.

In a few years the company has turned its Yandera copper-gold-moly project into a 4 billion lb. copper resource, with 486 million measured-and-indicated tonnes grading 0.37% copper. Marengo plans to release a feasibility study on the well-advanced project in March, with a development capital expenditure of around US$1.8 billion and anticipated annual production of 200 million lb. copper.

“We’re talking about a project somewhere around 30 million tonnes per annum. It really is a project that a number of medium- to large-size companies would be happy to get their hands on,” Richardson says.

Marengo has several years on PNG Gold (PGK-V), which only started exploring in the country in 2011. But already PNG Gold has pulled some intriguing gold hits, and it plans to have a resource out later this year. Results from the company’s Imwauna project, sitting on an island just off the southern tip of PNG’s mainland, include 6 metres grading 111.97 grams gold per tonne, 4 metres of 49.86 grams gold and 6 metres of 36.16 grams gold.

The company found it rough-going at the start with slower-than-expected drilling, but it is now managing 4,000 metres a month with four of its own rigs, and is well on its way to a resource.

“We had some real teething pains at the beginning,” PNG Gold president Neil Halldorson says. He adds that the company has had to carry a lot more spare parts and be careful about planning heavy equipment moves, as poor planning with either can set a project back. “Over time we’ve learned to work with those issues, and with every month we get better at it,” he says.

But Halldorson embraces the challenge, because it keeps a lot of competing juniors away and gives any company that can overcome these challenges a real advantage.

“There are very, very few juniors in Papua New Guinea, and a good deal of that has to do with cost and logistics, and everything else. So it really does act as a barrier,” Halldorson says.

Explorers WCB Resources (WCB-V) and Vangold Resources (VAN-V) have also made an entrance, with active exploration programs in the country.

But some haven’t fared so well with the high costs, with New Guinea Gold (NGG-V) shuttering its small Sinivit gold mine last year after it ran out of money. The company is trying to get itself going again, but with its shares trading at a penny, raising money isn’t easy. Papuan Precious Metals (PAU-V), hovering around 2¢, has also struggled in the country.

Size helps when developing projects in PNG: Newcrest and Harmony are running the Hidden Valley gold-silver mine despite a few operational issues; Metallurgical Corp. of China opened its Ramu nickel-cobalt mine last year despite years of environmental delays; and Newcrest is finishing up a US$1.3-billion expansion of its Lihir mine to expand designed output to a million oz. a year after spending A$9.5 billion buying the mine in 2009.

These projects, plus Exxon Mobil’s (XOM-N) US$19-billion natural gas project, have helped keep PNG’s economic growth rate at close to 8% for the past decade.

And while growth has been strong in recent years, the country could see much more investment, thanks to sizeable projects in the pipeline. Australian bank ANZ released a study estimating that PNG’s natural resource sector, including mining, oil and gas, could quadruple by 2030, with some US$25 billion in annual export revenues, or as much as US$38 billion, using more optimistic assumptions. Achieving such an increase in output would require US$130 billion in capital investment.

But those estimates rest on projects going forward, even as several major miners have signalled plans to exit PNG, as companies worldwide look to contain costs and focus on core assets.

In mid-2012, Xstrata signalled its intention to offload its Frieda River project, while a feasibility study on the project at the end of last year added US$300 million to project capex, which totalled US$5.6 billion. In 2011, Inmet Mining (IMN-T) bowed out of PNG after selling off its 18% interest in Ok Tedi Mining for US$355 million.

On a smaller scale, Newmont Mining (NMC-T, NEM-N) told its junior partner Triple Plate Junction (TPJ-L) that it would end its search for big porphyry systems at Morobe after spending US$15 million to earn 75% of the project. And Barrick informed joint-venture partner Coppermoly in mid-2012 that it was looking to sell its 72% stake in three tenements after spending US$22 million to earn-in on the properties.

And some smaller skirmishes with companies may make others wary of PNG. Last year Aldridge Minerals (AGM-V) pulled out of PNG after the government declined to renew the junior’s Kili Teke copper-gold licence. And more publicly, Nautilus Minerals (NUS-T) has been stymied in its efforts to advance the world’s first major deep-sea mining project after getting embroiled in licensing and financial disagreements with the government. The company suspended construction of the $450-million project late last year.

While cost and operational risks worry some, mining analyst Cathy Moises of Evans and Partners, who tracks several operators in the country, said by phone that “as long as you do your groundwork in PNG, you’ve got the locals on side, and have done things the right way — then it’s actually a very good place to work.”

Good relations with locals are important in PNG, as landowners control 97% of the country, and there are no large tracts of government land.

Companies big and small have had trouble with landowners, with Barrick’s Porgera, Newcrest’s Lihir mine and New Guinea Gold’s ailing Sinivit mine all shut down by locals last year.

But Moises downplays the problems with landowners.

“It’s not a major issue. If the mine is shut down it’s usually short in duration, and minor,” she says. “PNG tends to be fairly stable.”

Moises still likes what she sees in PNG, even if it’s a country that doesn’t give up its deposits easily.

“I still think there are some big projects to be found. The terrain and working over there is difficult, so it certainly hasn’t had the attention of some other countries where it’s nice and flat, and you’re much closer to civilization.”

The high-stakes world of Papua New Guinea mining

Site Visit

TEXT SIZE

By: Ian Bickis, special to The Northern Miner 2013-02-27

PORT MORESBY, PAPUA NEW GUINEA — Rising out of the sea at the collision of the Pacific and Indo-Australian tectonic plates, Papua New Guinea is the stuff of legend for both its geological potential and punishing working environment.
For miners and explorers, PNG has long presented a tough trade-off between the two, requiring major commitments to access the rich deposits.
In the early 1930s the rugged island was the site of the world’s first major air-supported mining project, when Canadian miner Placer Development used modified Junkers planes to fly in dredge equipment to its Bulolo gold project. With individual payloads of less than 3 tonnes, the Junkers hauled in almost 36,000 tonnes of gear. The determination paid off, with the company pulling out some 1.3 million oz. gold from the river over the next 10 years.
Fast-forward to today and logistics is still one of the biggest barriers to operating in PNG. The whole country has about 3,000 km of paved roads, plus roughly 6,000 km of dirt ones in varying states of repair. (Compare that to Sweden, which has 573,000 km of roads squeezed into the same-sized country.)
The PNG government is aware of the barrier, with Prime Minister Peter O’Neill committing to improve the transportation network in a speech to Australia’s National Press Club last year.
“One of our greatest needs is to repair, upgrade and most certainly expand our economically vital infrastructure,” O’Neill said.
But the lure of riches has been a strong motivator for miners to overcome such challenges independently and develop some of the world’s biggest deposits. These include epithermal deposits like Newcrest Mining’s (NM-T, NMC-A) Lihir mine, which has already produced 9 million oz. gold and still has 33 million in reserves, and Barrick Gold’s (ABX-T, ABX-N) Porgera mine, which has produced over 17 million oz. gold and has over 6 million oz. in reserves.
The copper-gold porphyry systems are equally impressive, with the Wafi-Golpu joint venture between Newcrest and Harmony Gold (HMY-N) sitting on 28.5 million oz. gold and 20 billion lb. copper; Xstrata’s (XTA-L) Frieda River project hosting 14.8 million oz. gold and 20.7 billion lb. copper; and the Ok Tedi mine, now owned by the PNG government, already producing over 11 million oz. gold and 27 billion lb. copper since 1984, with years of mine life left.
Numbers like these put PNG as the third most geologically prospective place on earth in the Fraser Institute’s 2012 annual mining survey, at least when setting aside regulations and land-use policies.
The huge, untapped potential is what drew Marengo Mining (MRN-T, MGO-A) to the country in 2005.
“It was really just born out of looking for an opportunity for a junior company to do something quite exciting and have a project of significant value,” Dean Richardson, Marengo’s investor relations representative, said by phone.
In a few years the company has turned its Yandera copper-gold-moly project into a 4 billion lb. copper resource, with 486 million measured-and-indicated tonnes grading 0.37% copper. Marengo plans to release a feasibility study on the well-advanced project in March, with a development capital expenditure of around US$1.8 billion and anticipated annual production of 200 million lb. copper.
“We’re talking about a project somewhere around 30 million tonnes per annum. It really is a project that a number of medium- to large-size companies would be happy to get their hands on,” Richardson says.
Marengo has several years on PNG Gold (PGK-V), which only started exploring in the country in 2011. But already PNG Gold has pulled some intriguing gold hits, and it plans to have a resource out later this year. Results from the company’s Imwauna project, sitting on an island just off the southern tip of PNG’s mainland, include 6 metres grading 111.97 grams gold per tonne, 4 metres of 49.86 grams gold and 6 metres of 36.16 grams gold.
The company found it rough-going at the start with slower-than-expected drilling, but it is now managing 4,000 metres a month with four of its own rigs, and is well on its way to a resource.
“We had some real teething pains at the beginning,” PNG Gold president Neil Halldorson says. He adds that the company has had to carry a lot more spare parts and be careful about planning heavy equipment moves, as poor planning with either can set a project back. “Over time we’ve learned to work with those issues, and with every month we get better at it,” he says.
But Halldorson embraces the challenge, because it keeps a lot of competing juniors away and gives any company that can overcome these challenges a real advantage.
“There are very, very few juniors in Papua New Guinea, and a good deal of that has to do with cost and logistics, and everything else. So it really does act as a barrier,” Halldorson says.
Explorers WCB Resources (WCB-V) and Vangold Resources (VAN-V) have also made an entrance, with active exploration programs in the country.
But some haven’t fared so well with the high costs, with New Guinea Gold (NGG-V) shuttering its small Sinivit gold mine last year after it ran out of money. The company is trying to get itself going again, but with its shares trading at a penny, raising money isn’t easy. Papuan Precious Metals (PAU-V), hovering around 2¢, has also struggled in the country.
Size helps when developing projects in PNG: Newcrest and Harmony are running the Hidden Valley gold-silver mine despite a few operational issues; Metallurgical Corp. of China opened its Ramu nickel-cobalt mine last year despite years of environmental delays; and Newcrest is finishing up a US$1.3-billion expansion of its Lihir mine to expand designed output to a million oz. a year after spending A$9.5 billion buying the mine in 2009.
These projects, plus Exxon Mobil’s (XOM-N) US$19-billion natural gas project, have helped keep PNG’s economic growth rate at close to 8% for the past decade.
And while growth has been strong in recent years, the country could see much more investment, thanks to sizeable projects in the pipeline. Australian bank ANZ released a study estimating that PNG’s natural resource sector, including mining, oil and gas, could quadruple by 2030, with some US$25 billion in annual export revenues, or as much as US$38 billion, using more optimistic assumptions. Achieving such an increase in output would require US$130 billion in capital investment.
But those estimates rest on projects going forward, even as several major miners have signalled plans to exit PNG, as companies worldwide look to contain costs and focus on core assets.
In mid-2012, Xstrata signalled its intention to offload its Frieda River project, while a feasibility study on the project at the end of last year added US$300 million to project capex, which totalled US$5.6 billion. In 2011, Inmet Mining (IMN-T) bowed out of PNG after selling off its 18% interest in Ok Tedi Mining for US$355 million.
On a smaller scale, Newmont Mining (NMC-T, NEM-N) told its junior partner Triple Plate Junction (TPJ-L) that it would end its search for big porphyry systems at Morobe after spending US$15 million to earn 75% of the project. And Barrick informed joint-venture partner Coppermoly in mid-2012 that it was looking to sell its 72% stake in three tenements after spending US$22 million to earn-in on the properties.
And some smaller skirmishes with companies may make others wary of PNG. Last year Aldridge Minerals (AGM-V) pulled out of PNG after the government declined to renew the junior’s Kili Teke copper-gold licence. And more publicly, Nautilus Minerals (NUS-T) has been stymied in its efforts to advance the world’s first major deep-sea mining project after getting embroiled in licensing and financial disagreements with the government. The company suspended construction of the $450-million project late last year.
While cost and operational risks worry some, mining analyst Cathy Moises of Evans and Partners, who tracks several operators in the country, said by phone that “as long as you do your groundwork in PNG, you’ve got the locals on side, and have done things the right way — then it’s actually a very good place to work.”
Good relations with locals are important in PNG, as landowners control 97% of the country, and there are no large tracts of government land.
Companies big and small have had trouble with landowners, with Barrick’s Porgera, Newcrest’s Lihir mine and New Guinea Gold’s ailing Sinivit mine all shut down by locals last year.
But Moises downplays the problems with landowners.
“It’s not a major issue. If the mine is shut down it’s usually short in duration, and minor,” she says. “PNG tends to be fairly stable.”
Moises still likes what she sees in PNG, even if it’s a country that doesn’t give up its deposits easily.
“I still think there are some big projects to be found. The terrain and working over there is difficult, so it certainly hasn’t had the attention of some other countries where it’s nice and flat, and you’re much closer to civilization.” - See more at: http://www.northernminer.com/news/the-high-stakes-world-of-papua-new-guinea-mining/1002105689/?type=HotSectors#sthash.LcLd251i.dpuf

The high-stakes world of Papua New Guinea mining

Site Visit

TEXT SIZE

By: Ian Bickis, special to The Northern Miner 2013-02-27

Malum Nalu

Pages

Friday, March 01, 2013