Questions & Anwers
2011 AGM
The following questions to the board of directors of Bougainville Copper Limited (BCL) were unanimously developed by the members of the European Shareholders of Bougainville Copper (ESBC) for the Bougainville Copper 2011 Annual Meeting on April 19th, 2011 in Port Moresby / PNG.
The ESBC jointly represent a stake of 13,436,137 shares (of 401,062,500 shares in total) in Bougainville Copper Limited and are thus the largest private investor and third largest shareholder in Bougainville Copper Limited.
The answers were delivered on Monday, May 2nd, 2011.
1.
ESBC: How far will the earthquake and the nuclear accident in Japan in your opinion
influence the future development of the copper market?
Chairman BCL: It is considered unlikely that recent events in Japan will have a material impact on the copper market, particularly in the longer term.
2.
ESBC: On 9 March 2011 you announced that former Prime Minister of Papua New Guinea, Sir Rabbie Namaliu, will join the board of directors of BCL. What specific benefits for BCL do you expect to gain by this decision?
The ESBC welcome this decision to nominate Sir Rabbie because it's the first time
that a fellow shareholder becomes director of Bougainville Copper Limited.
Chairman BCL: Sir Rabbie is a former Prime Minister of PNG, is a distinguished
statesman and a committed Papua New Guinean, with ministerial experience in
Foreign Affairs and Trade, Treasury, Petroleum and Energy and other areas of
government responsibility. He holds directorships of several other Papua New Guinea companies, and is a member of the PNG Institute of Directors. The BCL board welcomes the addition of his experience and judgement to the decision-making processes of BCL, at a time of great challenge and opportunity.
3.
ESBC: The appointment of Sir Rabbie caused in some parts of Bougainville's
Population bitterness, sometimes even violent protest. What is your reaction to this?
Chairman BCL: I have not received any objections regarding Sir Rabbie’s appointment to the BCL Board.
4.
ESBC: In the past months there has been repeated speculation about Chinese
interest in participating in the revival of mining in Panguna. What's your
opinion on this? As an employee of Rio Tinto: Please explain Rio Tinto's
thoughts about a "partnership" from China as well?
Chairman BCL: I can only comment as Chairman of BCL, and it is premature to
speculate on such matters as potential participants in any future redevelopment
of mining operations at Panguna. We are entirely focussed on engaging with the
Government and the landowners. Much has to be done before any such matters
come under consideration.
5.
ESBC: Has a possible Chinese involvement in BCL also been an issue in the talks
between President Momis and Peter Taylor?
Chairman BCL: It would be inappropriate to disclose details of my discussions with
President Momis. However, I have said publicly that BCL will consider financing
options that can deliver benefits to the project, but only at the appropriate time.
6.
ESBC: The Chinese group Chinalco holds 9% of Rio Tinto and is thus a principal
shareholder. Chinalco is reportedly keen to increase its number of shares in Rio
Tinto. As the press was clear on, a further commitment of Chinalco's investment
in Rio Tinto up to 15 percent would be accepted by the Australian Government.
Do you think it is conceivable that Chinalco or one of its subsidiaries would also
like to purchase BCL shares? If yes, up to what percentage would this even be
desirable?
Chairman BCL: I am unable to comment on Rio Tinto and its shareholders. This
question should be directed to Rio Tinto. BCL shares are traded on the ASX. Any party interested in acquiring shares in BCL can purchase “on-market”.
7.
ESBC: Are you aware if even the Chinese People's Congress, which met in March in
Beijing, has dealt with appropriate subject matters?
Chairman BCL: I am not aware of any deliberations by the Chinese Government which have a bearing on this company.
8.
ESBC: Since the extended interview with ABC Pacific Beat with Peter Taylor: Has there been a first contact with Chinese investors or has it been scheduled for the near
future?
Chairman BCL: There has been no contact with potential Chinese investors.
9.
ESBC: Peter Taylor has estimated several times the cost of re-opening the Panguna
mine at about three billion U.S. dollars. Please specify the various possible
models for the financing of these costs and tell us here which model you would
prefer.
Chairman BCL: Based on our current Order of Magnitude study, our estimate for the
capital cost of re-opening the Panguna mine is in excess of US$3 billion.
Financing arrangements have not been looked at closely at this time. In a
structured plan for redevelopment of the Panguna mine, all options will be
considered at the appropriate stage. Project financing would be one option.
10.
ESBC: Can you rule out that the share capital of BCL is diluted by the issuance of new
shares and/or convertible bonds in order to raise capital?
Chairman BCL: Nothing relating to financing reconstruction can be ruled out at this
stage.
11.
ESBC: Have you already discussed in your talks with President Momis a possible
timetable for the reopening of the Panguna mine?
Chairman BCL: There has been good discussion and exchange of ideas on the
necessary steps leading to any future redevelopment of the Panguna mine, but no
timetable has yet been agreed.
12.
ESBC: If yes: Please let us know what it looks like.
Chairman BCL: Until we have unrestricted access, a better knowledge of the legal and regulatory regime, an understanding of the aspirations of the landowners and the
condition of the assets, it is difficult to set timelines. We expect it to take several
years.
13.
ESBC: In the 70’s, long before the Bougainville crisis, a mining moratorium was imposed on Bougainville. Multiple times, President Momis made the lifting of the
moratorium in recent weeks in view. Have you spoken to President Momis about
the mining moratorium and is there a notion of time at the horizon in this matter?
Chairman BCL: No, other than agreeing it is an issue for future discussion.
14.
ESBC: In his interview Peter Taylor had hinted that BCL, in addition to the reopening of the Panguna Mine, also targets exploration projects in other sectors. What are they and is the Atamo lease one of them?
Chairman BCL: BCL holds the only exploration licences granted on Bougainville and
BCL is keen to develop an exploration program, when circumstances permit. I am
unaware of an “Atamo lease”. All the tenements other than Special Mining Lease
1 are numbered exploration licences.
15.
ESBC: Could BCL give us an overview of the likely local employment numbers and skills training that will be implemented following a mine re-opening?
Chairman BCL: The previous Panguna operation provided direct employment for in
excess of 3,000 people. Redevelopment of the Panguna operation could involve a
similar sized workforce, with preference being given to local workers.
Skills and training will be very important and a training and development strategy
would need to be implemented well in advance of operations beginning.
16.
ESBC: Could BCL give us an overview of the local support businesses that will likely
develop to service the Panguna mine in the event of a mine reopening, including
local employment numbers, business categories, goods and services value to the
Bougainville economy?
Chairman BCL: The redevelopment of the Panguna mine will provide a major boost to the Bougainville economy through establishment of local business and service
providers and provide support to local services such as education, health and
infrastructure.
17.
ESBC: Do you plan a relevant public awareness program?
Chairman BCL: BCL will provide ongoing community awareness programs because it believes that the success of the mining operation requires the support of a well
informed local community.
18.
ESBC: Have you discussed with President Momis, which positive economic impacts the announcement of the mine re-opening and the start of preparatory work on
Bougainville will have?
Chairman BCL: There have been broad discussions on the economic benefits of reopening the mine.
19.
ESBC: In the presence of the PNG Minister for Bougainville Affairs, Hon. Fidelis Semoso, Me'ekamui leaders in March announced their agreement for the re-opening of the Panguna Mine under certain conditions. These conditions include a requirement to
include a compensation payment of 10 billion Kina (AUD 3.80 billion) to the people in Panguna. Does BCL have a complete list of all damages and losses to the company and thus its shareholders within the last 24 years which were caused by the civil unrest on Bougainville? Please tell us the figures related.
Chairman BCL: As described on Page 20 of the 2010 Annual report, the directors of
BCL in 1991 made an impairment loss write down of K350 million for the
deterioration, damage and pilferage of company assets.
20.
ESBC: Will these figures be brought up in any negotiations on compensation payment? Will you also talk about compensation of BCL's losses and losses of investors in BCL?
Chairman BCL: No agenda for the Bougainville Copper Agreement [BCA] renegotiation has been drawn up, but compensation will be an important subject for discussion.
21.
ESBC: Since the signing of the Bougainville Peace Agreement in 1995, the ESBC
consider the Me'ekamui as terrorists or outlaws. What is the BCL Board of
director's opinion on the Me'ekamuis now and which role are they supposed to
play in Bougainville in future?
Chairman BCL: BCL’s approach is to seek reconciliation between all parties.
22.
ESBC: As part of the appointment of Sir Rabbie, his responsibility was described among others as shareholder matters. Please find the following questions in relation to
this:
23.
ESBC: Will Sir Rabbie also seek to initiate a transfer of PNG's stake to Bougainville as promised for a long time by Sir Michael Somare?
Chairman BCL: This is an issue for the owner of the shares, the National Government
and the Bougainville Government.
24.
ESBC: Will Sir Rabbie take steps to facilitate the financial participation of the people of Bougainville through the purchase of BCL shares?
Chairman BCL: This may be a matter for discussion when the BCA review starts but is not something an individual director is likely to facilitate
25.
ESBC: Will Sir Rabbie work on the issue to ensure that the short-selling in BCL shares
will be limited to 10% of the real free float of shares (27%)?
Chairman BCL: Short selling and other share related matters are the responsibility of
the regulators
26.
ESBC: What does BCL do, however, that nominee banks lend custody shares
unauthorized to their brokerage customers, which are then used for short selling?
Chairman BCL: Trading in BCL shares is regulated by the rules of the Australian
Securities Exchange (ASX) and company law and not by the company
27.
ESBC: What is BCL doing about the fact that the trading of BOC shares in Sydney has developed to a madhouse in recent months? The ESBC detected regularly massive market manipulation which is partially implemented by using algorithmic trading programs. A corresponding notification of the ESBC has been sent to the ASIC earlier.
Chairman BCL: BCL has had communications with the ASX on this matter and has been advised that from 1 August 2010, ASIC has responsibility for the supervision of all real time trading and market participants. The ASX has advised the company that
algorithmic trading is not a breach of the ASX operating rules.
28.
ESBC: What does BCL do, however, that the Bank of New York Mellon, as one of the
world's largest nominees and custodian banks, does not appear as major
shareholder in the listing?
Chairman BCL: Computershare, which manages BCL’s share register, maintains the list of registered owners of the shares. Page 31 of the 2010 BCL Annual Report lists
the 20 largest registered shareholders, as required by the ASX listing rules.
29.
ESBC: What options can Sir Rabbie propose to ensure that shareholders who wish to be listed in the registry of shareholders will be enabled to be listed. This would even
prevent the lending of these stocks?
Chairman BCL: BCL directors have no say in who is listed on its register. This is
governed by the ASX listing rules which apply to all ASX-listed companies. BCL
shares are traded on the ASX. Any party interested in acquiring BCL shares can
purchase ‘on-market’.
30.
ESBC: Investors who do not tender their shares to an Australian account are arbitrarily
excluded from entry into the shareholder registry. What can you do about this? In so far as many of BCL shareholders stay in the dark?
Chairman BCL: See the answer to 29
31.
ESBC: Is Sir Rabbie also supposed to be involved in the payment of landowner royalties? Can he ensure that the landowners will receive their payments due?
Chairman BCL: Matters of compensation and royalties will be subject to the upcoming negotiation process of the BCA.
32.
ESBC: As the Annual Financial Report 2010 identifies, the financial performance of the reserves of our company is poor. This is despite the financial markets rallied
worldwide in 2010. Even taking into account a changed currency between Kina
and Australian dollar, the result is still extremely unsatisfactory. What changes do
you plan for 2011 in your investment policy and strategy so that the results will
improve in 2011?
Chairman BCL: The Board has been extremely satisfied with the performance of its
investment portfolio which has out performed the ASX 200 indexover the last 7
years.
33.
ESBC: In spring 2010 the unsponsored American Deposit program has been cancelled: Why didn't you take the opportunity to buy back your own shares? Even today this is still an option. Don't you have trust in the positive development on
Bougainville or don't you have trust in your own work?
Chairman BCL: The BCL Board has considered a share buy back program but decided against because of the time involved, cost and legal complications.
34.
ESBC: As the annual report 2010 shows, Peter Taylor, as BCL Chairman, is paid as an employee of Rio Tinto. How do you manage, Mr. Taylor, your loyalty to your
employer Rio Tinto that -I suppose - includes the obligation to provide complete
information, with the fact that all shareholders must be informed equally, according to company law? In short: Are all other shareholders as fully informed as the major shareholder Rio Tinto on whose payroll you are on?
Chairman BCL: BCL is managed by Rio Tinto under a service agreement by which Rio Tinto employees are seconded for this purpose. BCL reimburses Rio Tinto on an
at-cost basis. This is a similar arrangement to that operating at other Rio Tinto
managed companies. Rio Tinto as a shareholder is only entitled to the same
market sensitive information that is available to all other shareholders. Seconded
employees are bound by strict corporate governance laws.
35.
ESBC: If not, what do you intend to change in communications in the interest of minority shareholders?
Chairman BCL: See answer 34.
36.
ESBC: As an employee of Rio Tinto, Mr. Taylor has certainly a good insight into the
investment policy of the Rio Tinto group - especially if it concerns an investment
in BCL, which he presides as chairman after all. So what do you know about the
reasons of Rio Tinto subsidiary Rio Tinto Base Metals to separate from its stake of
just over four million shares in BCL? If this question cannot be answered on the
point, we ask you to file the answer later.
Chairman BCL: The entities through which Rio Tinto holds its shares in BCL is long
standing and goes back to the arrangements that were made when BCL was
changed from a wholly owned private company to public listed company.
37.
ESBC: Why did the BCA negotiations not start as it was expected to start in 2010? What was the reason for the delay?
Chairman BCL: Commencing the BCA negotiations has always been subject to all the parties being willing and having the capacity to participate. A number of factors
have delayed the start the most significant being the need for all the mine affected landowners agreeing on their representation. Good progress has been made in forming a united landowner group.
38.
ESBC: When do you expect the BCA negotiations to get started? Which hurdles have to be overcome until the BCA can start?
Chairman BCL: The ABG, National Government and BCL have all expressed a willingness to start negotiations. Once landowner representation is worked out the process can start and hopefully that will be this year.
39.
ESBC: Is the start of the BCA negotiations sufficient to kick off some other initiatives or steps? Which initiatives could follow the start of the BCA negotiations soon?
Chairman BCL: The BCA negotiations will require a number of working groups to look at a broad range of social, technical, infrastructure, environmental, and compensation issues, from which we expect various work initiatives to emerge.
40.
ESBC: Which amount of funds is available for financing these initiatives without issuing new shares?
Chairman BCL: It is anticipated that the company will be in a position to meet all the
costs of the review without having to raise funds.
41.
ESBC: What else is Bougainville Copper considering to do to avoid any dilution for
existing shareholders?
Chairman BCL: When capital has to be raised BCL will engage experts to advise it on the most suitable options.
42.
ESBC: How long do you expect the BCA negotiations to take?
Chairman BCL: BCL expects negotiations to take at least 12 months.
43.
ESBC: Could you describe the hurdles and time frame from the BCA finalized
negotiations to the reopening of the mine? Which hurdle is the most difficult one
and why?
Chairman BCL: In addition to getting an agreement that allows profitable mining other
hurdles include
a. A Bougainville mining regime that is certain and workable
b. An economically feasible tax and royalty regime
c. A feasibility study that attracts project finance
d. Satisfactory sovereign risk
44.
ESBC: How long does it take, as a minimum to be able to generate first revenues?
Chairman BCL: Based on all the critical phases in the process, we are probably facing a timeline of a minimum of 4 years from completion of the BCA agreement.
45.
ESBC: Last, but not least: How much in AUD do you estimate the "fair value" of one
Bougainville Copper Share?
Chairman BCL: BCL shares are traded on the ASX. The market determines the price of shares, not the company.
