Press Review 2011

Here you will find only press articles related to the

information released by

The European Shareholders

of Bougainville Copper

15.02.2011
Source: Islands Business

POLITICS: Countdown begins for Panguna mine reopening
Bougainvilleans key to mine’s success
Rowan Callick

Plans are under way for the opening of one of the world’s biggest copper and gold mines, with resources worth about $US50 billion, as the China-driven commodities boom keeps rolling on.
So far, so predictable, if awesome.
But few people expected ever to hear of this vast pit ever again—except those canny investors who hung on to their shares for decades.
It is the Bougainville copper mine in Papua New Guinea, where production was suspended—the owners insist, not closed—on May 15, 1989.
Bougainville Copper Ltd—which is 53.58 percent owned by British-Australian mining giant Rio Tinto Ltd, 19.06 percent by the Papua New Guinea Government, and 27.36 percent by other shareholders—believes it will cost about $US3 billion to reopen the mine.
The vast trucks and electricity pylons may have been blown up or rusted or cannibalised, but the resources in the mine have not, of course, been damaged or diminished over the last 21 years.
It contains 3.5 million tonnes of copper, worth today about $32.4 billion, and 12.7 million ounces of gold, worth today about $17.8 billion.
It is capable of producing annually up to 170,000 tonnes of copper and 500,000 ounces of gold.
The copper price has risen four times since the mine closed, the gold price seven times. The two metals’ values have usually run counter-cyclically. This year, they have been peaking together.
But the cost of capital is also high and is likely to come at a premium given the tumultuous history of the mine.
Peter Taylor, who has been chairman of BCL since 2003, managing director since 2000, and who worked on Bougainville as the company secretary from 1985-87, says his focus is not on the hardware or the engineering or on raising the $US3 billion.
“The key to the door,” he says, “is the landowners. Until they say to BCL, as a united group, we want the mine and we want you to run it. Then, I’ll focus on the process that would follow.
“But we must ensure the landowners retain the number one importance. And the Bougainville government’s support is also critical.”
So far, in this direction, so good.
Taylor says: “All the signs are that the leaders on Bougainville want the mine open—and as soon as possible, rather than just ‘some day.’ And the national government agrees.”
The overwhelming focus on the mine as a national economy maker or breaker, that provided maximum pressure as it opened 40 years ago, is no longer present.
It remains the crucial income earner for Bougainville itself, but for PNG, the spotlight has shifted to the $16.5 billion ExxonMobil-led venture piping gas from the Southern Highlands to Port Moresby, where it will be liquefied for export to Asia—by far the biggest project ever conceived in the Pacific islands.
In this context, Port Moresby might more readily contemplate transferring its 19 percent ownership of Bougainville Copper to the island itself—where preliminary discussions have contemplated the autonomous government retaining 60 percent, and landowners taking on 40 percent.
On a pro rata basis, the owners of this 19 percent share would have to raise $570 million towards the mine’s reopening.
It is possible that Chinese entities, eager to obtain reliable sources of resources, may be prepared to help fund it, either in return for some equity themselves, or for future copper output.
Bougainville’s new president, John Momis, elected for five years in June, recently led a group of 34—including former combatants in the civil war—to China, where Momis recently served as PNG ambassador.
He said: “The Chinese have expressed an interest in the mine, but we are keeping all our options open.”
Former Australian prime minister Bob Hawke, who has strong Chinese commercial connections, also discussed the re-opening of the mine in late November, in a meeting in Port Moresby with Momis, in the office of veteran PNG Prime Minister Michael Somare.
Momis, a former Catholic priest and deputy prime minister, had presented a letter to the then BCL managing director Paul Quodling in 1987, while he was campaigning for the PNG election.That letter demanded that the company give three percent of its gross income to the Bougainville provincial government.
During the civil war, a leading rebel attempted to shoot Momis at close range from behind, but the pistol jammed.
He says now: “We are keen to reopen the Panguna mine, and we are holding talks with the landowners.
“Of course, Bougainville needs the mine to be reopened under a new regime. All parties should learn lessons from the crisis, and collaborate to build a better future.”
Under the peace accord with PNG, Bougainville has the right to administer its own mining and land laws.
The World Bank has been funding a programme to help Bougainville draft its own mining regime.
Taylor hopes this will complement the PNG mining legislation, which has helped facilitate a massive resources boom there.
Since BCL suspended the mine, numerous other groups, some of them extremely shadowy, have attempted to insinuate themselves into this hugely prospective mining zone.
But Taylor says, “The Bougainvilleans have seen them come to the island and haven’t in the end liked them.”
“Thus they have come back to BCL, the devil they know, despite all their past disagreements. The rogues have done BCL a favour.”
There is no timetable for the mine’s reopening. But once an agreement is reached with the landowners, a feasibility study is approved and finance in place, it will take a further 2-3 years to get mining under way again.
The lengthiest part of that process would be caused by the lead-time needed to order the huge trucks and other new equipment to operate the mine. But Rio’s size would enable it, if it chose, to push Bougainville higher up its priority chain and so receive equipment already ordered for other projects.
Taylor says BCL will facilitate landowners’ meetings and help ensure the reconciliation process goes ahead. “But we’re mindful we should not be seen to influence the proceedings.”
He says: “Everything needs to be worked out as the agreement is renegotiated—including environmental issues such as tailings disposal, revenue sharing, ownership. And the landowners need to be resourced to participate effectively.”
All in marked contrast with the lead-up to the first incarnation of the mine, when the company was not permitted by the Australian government to negotiate directly with landowners.
“The situation is quite the reverse this time,” says Taylor. “The landowners are setting the agenda, though everyone will put their wish-lists on the table.”
He wants to see the landowners obtain equity in the project because it makes them “part of your business,” as well as giving them a share of the income stream.
“The balance needs to change in favour of those who are giving up the most, and they are the landowners. To make the project successful and saleable, they have to be part of the company.”
Compared with such an achievement, raising the $US3 billion will be a minor challenge.
The redevelopment of the mine could involve the present BCL components raising their own funding, borrowing the money from banks, forward-selling production, or bringing in new partners, or any combination.
Three big selling points of the project, are that it already has a port at Loloho, an access road winding up 30km of rugged terrain, and most importantly, has pre-stripped ore ready to extract, with 200 million tonnes available immediately.
“They give us a big leg-up,” says Taylor.
Technology has improved since the mine was suspended, he says—showing for instance, that tailings can be safely stored even in a seismically active area. “The landowners have to say which method they prefer,” Taylor says. Previously, they were disposed of in the Jaba River, a cause of controversy during the period of strife.
They will also discuss whether, or to what degree, workers fly in and fly out to the island, or are based there, as they were before in the largely destroyed town of Arawa.
Taylor says that the more workers can be recruited locally, the better—though “we have received numerous inquiries from ex-employees asking when we are re-opening.”
As the Ok Tedi mine—which has become hugely profitable since BHP-Billiton quit it—prepares to scale down as the resource declines, that would be an obvious source of skilled staff.
All such elements of the reopening require feasibility studies, says Taylor.
The other big factor exciting interest in the reopening of the Panguna pit, is the likelihood that it will lead to the end of the moratorium on exploration that began in 1971, as a result of the controversy over that first Bougainville mine.
Seven exploration licences covering 20 percent of the island are held by BCL and the potential to find new orebodies near the existing pit are considerable, which would take that mine well beyond its projected mine life of up to 20 years.
No one else holds any other exploration permits—as yet, though a German funded aeromagnetic survey 25 years ago revealed many highly prospective zones. Through the last 21 years, the principal owner, Rio Tinto, did not close down BCL—it has remained listed, playing a low-key role waiting for the climate to change.
But the share price has doubled since August and tripled since May, as the likelihood of a reopening dawned on investors—rallied in Europe by Axel Sturm, the energetic German president of the European shareholders of Bougainville Copper. The company has even made a profit most years, from placing its remaining cash in Australian listed investment companies.
Taylor says that even since the mine closed, the BCL Foundation has continued to fund 100 scholarships a year.
He says: “A generation of Bougainvilleans has missed out on employment.”
As an intriguing sideshow, a case has been winding its way through the American courts in which Bougainvilleans have claimed damages from Rio Tinto over the operation of the mine.
This has become a test case for the American jurisdiction, and ultimately the Supreme Court there is likely to rule on whether its jurisdiction stretches overseas. It is now unlikely to do so until some time after the mine has reopened.
But as Taylor says, the key remains the landowners—though others, such as former Bougainville Revolutionary Army “general” Ishmael Toroama, are insisting that all the demands made by other Bougainvilleans during the fighting, remain extant.
“Panguna—after the war—now belongs to all Bougainvilleans,” he says, insisting that the original claims for environmental compensation remain extant.
The recently elected Bougainville government, however, and the Panguna Landowners Assocation, have begun a series of intense discussions in order to move the process forward towards reopening.
Lawrence Daveona, the interim secretary of the PLOA and one of the long-standing leading figures on the issue, congratulated the Bougainville affairs minister in the national government, Fidelis Semoso, for his recent role in bringing together the leaders of the six mine lease areas, in a way unprecedented in the association’s 38 years.
No one is publicly talking timetables yet. But in the minds of most of the stakeholders, the countdown has already begun.