High world prices prompt increased exploration

Baeau Tai
Precious metals, gold, copper and silver will continue to be the leading export commodities in PNG as exploration activity maintains its steep upward trend.

Spending on mineral exploration rose from K41 million in 2003 to US$35.2 million (K110.7 million) last year, following the implementation of the mining incentives in 2003.

For 2007, total exploration expenditure in the minerals sector is expected to reach over US$50 million (K157 million).

Data from the Mining Department shows that mineral exploration has seen an upward trend since 2002 when there were only five new applications for exploration licences. But in 2003, it went up three folds to 15 new applications, 26 in 2005,130 in 2006 and from January to May this year, 26 applications had been received so far.

High gold and copper prices in the world market have also contributed to the increase in mineral exploration activities.

In 2006, mining products contributed 59% of the total value of merchandise exports in PNG. This represented a total of K7.5 billion, out of the total exports of K12.6 billion. These export earnings resulted in the sector contributing 21% to PNG’s Gross Domestic Product (GDP).

Under the reign of Sam Akoitai, former Minister for Mining, joint promotions were held at the annual international Prospectus and Developers Association conference in Canada each year and the biennial PNG mining and petroleum investment conference in Sydney.

Apart from these promotions, presentations at the annual mining conference in PNG have attracted a lot of investors to PNG, particularly from Canada and South Africa.

In addition, there are significant drilling programmes currently underway on a lot of exploration licences including Frieda gold project, Woodlark, Wowo gap, Wafi, Hidden Valley, Lihir, Ok Tedi, Feni, Tolukuma, Wapolu, Gameta, Weioko, Sehulea, Mt Penck and Simuku.

Several new mining projects are currently being developed. These include the Simberi, Hidden Valley, Sinivit, Imwauna and Weioko gold projects.

Construction cost for the Simberi mine is estimated at A$82 million and its mine life nine years. During the operation period, the mine will produce approximately 84,000 ounces of gold per year, at an average production cost of US$306 per ounce. The first gold pour will occur in October (2007). On Hidden Valley gold project, the construction cost for the project is estimated at K450 million with a project life of 10 years. The mine will be producing 310,000 ounces of gold and 5.2 million ounces of silver per year. Production cost is estimated to be approximately US$265 per ounce.

The Sinivit operation will have a three and half years mine life producing 50,000 ounces of gold per year and construction is estimated to cost A$6 million.

The mine at Imwauna will last about two years, producing 66,000 ounces of gold per year. Capital cost for construction of the mine is estimated at K5 million. The mine cash flow is expected to be approximately K42 million at the current gold price.

The Weioko gold project is expected to last for approximately two years and producing 50,000 ounces of gold per year. Construction cost for this mine is estimated at A$3 million and a total cash-flow is estimated at K25 million during the mine life.

Newcomers in the mining scene, Marengo Mining and Nautilus Minerals are head-on with their mining activities. Marengo has committed to proceed with a Bankable Feasibility Study on its 100% owned Yandera Copper-Molybdenum Project after announcing the completion of a successful Conceptual Mining Study (CMS) which confirmed the potential for a robust, long life project.

The CMS, which commenced in October 2006, had confirmed the potential for Yandera to become a very significant strategic source of copper and molybdenum production for the world market.

The CMS reviewed a number of production options for the project, based around a large open pit design containing 406 million tonnes which would underpin an initial 10-year mine life-commencing at a 25mtpa production rate for the first two years and increasing to 40mpta thereafter.

This would deliver production of approximately 112,000 tonnes of copper metal in the first year and approximately 88,000 tonnes in year 2, increasing to more than 124,000 tonnes per annum from year 3 onwards. Contained molybdenum production would commence at 4200 tonnes per annum before increasing to more than 6700 tonnes per annum.

Nautilus, the first company to commercially explore the ocean floor for high grade gold-copper-zinc-silver seafloor massive sulphide deposits, has reported significant massive sulphide drill intercepts at its Solwara 1 Project and high grade assay results at the Solwara 8 Prospect (see page 54 for more details).

The company’s exploration programme is ongoing and continues to meet with success, while reviews are underway of mining platform and vessel options.

Its US$23 million, 120-day exploration programme has delivered new prospects, targets and technologies. Planning is underway for 2008 and 2009 to leverage important new technologies, such as the remote operated vehicle drive (ROVDrill) which is providing up to 18 metres of core water depths of 1700 metres.

Its cash position as at July 31, 2007 was approximately C$289 million—equivalent to C$2.22 a share.

Additional four new mines are expected to be developed in 2007 and beyond. They include Ramu nickel/cobalt project, Wafi gold project, Golpu copper project and Frieda/Nena copper/gold project.

During the production period at Ramu Nickel, the mine will produce 32,800 tonnes of nickel and 3200 tonnes of cobalt annually.

On Wafi gold project, a total of 72.2 million tonnes of mineral ore has been identified at 2.72 grammes gold per tonne—equivalent to 6.3 million ounces of gold.

The Golpu copper project, which is adjacent to Wafi, will add about 80,000 tonnes of copper in concentrate annually to the present 200,000 tonnes of copper being produced by Ok Tedi.

Thus a total of 280,000 tonnes of copper concentrate exports annually could be expected once the Golpu project is developed. The present resource estimate at Golpu stands at 114.5 million tonnes of mineral ore at 1.43% copper and 0.72 grammes gold per tonne.

With the closure of the Misima Mine on May 26, 2004, PNG now has only five operating mines. These are Ok Tedi, Porgera, Lihir, Tolukuma and Kainantu Gold.

The gold production in 2006 from these mines including about 60,000 plus small scale miners around the country totalled 68.1 tonnes and 202,277 tonnes of copper from Ok Tedi Mine.

Production of gold at Ok Tedi is expected to be about 17 tonnes and just less than 200,000 tonnes of copper, whilst Porgera will achieve about 15 tonnes of gold. Lihir will average 19 tonnes of gold, Tolukuma will produce about 5 tonnes, Kainantu is expected to produce 3 tonnes and small-scale miners to contribute about 3 tonnes of gold this year. Thus, a possible 62 tonnes of gold is forecast to be produced this year.

After the establishment of the Mineral Resources Authority (MRA) and with its new office complex, there will be a generation of more investor attractions to PNG through the promotion of PNG’s geological prospectivity, establishment and maintenance of easily accessible geological data on PNG.

And if the government and all stakeholders ensure the fiscal terms remain internationally competitive under the MRA, exploration expenditure could hit the highest level of US$83 million on 217 exploration licences, a record figure that was achieved 12-15 years ago.