PACIFIC ISLANDS REPORT

Pacific Islands Development Program/East-West Center
With Support From Center for Pacific Islands Studies/University of Hawai‘i

By Brian Gomez

PORT MORESBY, Papua New Guinea (The National, June 7) - Turning around an economy in distress can take considerable time and effort as we have been witnessing following the miserable 1990s.

The turnaround only began in 2003 and has continued to gain pace almost like a big ship gradually reversing its course and starting to go full throttle.

Tough government policies are needed to bring inflation and interest rates down from record highs to underpin improvements in the economy and ensure greater stability for the kina and a more sustainable level of foreign exchange reserves. As we know, there have been dramatic improvements in all of these areas in recent years.

However, there is still some debate about how much this is due to improved government fiscal policies and how much to the impact of high commodity prices. This is not an issue I seek to debate in this article. Instead, Bottom Line will focus on the roller-coaster ride generated by the implementation of pragmatic policies towards exploration and mining.

The abandoning of the two-tier tax system on mining and the new policy framework brought PNG in line with Australia and other countries desperate to attract mining investments.

By the time the Somare Government took office, grassroots mineral exploration activity had fallen to all-time lows with nearly all the remaining work done by Highlands Pacific at Kainantu and at its Ramu nickel and Frieda River projects. It was a climate that generally supported the widespread expectation that PNG’s mining industry was going to be virtually wiped out by the middle of the next decade and, ironically, many academic analysts continue to discuss PNG’s economy as though mining remains in dire straits.

In fact the country, as this column has pointed out before, is in the throes of the greatest mining boom the nation has ever seen.

One or two years ago, this could have been viewed as a theoretical scenario, but no more.

In April, the Toronto-listed New Guinea Gold began commissioning its rather simple vat-processing operation at Sinivit, where it will produce a rather modest 35,000 ounces of gold a year in a relatively small operation.

Another Australian and POMSoX-listed company, Allied Gold, will likewise be commissioning its first gold mine at Simberi this October at a production rate of 84,000 ounces a year. Plans are in hand to increase output to over 100,000 ounces annually by the end of next year.

At around the time that Simberi raises its capacity South Africa’s Harmony Gold, the world’s fifth biggest gold miner, will be bringing its medium-sized Hidden Valley silver and gold mine into production in Morobe province.

Harmony is spending US$250 million (PGK758 million) at Hidden Valley.

When it commences production in November next year, output of gold and silver will be the equivalent of 285,000 ounces of gold annually.

Harmony is a relative newcomer to PNG. Its entry followed the February 2003 takeover of the Perth-based Abelle Ltd, which had been intending to develop Hidden Valley following its earlier purchase.

The Hidden Valley deposit was discovered in 1982.

At a time when many mining giants remained disenchanted with PNG, Harmony decided PNG was going to be one of its core interests outside of South Africa.

Because of this enthusiasm, nurtured partly by the country’s changing political and economic climate, Harmony appears destined to overtake the profile of other big single mine operators such as Barrick Gold (Porgera), Ok Tedi and Lihir Gold.

At the moment, the company has six exploration teams established at six separate camps, where it employs a team of 14 geologists on an exploration budget of K14 million, including the cost of a pre-feasibility study.

Hidden Valley, which will produce less than a third of peak production at Porgera even though the mine life may be doubled to 20 years, is just a teaser for bigger and more ambitious projects for Harmony.

Sometime in the first quarter of next year, Harmony will begin construction of a decline into its Golpu copper-gold deposit, also in Morobe province, where some three years of assessment will be undertaken prior to construction of a mine.

Harmony recently upgraded its Golpu resource to 163 million tons at a very impressive 1.1 percent copper plus 0.6 grams a ton of gold and 132 parts per million of molybdenum.

This translates to a contained resource of 3.9 billion pounds of copper, 2.96 million ounces of gold and 47 million pounds of molybdenum, increases of 10 percent, 11 percent and 17 percent respectively on previous estimates.

As a gold-focused company, Harmony is understood to have held discussions with Japanese and South Korean copper smelters that may be interested in financing and operating Golpu.

However, almost next door to Golpu is the Wafi mine discovered decades earlier by Rio Tinto, where Harmony geologists have now proved up 6.52 million ounces of contained gold.

Harmony could well bring this deposit into production before Golpu.

More recently the company has also discovered a new one square kilometer gold-copper anomaly at Biamara that Harmony believes could well be "another Golpu".

In discussing new mine projects starting up in the short to medium term, one certainly cannot forget the incredible journey made by Nautilus Minerals, which was only listed in Toronto last year after many years of exploration and assessment of the world’s first commercial underwater mining venture.

In the past week, a Spanish company has won the order to build the 191m Jules Verne vessel, which will undertake mining of the Solwara 1 copper-gold deposit in PNG water depths of 1,700m.

Like a real life story that imitates science fiction, this highly innovative company expects to mine a mere 1.8 million tons of ore annually to produce up to 400,000 ounces of gold and more than 130,000 tons of copper from around the end of 2009.

For comparison, Nautilus’ Jules Verne will be mining and pumping as much ore from the ocean floor in a year that would be equivalent to the amount of tailings Ok Tedi dumps into the riverine system in Western province about every three weeks.

Yet, overall metal production will be close to the scale of Ok Tedi, currently the biggest contributor to PNG’s economic development.

These are a sampling of projects -- and we haven’t mentioned Ramu Nickel, which, itself, will rival Ok Tedi or Lihir in size and scope -- that are taking place because good policies are in place.

After 10 to 15 years in the doldrums, it has taken several years to lay the groundwork for investors to evaluate and develop vast mineral resources that would otherwise have remain undiscovered.

The projects mentioned will generate several thousand jobs and provide royalty payments for thousands of landowners, not to mention the wealth generated from exports and taxes.

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