Miners doing it tough

Wantok | PNG Industry News

PNG’s mining and exploration scene has moved from feast to famine after a decade of high commodity prices, record exploration and development activity.

The theme has been well captured by one of the erstwhile exploration highflyers, Frontier Resources, which has announced that following the final payment from Newcrest for a farm-in it will have $A500,000 left in the kitty.

“This will provide adequate ‘hibernation’ income for the remainder of 2013,” Frontier said, adding that all possible expenditures had been minimised with directors fees cut for the year.

Nevertheless, a small capital raising may be needed later this year to fund corporate costs and essential work programs for 2014.

Frontier has been among the front runners on the exploration scene with farmout deals with Newcrest and Ok Tedi Mining Ltd. Now it is at the mercy of market forces.

At the other end of the scale two projects that have appeared as highly prospective for early development – Marengo Mining’s Yandera copper-molybdenum project and the two billion tonne Frieda River copper-gold project – have both become victims of the deteriorating climate.

Short term funding from its major shareholder, Sentient Global Resources, appears likely to take that company’s equity stake from 22% to 33.8% in an essentially holding operation as further work is carried out on a longstanding feasibility study.

Work on the feasibility study, including power options and tailings disposal plans, could take another couple of years or more to finalise and given the relatively low current ore grades Yandera might miss the development opportunity till the next commodity upturn.

Frieda River is in a different category with generally better grades but very high capital costs for development and a corporate owner in Xstrata that has lost its sense of commitment to the project.

In addition the feasibility study it conducted has been found wanting; it doesn’t look in retrospect that Xstrata had its heart in the right place in completing the feasibility, more intent on meeting its joint venture deadline with Highlands Pacific than with carrying out a thorough job. This, in spite, of the huge amounts of spending that has already been involved.

The production costs used by Highlands in the feasibility of $US3 a pound of copper and $1500 an ounce gold no longer appear realistic projections for the short to medium term given the recent fall in gold prices, albeit briefly, below $1,200.

Copper is still holding up above $3/lb but it is well below historical highs and global copper stockpiles appear to be building.

In short, it does appear that Frieda River may be missing the development opportunity in the medium term as it continues to struggle with corporate issues, uncertainty over power options and lack of full clarity on tailings disposal plans.

Newcrest has also announced plans to further streamline its Lihir gold operation, including minimisation of waste handling in the open pit and great reliance on stockpile processing. Its recently completed million ounce upgrade will probably provide a valuable buffer in the next term as production ramps up and costs begin to fall.

Barrick will also be casting an eye over potential economies at its Porgera mine as it battles the ever-present issue of illegal miners, while Ok Tedi may need to reassess its mine extension plan in view of new market conditions.

In both mines the problems related to overburden removal and handling loom large. In the case of Porgera they contribute to open pit mining problems while at Ok Tedi it is a crucial aspect of mine life extension. Falling fuel prices could aid in more economic handling of this waste, though most analysts do not appear to see reducing oil prices as a likely outcome in the present climate.

In surveying the mining scene it is at the Hidden Valley silver-gold mine where the mining fraternity appears to have lost its grips on reality.

Both equal owners Newcrest and Harmony Gold have announced they will take significant impairment costs on Hidden Valley, which is loss-making with little hope of a turnaround in the current climate.

If the current climate persists, some tough decisions can be anticipated on Hidden Valley with the rest of the sector remaining under a cloud.

2 Comments

Filed under Financial returns, Papua New Guinea

2 responses to “Miners doing it tough

  1. Government will hit a snag with dwindling income from the mining sector. There’s hope in the PNGSDP /Ok Tedi operation if Mine life extension is given a chance. Leave greed and politics out of it..

  2. lunging m

    Has someone sat down and gone thru the costing or do we accept as gospel thruth when they tell such amounts as $1500/oz?. Who is getting this money is the question? Every dollar should be accounted for and we the owners of resources should agree to where these dollars are going per kilo.

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