Monthly Archives: October 2013

St Barbara warns of cuts at Simberi

Esmarie Swanepoel | Mining Weekly

ASX-listed gold miner St Barbara on Thursday warned of significant personnel cuts at its Simberi operation, in Papua New Guinea, after the operation had again failed to reach its production targets.

The company also removed 20 000 oz from its full-year production forecast of between 85 000 oz and 100 000 oz. It further warned that capital costs would rise to between A$28-million and A$33-million, from between A$20-million and A$25-million.

During the first quarter to the end to September, the Simberi mine produced 11 741 oz of gold, compared with the 12 927 oz produced in the previous three months.

St Barbara said that factors impacting the shortfall in production was a combination of a lack of access to drill and blast ore, equipment availability and reliability issues.

Higher sulphide-content ore from openpit material also reduced gold recovery and lifted the processing costs.

The gold miner said that a review was now being implemented to look at cost reductions and initiatives to lift operating performance and to complete the commissioning of the oxide expansion. As part of the cost cutting initiative, the Simberi work force would be reduced by 135 personnel.

A pre-commissioning integrity audit of the new Simberi mill has also determined that some rectification work was required before the mill can be commissioned, and this commissioning was now scheduled for the December quarter.

Meanwhile, St Barbara on Thursday reported that group gold production for the first quarter ended September had reached 96 739 oz, compared with the 107 363 oz produced in the previous quarter.

The Australian operations produced some 70 479 oz of gold in the quarter, while the Pacific operations accounted for the balance.

The production forecast for both the Australian operations, and the Gold Ridge mine, on Solomon Island, has been maintained, with the latter expected to produce between 75 000 oz and 90 000 oz in the full year.

The Gwalia mine was expected to produce between 180 000 oz and 195 000 oz, while the King of the Hills mine would produce between 55 000 oz and 60 000 oz.

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Ok Tedi mine hit by strike

Lian Fox | Australian Network News

Production at Papua New Guinea’s biggest mine has been cut after some staff went on strike over concerns about redundancy offers.

As part of plans to reduce production by a third, the Ok Tedi mine is making all staff redundant before rehiring a smaller workforce in 2014.

Some workers – it’s not clear how many – went on strike on Wednesday night because of concerns about redundancy packages.

Daniel Komba, from the Mine Workers Union, says some people are worried they will get a smaller payout than those who accepted an earlier redundancy offer.

The confusion has been heightened by the PNG Government’s recent takeover of the mine.

The mine’s management says all staff receive the same level of redundancy entitlements.

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Current Issues In Seabed Mining

The attainment of a social license mine is very much a work in progress. There has been considerable opposition to seabed mining in territorial waters. To date there does not seem to be a political consensus as to whether seabed mining is acceptable. 

Wylie Spicer* | Mondaq

When the International Regime for Seabed Mining was introduced at the United Nations in 1994, as an amendment to the Law of the Sea Treaty (the Treaty) the then Secretary General of the International Seabed Authority (ISA) Ambassador Satya Nandan described the proposed regime as providing for: “a stable environment for investors in deep – seabed minerals under a market – oriented regime; it guarantees access to the resources of the seabed to all qualified investors; it provides for the establishment of system of taxation which is fair to the seabed miner and from which the international community as a whole may benefit;”

As of 2013 it is fair to ask what progress has been made towards these goals.

The Regime described to the United Nations by Ambassador Nandan concerned the development of a Seabed Mining Regime in respect of the ocean floor beyond the territorial limits of coastal states (the Area). A mining regime within the limits of the jurisdiction of a country does not involve the ISA; consequently the development of the necessary relationships to pursue mining are between the miner and the government of the coastal state. However, many of the issues are relevant to both mining areas.

Activity in coastal waters has been concentrated in the Southern Pacific. A number of Pacific Island countries have granted either exploration or exploitation leases and the Secretariat of the Pacific Community has identified seabed mineral potential in Papua New Guinea, Fiji, Federated States of Micronesia, Kiribati, Tuvalu, the Solomon Islands, Vanuatu, the Cook Islands, Samoa and Niue. In the Area, the ISA has granted seventeen contracts either directly to countries or to companies sponsored by a country (this is a requirement of the ISA). ISA contracts are for exploration; contracts granted in respect of mining in territorial waters may include rights to exploit the resource (this is the case with the lease granted by Papua New Guinea to Nautilus Minerals). The result of all of this is that both governments and private industry have interests in the development of seabed mining in territorial waters and beyond.

All this interest in seabed mining arises from a number of sources, two of which are the world need for more metal (including rare earth metals) and the possibilities of financial benefits for the countries that possess the metals. Using copper as an example, the US Geological Survey has estimated that world consumption of copper over the next 25 years will exceed all of the copper metal ever mined to date. The average reserve grade of land based copper projects as of 2009 stood at .61 %. Nautilus has estimated that the grade available in its Papua New Guinea seabed project is 7.2 %. As a potential beneficiary the Cook Islands estimate that mining the minerals in their waters has the potential to increase their GDP a hundred fold. The UN estimates that the current per – capita income of the Cook Islands is $12,200.

Seabed mining is not unlike other new industries attempting to establish themselves. In order to prosper there must be a legal framework in place and industry must have a social license from the relevant stakeholders. With a new industry in uncharted waters the attainment of a social license involves the development of a consensus that the activity is safe and that it does not adversely affect the environment in which it is conducted. This is frequently a substantial hill to climb for industries in new areas. The seabed is one such area. Mining for shale gas faced much the same developmental issues and one expects that methane hydrate mining will encounter similar hurdles.

The complete legal framework for seabed mining is not yet in place, what currently exists is a developing framework. There is no exploitation code for seabed mining in areas regulated by the ISA. Many ISA exploration licenses expire in 2016 and the current licensees will require guidance on an exploitation framework. The ISA has recently published a study describing what might be included in a regulatory framework for exploitation but currently it is just that, a study. In the South Pacific very few of the island nations have mining codes, although some are in progress, such as the Cook Islands. Part and parcel of the establishment of the regulatory framework is the development of a taxation/royalty regime to provide certainty for a developer assessing its risks. For activities in territorial waters this may be negotiated between the developer and the coastal state. The Finance Minister for the Cook Islands, Mark Brown, has recently stated that the Cook Islands would expect to receive stakes in mining companies for free as the price for granting rights to exploit the resources of the Cook Islands. In the case of ISA regulated leases one expects that a generic regime, including a royalty structure, will be developed to cover production in all ISA regulated areas. This will probably be a regime bereft of any individual negotiation between ISA and its individual licensees. It will be interesting to see whether the companies who have leases in ISA areas as a result of state sponsorship have the staying power to await an ISA articulated mining regime.

The attainment of a social license mine is very much a work in progress. There has been considerable opposition to seabed mining in territorial waters. To date there does not seem to be a political consensus as to whether seabed mining is acceptable. The lack of consensus is a continuing concern in assessing risk. In the case of a coastal state the political consensus which will eventually result in the granting of the social license will be directed to issues specific to the coastal state.

The ISA process involves the politics of the state members and their representatives members of the ISA. In formulating a social licence for seabed mining the ISA is guided by the Treaty, a main purpose of which is the protection and preservation of the marine environment. When the ISA determines the environmental regime to be applied to seabed mining its considerations will be based on the interests of state members and the dictates of the Treaty.

The leases granted by the ISA are in areas of the ocean floor beyond national jurisdiction. When the ISA puts in place a royalty regime it will be against the backdrop that the seabed (and its resources) over which it has regulatory authority are part of the common heritage of mankind and that all rights in these resources are vested in mankind as a whole. It is the responsibility of ISA to act on behalf of mankind. Bearing this in mind, the ISA has, on a number of occasions, discussed whether the granting of leases should be done such that monopolization of the resource is avoided. Since in some cases leases are granted to member states and in others to companies sponsored by a state the ISA has mooted whether the objective should be to prevent monopolization by a single applicant for a lease (regardless of whether that is a state or state sponsored enterprise) or alternatively whether the objective is to prevent monopolization by a single State member of the ISA. It is a complicated and undecided issue. This year at the ISA annual meeting, the report of the Legal and Technical Commission (the ISA entity tasked with detailed consideration of applications for leases) commented: “the Commission also held a general discussion on the issues of monopolization of activities in the Area. It noted that in recent years new business models of business arrangements had begun emerging that required the attention of the Commission. It was considered that in light of current developments…the Commission’s work on this matter should be prioritized and the Council may also wish to give further consideration to the potential for monopolistic behaviour in relation to polymetallic nodules.”

The requirement of the Treaty that the ISA act on behalf of the common good of mankind may have to be considered along side potential state, or state sponsored enterprise, monopolization of the resource.

In summary there are many issues which investors will need to address as the industry and its legal frameworks develop.

*Norton Rose Fulbright Canada LLP

First published in Mining Journal on October 18, 2013

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UN expert body urges action to prevent violation of indigenous rights due to business activities

UN NEWS CENTRE | PACNEWS

States and corporations need to do more to prevent the violation of indigenous peoples’ rights as a result of business-related activities, a United Nations independent expert body has said.

 “Indigenous peoples are among the groups most severely affected by the extractive, agro-industrial and energy sectors,” said Pavel Sulyandziga, Chair of the UN Working Group on the issue of human rights and transnational corporations and other business enterprises.

“Negative effects range from indigenous peoples’ right to maintain their chosen traditional way of life, with their distinct cultural identity, to discrimination in employment and in accessing goods and services.”

Other challenges involved land use and ownership, as well as displacement through forced or economic resettlement Sulyandziga said yesterday in his presentation of the Working Group’s report to the General Assembly’s social, humanitarian and cultural committee (Third Committee) on the adverse effects of business activities on indigenous peoples’ rights.

 “Such disruption often leads to serious abuses of civil and political rights, with human rights defenders in particular put at risk,” Sulyandziga said. “Indigenous peoples are also often excluded from agreements and decision-making processes that irrevocably affect their lives.”

The report highlights how the UN Guiding Principles on Business and Human Rights can clarify the roles and responsibilities of States, business enterprises and indigenous peoples in addressing these problems.

 “We call on States and business enterprises to increase their efforts to implement the Guiding Principles. This includes the State’s duty to protect indigenous peoples against business-related human rights abuses and corporate responsibility to respect human rights, and where abuses have occurred, to ensure people can have effective remedy,” said Sulyandziga, while urging interested parties to register for the second annual Forum on Business and Human Rights to be held in Geneva in December.

“It will be an opportunity to discuss challenges in implementing the Guiding Principles, in particular sectors, in operational environments and in relation to specific rights and groups, including indigenous peoples. It will also be a chance to identify good practices and opportunities for dialogue and cooperation toward solutions,” he added.

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Ramu Nico embarks on cost saving measures

Post Courier

IN LIGHT of the slowdown in global economy and declined price of nickel metal, the only nickel/cobalt exporter in the country, Ramu NiCo is adopting stringent measures to improve its production while reducing deficit in the second half of this year, according to the company’s recently released newsletter.

In the half year work conference for 2013, Chairman of Ramu NiCo Mr Zhao Shimin highlighted that many international mining companies have to close down, layoff or downsize their operation in response to the poor global economy and some mining industries in PNG have taken that path. “We have to say that we are not born at the perfect timing, since in the first year of operation, we have to confront such severe difficulties and challenges both internally and externally,” Mr Zhao said.

However Mr Zhao is confident Ramu NiCo will reverse the company’s difficult situation and with determination and dedication from all staff and management will reduce deficit in the second half while improving production.

He also assured the employees and stakeholders that with the support from MCC Group with technology and capital will see in the second half some improvements in the production to reach this year’s production target of 50%.

Meanwhile, the chairman appealed to all technical staff at Basamuk Refinery and Kurumbukari mine to coordinate and communicate closely to overcome technical bottlenecks and invent new idea to build a strong foundation for the prosperous production in the years to come.

Mr Zhao also took the opportunity to thank all Ramu NiCo staff for their commitment in the Project and further encouraged them to take cost cutting measures while using their wisdom to propose ideas to improve production.

Ramu NiCo Project was officially launched in December 6, 2012, after its construction completion and the maiden export shipment made at the end of 2012. Ramu NiCo is currently targeting at 50% of the design capacity this year and 80% next year with the full 100% production capacity in 2015.

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Harmony investors blocking Wafi-Golpu

“We’ve got a fantastic copper project but investors won’t let us build that project. It will cost too much and they worry about it'”

Harmony sees silver lining in distressed assets

Allan Seccombe | Business Day Live

HARMONY Gold’s next mine will probably be an acquisition of another company’s gold mine that the miner believes it will be able to turn around, CEO Graham Briggs said on Wednesday.

Harmony has closed all of its original mines and is now operating mines that were originally bought from other companies to build the company into one of the world’s major gold producers. The newest mine in its stable is one that it built with Australia’s largest gold producer, Newcrest Mining, in Papua New Guinea.

“Where the next mine is going to come from for Harmony is probably going to be acquired and it will probably be turning around someone else’s assets and making more money out of them,” Mr Briggs said at the Investing in Resources and Mining in Africa conference in Johannesburg.

He said that going into other countries would entail the additional expenses of not just running the mine but also setting up offices, networks and support.

It would make sense to look for distressed assets in the countries where Harmony already has a presence, he said, arguing these would be mines making losses in the hands of existing owners.

There has been a shift in the South African gold sector, with the formation of newly listed Sibanye Gold after the unbundling of three gold mines out of Gold Fields. Gold Fields CEO Nick Holland and Sibanye CEO Neal Froneman have both said the new company could be a catalyst for consolidation of South African gold assets.

“An advantage for us and Sibanye, for instance, is to look at the countries in which we operate. If there’s a distressed asset in SA, guess what, maybe we’ll be fighting about that asset,” Mr Briggs said. Investors in mining companies were reluctant to approve major capital expenditure on new, large mining projects.

Harmony and Newcrest are working on plans to build a copper and gold mine at the Wafi Golpu project in Papua New Guinea, but both companies have run into strong opposition from shareholders for the multibillion-dollar project, demanding that it be a smaller, less expensive, less risky operation. “We’ve got a fantastic copper project but investors won’t let us build that project. It will cost too much and they worry about it. Some of these things have to wait for the right investment time,” Mr Briggs said.

In the current market environment, investors are looking for near-term cash flow rather than investing in projects that will take years to build and to deliver returns, he said.

In SA, gold companies are regularly in discussion and sharing thoughts on safety and health in the industry.

“We talk about a range of things like boundaries or consolidation. Sense has to prevail in these things,” Mr Briggs said.

He also said that major institutional shareholders held shares in all the leading gold companies and were also pushing for sensible outcomes.

Sibanye chief financial officer Charl Keyter said: “Gone are the mining magnates from yesteryear. The environment is ripe to collaborate, pool and share, look at boundary areas and to look at other synergies.”

Mr Briggs said the gold industry would descend into “chaos” if the gold price fell below the total production cost of $1,200 an ounce for a long period of time.

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PNG’s Ok Tedi posts net annual profit of 472 million US dollars

Radio New Zealand

Ok Tedi Mining Ltd in Papua New Guinea has posted a net annual profit of 472 million US dollars.

This compares with 621 million in 2011.

The newspaper, The National, reports Sir Mekere Morauta – who was recently terminated by the government as chairman of the OTML – as saying the company filtered nearly a billion US dollars into the PNG economy through dividends and taxes.

Sir Mekere says pending a decision on the extension of the life of the mine, the company has been managing ore reserves to achieve maximum value as gold and copper grades decline.

The government also recently moved to sack Sir Mekere as chairman of the Sustainable Development Programme, which until last month held 63 percent of the stock in OTML.

The government expropriated those shares through an act of parliament in September and last week sacked the SDP board, but Sir Mekere says this was unlawful.

The SDP says as a Singaporean incorporated company it will seek legal redress in that jurisdiction.

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