Ok Tedi mine closure could cost Papua New Guinea K2.7 billion

ok tedi

Business Advantage PNG

The El Nino weather pattern which has seen the temporary closure of the Ok Tedi mine could potentially last for up to a year, according to former senior PNG agriculture business executive, Bob Hansen, adding the loss of mining income could be as much as K2.77 billion a year.

Ok Tedi Mining Limited (OTML) has announced that it has closed the gold and copper mine in Western Province, as a result of low water levels on the Fly River, which is used to transport copper concentrate to Port Moresby.

In a statement, OTML said the weather pattern is similar to that experienced in 1997/98 when operations were shut down for more than six months.

Bob Hansen

Bob Hansen

An El Nino occurs when sea surface temperatures in the central and eastern tropical Pacific Ocean become substantially warmer than average and this causes a shift in atmospheric circulation and a change in rainfall patterns globally.

Bob Hansen, currently Research Director, Agriculture and Environment Committee at Queensland’s Parliament, has told Business Advantage PNG the El Nino weather pattern could persist for up to a year.

For the Western Pacific (PNG, Australia and India), says Hansen, this means drier conditions and much lower flows in rivers including the Fly River in the Western Province of PNG.

Financial impact

Ok Tedi Mining’s 2014 annual review estimated the mine—PNG’s largest exporter prior to the advent of the PNG LNG project—was responsible for 5.5% of PNG’s total GDP.

Hansen, a former Managing Director of Mainland Holdings in PNG, estimates the impact of lost revenue as a result of the Ok Tedi closure could be as much as US$1.0 billion (K2.77 billion) over one year, depending on the severity and the duration of the El Nino conditions.

Paul Barker, the Director of the industry-funded, Port Moresby-based think-tank, the Institute of National Affairs, says while the reasons for the closures are beyond the government’s control, the closure of one of the country’s biggest revenue earners comes at a difficult time for the country.

‘You also have the intermissions in some of the other mining operations around the country as well, and it’s also at a time when basically the LNG revenue is fundamentally going to the creditors who have provided the loans so there’s only dribs and drabs of revenue coming through in dividends and obviously from much lower levels because of the lower gas, LNG prices to Japan, Taiwan and China,’ he told EMTV.

‘Given the likely impacts on Western Province communities, OTML is coordinating with the Western Provincial Administration on emergency response planning,’ the company statement added.

Community assistance

Kiunga township on the Fly River. Credit OTML

Kiunga township on the Fly River. Credit OTML

OK Tedi Mining has announced a reduction in its permanent workforce, with the number of expatriates to be reduced by 30 percent and nationals by 15 percent.

Prime Minister Peter O’Neill has said the government will do all it can to ensure that the temporary closure of the Ok Tedi Mine does not greatly impact the people of PNG and Western Province.

The ownership of Ok Tedi has been the subject of legal dispute since the PNG Government moved to nationalise the mine in 2013. O’Neill says the people of Western Province should know by September if they can have access to the US$1.4 billion funds, currently held by previous owner, Singapore-registered PNG Sustainable Development Program.

He added there is one more issue before the Singapore Courts to be settled before the people of Western Province could have access to the funds.

Ok Tedi mine timeline

1963 – Mineralisation is first noticed near the current mine site
1969-1971 – Drilling commences at the site after the Mt Fubilan copper-gold deposit is discovered
1976 – BHP Billiton enters into ownership negotiations with the PNG Government
1979-1981 – Ok Tedi Mining Ltd (OTML) is incorporated as operator after a feasibility study is presented
1984 – Gold production begins
1987 – Copper production begins
1993 – BHP’s share in the mine increases to 60%
1997-1998 – El Nino drought forces the mill to shut down for more than six months
2002 – BHP Billiton officially withdraws from the business
2007 – Mine life extended to 2013
2013 – OTML becomes a state-owned enterprise
2014 – Life of mine extended by 11 years
2015 – El Nino weather conditions force a temporary closure of the mine.

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Filed under Financial returns, Papua New Guinea

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