Brian Robins | Sydney Morning Herald | 2 March 2017
Frieda River is one of the largest undeveloped copper deposits in the world. Now, the smaller shareholder in the project, in the remote highlands of Papua New Guinea, has cried “foul’ warning that a proposed board spill will give the Chinese government control.
Less than two years after paying $1.2 billion to snap up PanAust, an Australian miner with interests in projects in Laos and Papua New Guinea, Guangdong Rising, a Chinese investment company owned by the Guangdong provincial government of southern China, is angling to gain control over the Mount Frieda gold and copper deposit.
The Frieda River deposit has been under study for development for more than 30 years. Now controlled 80 per cent by PanAust and 20 per cent by Highlands Pacific, it has had a series of owners, from Japanese to American groups, with Swiss trader Glencore the majority owner before it sold to PanAust. All of the owners to date have struggled with the cost of developing the resource.
Located in the remote north-west of PNG, Frieda River is 175 kilometres north-west of the Porgera gold mine and 75km north-east of the Ok Tedi mine.
Development costs have been put at as high as $US6 billion, which is a stumbling block, since few private companies could finance a project of that size, and most banks would baulk at the large sums involved and the associated development risk. One reason for the high cost is the need for a hydro-electric dam to generate the power needed by the project.
The most recent project study put forward by PanAust last year was based on a plant capable of handling 40 million tonnes of ore annually, producing 175,000 tonnes of copper and 250,000 ounces of gold, with an initial mine life of 17 years. This would cost an estimated $US3.6 billion to develop, excluding some key costs such as the power station and other items of equipment.
Highlands Pacific rejected the study, and obtained a review of the proposal arguing it was deficient, a view which was supported by an independent assessor which found that less expensive, lower risk options should be put forward for consideration.
PanAust had in September 2014, well before the Chinese government took control of the company, put forward a $US1.7 billion estimate to develop Frieda River. The second, more expensive development concept reflects the larger annual production capacity of the project, additional spending on waste and tailings management and increased construction costs.
In February, just over a month after the peer review of the feasibility study was released, PanAust moved to take control of the Highland Pacific board, seeking to replace its four independent directors with its own nominees.
Guangdong Rising has a 14 per cent shareholding in Highlands Pacific, with Trafigura, the privately controlled commodity trader, owning 16 per cent and an arm of the PNG government another 11 per cent.
Guangdong Rising’s “proposed board spill would constitute a change of control of the company, without any payment or premium for control”, Highland Pacific’s outgoing chairman Ken MacDonald and Ron Douglas, the chairman elect, said in a letter to shareholders.
“Our shareholders deserve better. If GRAM wants control, it should make a takeover offer and pay a full price.”
For its part, the Chinese company has stated the proposed board spill is simply an attempt to “reinvigorate” Highland Pacific’s board.
“PanAust considers that the appointment of a new, independent board is an important step towards a strategic reinvigoration of Highlands with a view to stemming ongoing value destruction,” it said in a statement, denying the proposed board spill is about gaining full control over the Mt Frieda project.
It also argues that the nominees it has put forward to stand for the Highlands Pacific board are viewed as being independent of itself, and they will not act under its direction.
Along with the Frieda River stake, HIghland Pacific has a small share in the large Ramu nickel project, controlled by China Metallurgical Co, along with some advanced exploration projects.