Would restarting Bougainville's Panguna contribute to sustainable development?

Published by MAC on 2015-10-17
Source: Nostromo Research with Dr Mark Muller

Exclusive report

Restarting Panguna: between a rock and a hard place

Nostromo Research with Dr Mark Muller

15 October 2015

Executive summary

• Bougainville Copper Ltd (BCL) estimates that the costs of re-opening the Panguna mine will exceed US$5 billion
• But this doesn't account for the expenses of concluding several essential “due diligence” studies
• Even if these go well, a new mine is at least five – possibly ten years – away from any profitable production
• Judging by the amounts and grades of copper and gold in the existing Panguna mine lease area, any company re-opening the mine will struggle to compete against global competitors, and is likely to fail
• In order to attract mine development funds, BCL must acquire new prospecting ground outside the current licence area. It's doubtful this would yield significant fresh economically-recoverable ore reserves
• There do exist technologies for re-work existing wastes and to access ore which remained at the mine when it was closed in 1989
• However, even if these were implemented, they would necessitate significant additional operating costs; and would materially increase threats to the integrity and health of landowners' land and water
• It's highly improbable that any other mining company – including Rio Tinto and Chinese ventures - would be seriously interested in re-opening Panguna
• Major global banks are most unlikely to supply the funding needed for this purpose
• The new Bougainville Mining Act may offer attractive taxation and royalty terms to community groups and foreign mining companies
• However, these measures will severely limit the financial returns to central government, thus severely limiting other alternative models to ensure Bougainville's sustainable development

 

Could Panguna be re-opened while avoiding past devastation and destruction?

Put simply, we ask if there's any possibility that a future operator could employ “cleaner” technologies – those which were unavailable, or not employed, during the earlier period of Panguna's life?

If so, would these mark any real improvement on what went on before – in social, environmental and economic terms?

At first sight, the answer seems to be a qualified “yes”. For example, some metals could be recovered from existing waste stock piles without needing to open new pits - an example of this being the large Kolwezi copper tailings project in DR Congo.

Bougainville Copper Ltd (BCL)'s chairman Peter Taylor told shareholders in the company's 2007 Annual Report that Rio Tinto had shown it “has been possible to apply new software and techniques to BCL's old data and reproduce it in a form that places BCL years ahead of any other potential developer..It is also possible that grades [of ore] once designated as waste can be economically processed and thus prolong the life of the mine and substantially increase its output” [BCL Annual Report 2007, 20 February 2008].

What he seemed to mean by this statement was that, so long as BCL has access to its in-house records and they are in good order, the ore still untouched in the abandoned pit, along with existing stockpiles of lower-grade copper, may be amenable to profitable extraction. Techniques for doing so are much improved on what they were when the mine was forced to close in 1989.

Another possibility, long-established in mining, is to reduce the ore “cut off” grade at the point it is milled, thus enabling lower-grade material - previously discarded and stock-piled - to enter production. Again, the technology for doing this has advanced considerably over the past twenty-six years.

However, it is doubtful that BCL – or any other company- would employ either of these two strategies . Historically, Panguna's tailings were piped directly into the Jaba River, thence flowing into Empress Augusta Bay. While it might be economically worthwhile to extract metals from tailings that still lie along the Jaba flood plain and in stock piles close to the pit, accessing those on the seabed will be much more problematic.

Of course, BCL might argue that re-working these wastes is a key part of whatever the Bougainville government might insist upon for implementation of a the mining rehabilitation and closure process, process - as mandated under the Bougainville Mining Act of March 2015 (1).

Nonetheless, what is likely to rule out the extraction of sea-bed tailings is the sheer expense involved (2).

So, presuming that BCL decides on economic grounds not to recycle any, or most, of its historic wastes, the burning question is: how then will it dispose of the fresh ones that are bound to be created if mining is resumed?

The practice of riverine tailings disposal has been repeatedly condemned by lawyers and others in Papua New Guinea itself (3). Storing huge amounts of Panguna tailings and overburden on land will inevitably provoke the very resurgence of land-owner opposition that BCL and the present government claim they want to avert.

And it is far from risk-free. Numerous incidents of collapse of such facilities have been recorded year-on year over past decades (One of the most recent occurred at Canada's Mount Polley copper-gold mine in mid-2014, when a massive tailings spill caused dramatic changes in the local ecosystem) (4).

Reducing the ore cut-off grade is, in theory, quite a sensible strategy. But it inevitably results in more wastes being created at greater operational costs. Usually, companies resort to this only when market prices are high enough to justify it – which they certainly aren't at present.

In-situ leaching, usually using sulphuric or hydrochloric acid, is another technique which might theoretically be employed to reduce the highly visible and damaging consequences of resuming a traditional “pick, shovel, and dump” operation.

However, since the Panguna orebody consists of igneous/volcanic rock, almost certainly it would require “fracturing” that rock to create the permeability needed for the leaching chemicals to move through to the ore. The prospect of such “fracking” - widely condemned by environmentalists in the US and Europe - would doubtless create alarm among Panguna landowners, and pose a continual threat of contamination to their vital community water supplies.

What are the practical risks to resuming mining at Paguna?

BCL's version of events from 1989 – 2010

Since the Panguna mine was forced to close in 1989, BCL concedes it has not been possible “to mothball properly the assets or to undertake preparations for prolonged closure”. In a statement made in February 1994, it said that available “studies” (unspecified) indicated “initial production could be re-established within some 18 months from the achievement of the requisite conditions for a return to the island”. Output would then be “built up progressively to the full rate of pre-closure production over a period which would depend upon the conditions of the time” [BCL Annual Report 1993, 16 February 1994].

This vague, unhelpful statement provided little cause for optimism, and in the light of events over the past twenty one years has proved virtually meaningless.

The total cost of returning the mine to full production was at the time of closure said to be “at the upper end of the previously reported range of only 300-500 million kina, spread over a number of years” [BCL Annual Report 1993 ibid] (5)

Nontheless, ten years later BCL was saying: “...[M]etal prices alone will not determine the future of mining on Bougainville” and that: “There is no indication from landowners or the Bougainville government that mining will be welcome”. Moreover: “It must... be assumed that mine site assets continue to deteriorate with time, and therefore the cost of a restart increases...[A]ny potential developer seeking funding to restart the project is faced with the additional issues of PNG country risk and the long period of disturbance originating in the violent closure of the mine...For the record, the company is not doing any mining feasibility work nor is it planned” [BCL Annual Report 2003, 26 February 2004].

By the end of the next decade, BCL appeared to be more optimistic about re-establishing the logistics for a return to the mining lease area, in order to assess the state of Panguna's assets, and hopefully to access new exploration sites. In its 2009 Annual Report, the company said that management was “enthusiastic to study a mine restart once the peace process has been resolved (sic)” and that “Rio Tinto will be of great assistance to BLC in providing world class technical expertise and mine development experience” [BCL Annual Report 2009, 10 February 2010].

In the meantime, an Order of Magnitude study (essentially an assessment of mineral potential), along with exploration studies, had been initiated in 2008. But BCL admitted it had still not benefited from any “technical expertise and mine development experience” which might come from Rio Tinto. It also noted that the mining pre-feasibility study – one essential to estimating the costs of re-opening Panguna- “is a very expensive exercise that won't be started until there is greater certainty that the Government and landowners support re-development”, although it was hoped that “during the year, certainty will come and the Board will approve the next phase of restart studies” [BCL Annual Report 2009, ibid]

A year later (2010), BCL chairman, Peter Taylor reported that parent company Rio Tinto had recently applied for exploration licences on the Papua New Guinea mainland., thus providing a“good indicator” that it was “looking to be an active participant in PNG's future mineral development”, adding that: “Bougainville Copper is among those projects that Rio Tinto has on active watch” [BCL Annual Report 2010, 1 March 2011] (6).

Taylor added:: “[S]ome remedial work has been carried out on site as part of the company's commitment to ensure the mine site is safe whether or not mining is taking place”, and announced it had “plans to do additional work with the cooperation of landowners”. No details were given either of the work done, or of any additional work planned [BCL Annual Report 2010, ibid].

Would the costs outweigh the benefits?

In BCL's 2011 Annual Report, Peter Taylor asserted : “There is widespread agreement today that Bougainville's economic future needs mining in order to fund services for the people from its own resources as well address the future question of increased autonomy”. It was yet another unsubstantiated statement by BCL's chairperson which, we would argue, is an extremely debatable one.

In the same report, Mr Taylor also mentioned that funding and sovereign risk assurance for Panguna would “require a united effort” (whatever that was supposed to mean).

That year, BCL estimated the cost of project re-opening as being “approximately US$3 billion” [BCL Annual Report, 2011, 12 February 2012]

Just twelve months later, this figure had shot up by more than 40% to ”in excess of US$5 billion” [BCL Annual Report 2012, 7 February 2013].

Then, on 25 February 2014, Taylor told BCL shareholders that the Order of Magnitude Study, presented at the 2013 Annual General Meeting, was “being continually re-visited and updated”.

He described a possible new mine at Panguna as one which would process between 60 and 90 million tonnes of ore per annum over a mine life of 24 years”, carrying a capital cost “of at least US$5.2 million” [BCL Annual Report 2013, 25 February 2014].

As for the length of time required to re-start-the mine, Mr Taylor said this “could be between five and seven years from the commencement of a pre-feasibility study study” - which itself was “at least eighteen months away from commencement” [BCL Annual Report 2013, ibid].

At last, BCL appeared to be moving towards a more realistic estimation of the costs and difficulties of re-opening the mine and resuming profitable production. Although the company has gained restricted access to the site over the past two years, in 2014 Taylor conceded that the Order of Magnitude Study – by then two years old - was “based on many assumptions including commodity prices, market demand, investor risk, opportunity costs, security of tenure and others”  [BCL Annual Report 2014, 20 February 2015].

All these assumptions are extremely vulnerable to forthcoming dramatic changes which cannot possibly be predicted much in advance.

The time required to bring Panguna into new production would, by BCL's own admission, set any start-up back to 2020-2022 at the earliest.

Yet, the pre-feasibility study has yet to be scheduled, let alone carried out. It would have to be followed by what's usually called a “bankable feasibility study” - without which few, if any, credit-worthy banks or private funds will look twice at making any investment.

This study would need to be farmed out to an independent professional services firm, and could take at least another year to complete, given the sorry state of the Panguna assets that BCL has already agreed have suffered a “long period of disturbance originating in the violent closure of the mine.” (see above).

It should also be pointed out that, while BCL acknowledges the importance of assessing country (or sovereign) risk - presumably of both PNG and Bougainville – no reference has been made at any point by BCL to the necessity of gaining political risk insurance (7).

In addition it is certain that, whichever corporate enterprise may succeed in placing “ boots on Panguna ground”, it will have to secure export credits to finance new equipment and infrastructure, and to cover this by buying such political risk insurance. It is highly doubtful that any government Export Credit Agency (ECA), or the World Bank's MIGA (Multilateral Investment Guarantee Agency) would step up to this particular plate (8)

More important, however, is that , even were the copper market in a “bullish” state by the time BCL had successfully jumped all these hurdles, its competitors will have leaped ahead of it by miles in other parts of the world.

Mining companies, with far more capacity, security of tenure, and owning considerably more “measured and indicated reserves” of copper, are already anticipating a rise in global demand, despite the current depression in the copper commodities market.

What this clearly means is that, judging by the copper and gold reserves estimated to lie in the former Panguna Special Mining Lease, it is essential for BCL to acquire extensive additional deposits.

But, even if the Bougainville government were to allow any advancement beyond the current mining lease area (a big “if), there is no guarantee whatsoever that fresh diamond drilling would yield any major economically recoverable reserves or resources (9).

Alternative development models

What's most important is that, while any mining company is awaiting all the required pre-mining permits, funding, insurance and confirmed buyers of its output, the Bougainville government and landowners – almost its entire population – may be placing faith in a dubious, flawed and risky project which could collapse at any point along the way.

As pointed out by US AID eighteen months ago: “It... remains unclear how the ABG would finance an independent Bougainville. Many have pinned the financial health of Bougainville on the re-opening of the mine.

“This is problematic, however. Even if the mine were to open prior to the referendum [on independence] (which seems very unlikely) (sic), it would take years before it generated revenue for the government.

“An adverse circular effect is therefore in place: the mine is necessary to generate revenue for ARG [Autonomous Region of Bougainville] operations, yet the re-opening of the mine is likely to destabilize the ARG. There are further concerns that the ABG lacks the capacity to adequately and transparently account for and manage revenue resources.

“A Bougainville government that does not have the resources or the oversight capacity to provide basic services to its population [contingent on mine re-opening] would be a grave threat to stability” 10).

This has profound implications for Bougainville if, while waiting for the mine to re-open and produce revenues, the government has surrendered, or at the very least delayed, implementation of the possibilities of forging and supporting alternative economic models - regardless of what proportion of these translates into taxation and royalties for Bougainville itself and for landowners.

In fact, the Bougainville Mining Act is distinctly generous to miners, when defining the fees, annual rents, royalties, production levy, security Section 291 Royalties, and the production levy that they must pay (11) .

The Act may prove to be beneficial to indigenous landowners who apply for “indigenous” tenements; and perhaps rightly so. (In fact landowners holding an artisanal mining license are not required to pay a royalty, though they may be subject to a similar separate agreement). But it also appears aimed at attracting external corporate mining outfits, hoping that they will favourably compare these rates to more exigent ones levied in other countries.

In practice, therefore, the Bougainville state - unlike others, such as Tanzania, Argentina and Mongolia – seems about to abandon any quest to substantially ramp up mining revenues which might contribute to an overall social and economic national development.

The new Bougainville Mining Act devotes around half its pages to Community Mining Licences and Tenements. Clearly, considerable importance is now ascribed to promoting landowner-controlled mining ventures, whether they be artisanal, small scale or large scale. And this may be guardedly welcomed.

Nonetheless, indigenous mineral exploitation, like its corporate “big brother”, broadly speaking cannot escape the problems of capital raising, averting environmental destruction, and having to weather commodity market downturns.

When such exploitation conflicts with priorities chosen by other land owners for the use of land, especially for agriculture, and creates fierce competition for scarce development funding, it will certainly not make for overall economic sustainability.

So much then, for Peter Taylor's boast in 2011 – echoed recently by ABG president John Momis – that: “There is widespread agreement today that Bougainville's economic future needs mining in order to fund services for the people from its own resources”.

This is manifestly untrue.

The late Moses Havini and his wife Rikha, in 1995 recorded that, within forty years of the end of World War II, Bougainville had become “the richest agricultural region in the Pacific” (12).

With effort, application, and a re-direction of fiscal priorities, the country might regain at least some of that former role.

Although lack of space precludes detailed further examination of the nature of potential alternative, sustainable models of development, we refer to some recent examples, given in a September 2014 report by Jubilee Australia, culled from interviews with “a range of everyday Bougainvilleans living in villages around the Panguna mining area” (13)

The respondents offered many practical example of “concrete alternative (sic) to intensive mining”, with a huge priority given to horticulture & subsistence horticulture, followed by animal husbandry, alluvial gold panning,fisheries, forest and logging, carbon trading, water export, micro projects and other means of sustaining livelihoods (14)

Flying on a wing and a prayer

Let's look closer at the data provided by BCL for the proven economically recoverable copper and gold reserves in the lease area and accessible before 1989 – the point at which it abandoned the site

(The reader is also referred to our Appendix for a detailed discussion of this issue).

There were 496 million tonnes of these ores, at an average grade of 0.45% for copper, and 0.55 grams per tonne of gold.

“Upgrading” by screening, added 530 million tonnes of ore at a grade of 0.22% for copper and 0.18 grams per tonne of gold – substantially lower than those for the proven reserves. The company said these would produce an additional 195 million tonnes of mill feed, averaging 0.34% copper and 0.47 grams per tonne of gold.

Combining these would produce a total mineable mill feed of an estimated 691 million tonnes of material, averaging 0.40% copper and 0.47 grams per tonne of gold [BCL Annual Report 1999, 7 March 2000]..

These figures have not materially changed since mining began, and should be critically borne in mind when evaluating what BCL now has on offer, after seventeen years of mining one of the world's most productive and (apparently) most profitable copper-gold projects at the time.

Alas, they offer to Bougainville no more than a “wing and a prayer” for the following reasons:

• In terms of current copper production and planned expansions, an unprecedented amount of copper may hit world markets by 2020. Theoretically, the availability of supply is not in question. As a few examples,the putative El Teniente mine in Chile, with 2.02 billion tonnes of copper reserves, averaging a grade of 0.86% copper, is expected to open in 2018 and produce fine copper for fifty years
• Peru's Metmin claims to hold 926 million tonnes of copper resources, grading 0.51%, while the Antamina mine, also in Peru, boasts probable resources of 454 million tonnes, grading as high as 1.05%.
• The Grasberg mine in Papua , which ranks as the world's third largest copper producer, and number one gold miner, currently digs up 240,000 tonnes of rock containing gold and copper ore per day (sic), at a mill cut-off grade of 0.41%. for copper. (In comparison, at peak production, Panguna was producing 150,000 tonnes of rock a day) (15).
• Coming closest to Panguna in geo-political terms is Papua New Guinea's Ok Tedi mine wich recently underwent major expansions and drilling for new deposits. As of the beginning of 2014, the company had located 871 million tonnes of additional ore on Mount Fubilan, grading 0.44% copper and 0.54 grammes per tone (g/te) of gold, thus putting it somewhat ahead of Panguna; more important is that it already has the technical ability and capacity to extract the ore without needing to meet the enormous extra capital costs that Bougainville's equivalent would require.

According to the World Gold Council (WGC), larger and better quality underground mines contain around 8 to 10g/t of gold, with marginal underground mines having averages of around 4 to 6g/t. and open pit mines usually have lower grades from 1g/te to 4g/te – all of which are far higher than those so far confirmed for the Panguna deposits.

(Important to note, too, is that several mines also deliver substantial economic amounts of other metals – such as silver, zinc and molybdenum - thus providing a possible “safety net” if demand for copper or gold becomes negatively impacted).

Put all this data together, and it leads to a virtually incontestable conclusion:

Unless BCL, or any other mining company, can geometrically increase the amount of copper and gold reserves at Panguna, and unless exploration outside the lease area confirms a significant rise in their average grades, the island will be left economically stranded, if and when a new “race for resources” ensues over coming years.

Added to which, a company would need to secure firm contracts with external buyers over a defined time-span. Most of these will have already been concluded, and some of them will stretch out for years. Those contracts traded on futures exchanges (predominantly the London Metal Exchange) can have a life of more than five years, and change hands between buyers and sellers many times over. There is customarily a huge volatility in metals trading, but particularly in copper (16). An opportunity customarily arises for so-called “spot buying” - as when a Chinese smelter, for example, unexpectedly falls short of supply. However, to rely on such transactions alone, in order to bankroll a future mine, would be sheer folly.

Rio Tinto - a blithe prospect for Bougainville

As the majority owner of BCL, any decision Rio Tinto makes as to how, or whether, it should aim at reviving mining and exploration in Bougainville must take into account its current – and future - role as one of the world's major copper producers. In other words, it has to ask which of its existing projects merits increased investment, and which should be left to “wither on the vine”.

Currently it is entitled to a 40% portion of the Grasberg mine in Papua; and in the first quarter alone of 2015, it gained over 132 million tonnes from the output of its wholly-owned Bingham Canyon mine in Utah (USA), and its share of the Escondida mine in Chile. For the future, it is embarked on development of what promises to be a world-class copper mine at La Granja, Peru.

Rio Tinto's longer-term “great red hope” lies with the Oyu Tolgoi copper-gold project in Mongolia, with whose government it recently inked a deal to proceed with full commercial output, the copper grade across a number of deposits averaging 0.85% and 0.32% grammes per ton of gold..

In comparison to these, investing in the advent of a Panguna “Mark-11” must seem the distinct stuff of economic fantasy.

Little wonder that, when Rio Tinto initiated its review of Panguna in 2014, it was already seriously contemplating selling-out of the mine, and is currently mooting options for disposing of its entire share holding in BCL (17).

What about China?

Earlier this year, Rio Tinto expressed the view that China was”slowing its own demand for copper” (18) . Bloomberg agreed, recently commenting: “[I]t is difficult to predict when the market will witness [a] turning point. For now the copper price is reacting to the slowdown in China, which last year saw its economy grow at its lowest pace since 1990.

“As a consumer of more than 40 per cent of the world’s copper, any further weakening in China’s growth, without a revival in the rest of the world, could mean years before the price bounces back to previous levels” (19).

Certainly China has roamed the world in recent years in search of a whole gamut of metals at prices it judgese reasonable. In 2014, a Chinese consortium acquired (from Glencore, the world's premier copper trader) the Las Bambas mine in Peru which, at full capacity, is expected to produce 460,000 tonnes a year of copper over 18 years (20).

This cost the Chinese partners US$5.85 billion – thus coming close to the figure BCL reckons it will need to re-start the Panguna operations.
But this should in no way be interpreted as a sign that China is seriously interested in acquiring the Panguna mine – something that has been recently speculated upon in Bougainville. On the contrary, there is good reason to believe that – apart from a few possible smaller deals or participation in existing joint ventures – the regime is no longer interested in spending a similar amount of money on any venture in Bougainville – and perhaps nowhere else either (21).

Citing developments in Chile – the world's largest single copper producer, with around a third of the global market - Bloomberg says that: “The average investment of the 10 major mining companies in Chile was more than $8bn in 2012, but fell to $6bn in 2014.

And, while the Chilean company Codelco (the world's single largest copper miner) “plans to invest more than $20bn over the next five years... that is just to maintain its existing operations and production” (22).

What, then, to make of all this? On the one hand, with costs rising and investment falling, the future for an expanding copper market looks bleak. Any expansion will further reduce copper's selling-price – and in turn exert a downward impact on the revenues required to finance new production. On the other hand, restricting output now will hopefully lead to a boost in prices – a so-called “bull market - and logically to a revival of copper mining.

But that is not actually the way the market works: a surplus of mined supply results in another drop in prices, and yet again to deep reluctance on the part of investors to throw fresh money after old.

It is therefore highly likely, that, at the point - following the ten or more years it would take for a revived Panguna mine to enter full production - it would have few, if any, customers.

A cautionary end-note

The Bougainville Mining Act (paragraph 236, paragraph 4 (d) ) states that any company wishing to apply for a mining or exploration tenement must have “ sound financial standing and has either established an (sic) bank account in Papua New Guinea to carry out the proposed exploration work programme or mining proposal plans or can produce evidence of financial capacity from a duly authenticated source offshore”.

Whether BCL is now in any position to comply with this condition is doubtful, but its 2014 Annual Report, BCL recorded an overall operating loss of 175.7 million kina (approximately 65 million US dollars). Its former mining licence has been converted by the Bougainville government into an exploration licence, without any guarantee that the company will locate an appreciable amount of new mineral reserves and resources, let alone at the high grade essential to its competing against other mining companies.

(1) The Advisory Council, designated under the Act ,has the power to forbid this type of seabed extraction, citing section 67 paragraph 4.i, of the Act, on “the need to protect fisheries and ecologically important areas of seabed habitats from offshore mining...” On the other hand, the following paragraph (67.4.ii) cites “the need to maintain access to areas of high mining potential” although this is clearly intended to apply to primary, rather than secondary, seabed extraction.

(2) As a comparison, the Nautilus Minerals deep-sea Solwara-1 exploration and mining project, in Papua New Guinea waters, will cost that company at least 120 million US dollars by the point of production, with additional outlays on the running costs of vessels and equipment required for the purpose [See: http://www.nautilusminerals.com/i/pdf/webcast-November-2014-final-comments.pdf)
(3) See for example: “Constitutional Law Reform Commission recommends total banning of riverine tailings disposal”, Post Courier, 31 July 2014
(4) See: “Mount Polley mining disaster caused major changes to ecosystem – study”, Mining,com, 6 May 2015; http://www/mining..com/mount-polley-mining-disaster-caused-major-changes to-ecosystem-study/
(5) Although the Kina-US dollar exchange rate at this time is not known, five years later it was 2.11 PGK/US$, thus the projected costs then amounted to around 200 million US dollars.
(6) In reality, Rio Tinto has made no significant moves on the PNG mainland in recent years. It pulled out of the Mt Kare prospect in 1993, following an armed attack two years earlier; it withdrew from the Golpu porphyry deposit after spending six years (1996-2002) prospecting it. It also off-loaded its stake in Lihir Gold in 2005. For an invigorating account of Rio Tinto's chequered experiences at Mt Kare, see: Dave Henton and Andi Flower:“Mount Kare GOLD RUSH; Papua New Guinea, 1988-1994, as told to Andi Flower”, Cotton Tree, Queensland, 2007
(7) For a critical analysis of PIR, see: Roger Moody, “The Risks We Run: Mining, Communities and Political Risk Insurance”, International Books, Utrecht, 2005, page 201 et seq.
(8) See “A guide for feasibility planning for junior mining companies: http://www.nortonrosefulbright.com/files/mining-guide-feasibility-104177.pdf
(9) Mineral prospecting on Bougainville started from Australia in 1929, most likely by CRA, then a subsidiary of RTZ (later Rio Tinto Ltd). Panguna was “discovered” in 1965, when Bougainville, as part of Papua New Guinea, was under Australian colonial administration. We can reasonably assume that, although no data on exploration outside Panguna is now publicly available, Rio Tinto had earlier ventured into prospecting other parts of the island, and concluded that drilling results from these areas did not justify its applying for an additional exploration or mining licence. Obviously, with much more sophisticated technology, including satellite imaging and three-dimensional deposit modelling, having become available since then, the situation could change were BCL of Rio Tinto allowed to extend prospecting to the island as a whole. At present this seems very unlikely.
(10) Bougainville Stability Desk Study, USAID, 10 October 2013.
(11) According to paragraph 291/1 of the Mining Act:”The holder of a mining lease or quarry lease must pay quarterly—(a) landowners’ royalty, at the rate of 1.5% of mineral value; and (b) regional development royalty, at the rate of 1.25% of mineral value; and (c) health and education royalty, at the rate of 0.5% of mineral value; and production levy, at the rate of 0.5% of mineral value. No mention is made of other taxes, such as corporation tax and windfall tax, and other types of mineral taxation, widely employed elsewhere.
(12) Moses and Rikha Havini, “Bougainville – the long struggle for freedom”, UN International Conference on Indigenous Peoples Environment and Development”, Zurich 1995.
(13) “Voices of Bougaiville: Nikana Kangsi, Nikana Dong Damana (Our Land, Our Future”, Australia, September 2014, page 5.
(14) [“Voices of Bougainville”, ibid, page 43
(15) See: Hammond, Timothy G. “Conflict Resolution in a Hybrid State: The Bougainville Story, ", Foreign Policy Journal, April 22, 2011
(16) See: http://www.boell.de/en/2015/03/02/critical-matter-german-investments-mining-sector
(17) .The Australian, 20 April 2015; Wall Street Journal, 18 August 2014].
(18) Bloomberg, 27 April 2015
(19) Bloomberg, ibid
(20) Engineering & Mining Journal, August 2014
(21) The only Chinese company which appears to have taken any interest in Panguna is a minor scrap metal outfit, operating for three years, which was recently attacked by landowners for blatantly disregarding their interests . A spokesperson is quoted as saying: “We the landowners have never called for the government to shelter other people on our land without seeking our consent. We are never respected by the government thus we the people who own the land here in Panguna will never respect them”, adding “The Chinese are not known by the gods of the land.” (PNG Minewatch, 1 May 2015).
(22) Bloomberg, op cit

APPENDIX: Making sense of the figures

Dr Mark Muller*

14 October 2015

Given (only) the information contained in annual reports published by BCL over the years since mine closure, there is a quite large uncertainty in exactly how much ore and contained metal might be recovered from what remains of the Panguna deposit. It is apparent that BCL, in 2013, has become more optimistic about how much ore (and therefore metal) it might recover from the mine. BCL’s new optimism appears to rely heavily on technological improvements in minerals processing to allow them to mine lower-grade ores economically.

In 2013, BCL envisaged a possible new mine at Panguna that “would process between 60 and 90 million tonnes of ore per annum over a mine life of 24 years” [BCL Annual Report 2013, 25 February 2014], which implies a total recovery of between 1,440 and 2,160 million tonnes of ore.

This 2013 estimate is significantly higher than BCL’s estimate in 1999 of a “total mineable mill feed of an estimated 691 million tonnes of material” [BCL Annual Report 1999, 7 March 2000].
While there is no clear indication of where or how the additional ore might be derived, inferences based on BCL’s more concrete information of 1999 point towards a large proportion of it consisting of significantly lower-grade ore.

In 1999, BCL referred to a resource consisting of both higher-grade and lower-grade components [BCL Annual Report 1999, 7 March 2000]: 496 million tonnes of “higher-grade” ore with an average grade of 0.45% for copper and 0.55 grams per tonne for gold and 530 million tonnes of “lower-grade” ore at a grade of 0.22% for copper and 0.18 grams per tonne for gold.

The latter low-grade component, BCL proposed, could be upgraded by screening to produce an additional 195 million tonnes of mill feed, averaging 0.34% copper and 0.47 grams per tonne of gold which, in combination with the higher-grade ore, would deliver the total mineable mill feed of 691 million tonnes (referred to above), averaging 0.40% copper and 0.47 grams per tonne of gold.

The amounts of in situ copper and gold (and the current in situ US$ value) that correspond with the 691 million tonne resource are:
Copper:
2.764 million tonnes US$ 17.7 billion (at US$ 6,410 /tonne copper)
Gold:
324.8 tonnes US$ 12.4 billion (at US$ 38.31 /gram or US$ 1,191.42 /oz gold).

It’s difficult to estimate (or more honestly, guess) what average ore-grades might be assigned to BCL’s much larger total ore production estimates of 2013. The grade values reported from 1999 for the 691 million tonnes resource are almost certainly too high and would significantly overestimate the contained metal. More conservatively, one could consider a weighted average of the “high-grade” and “low-grade” ore grades reported in 1999, yielding average grades of 0.33% for copper and 0.36 grams per tonne for gold, which strictly speaking can only be applied to a 1,026 million tonne ore resource (i.e., 496 million tonnes plus 530 million tonnes).

Such a 1,026 million tonne ore resource would deliver in situ:
Copper:
3.398 million tonnes US$ 21.8 billion (at US$ 6,410 /tonne copper)
Gold:
368.2 tonnes US$ 14.1 billion (at US$ 38.31 /gram or US$ 1,191.42 /oz gold).

To complete the analysis one might, speculatively (in all likelihood overestimating the contained metal in the deposit), apply these average grades of 0.33% for copper and 0.36 grams per tonne for gold to the 1,440 (minimum) and 2,160 (maximum) million tonnes of ore that BCL envisaged in 2013 for a 24 year life-of-mine. Doing so yields (in situ):
Copper:
Minimum 4.769 million tonnes US$ value 30.6 billion (at US$ 6,410 /tonne copper)
Maximum 7.154 million tonnes US$ value 45.9 billion
Gold:
Minimum 516.8 tonnes US$ value 19.8 billion (at US$ 38.31 /gram or US$ 1,191.42 /oz gold)
Maximum 775.2 tonnes US$ value 29.7 billion.

The amount and value of the metal in the ground of course provides no guarantee that it might be economically or profitably recovered. Even with improvements in minerals processing technology, the cost of processing low-grade ore per ton of metal produced is still high with respect to processing higher-grade ores.

In all the scenarios sketched above, a very large percentage of the ore is low-grade, and judicious mixing of low-grade with high-grade ores will be required to ensure the long term viability of any new mine. Such a finely balanced (marginal) operation would be at high risk of early closure if strategic or economic imperatives, of which there are many (e.g., low commodity prices, shareholder pressure, profit taking), were to lead BCL to extract the higher-grade ore selectively at a faster rate than initially envisaged – leaving behind low-grade ore potentially impossible to recover economically at any commodity price. The risk of such an early mine closure at Panguna is the renewal of significant environmental and land-use impacts without the delivery of promised long-term economic benefits.

Two further points may be of interest:

(i) At current commodity prices, gold accounts for approximately 40% of the in situ US$ value of the deposit.
(ii) Given the small fraction of metals contained in the rock, the amount of tailings waste produced by the mine would be roughly equivalent to the amount of ore processed – i.e., depending on the scenario, anywhere between 691 and 2,160 million tonnes of tailings waste.

* Biographical note: Dr Muller is a highly-experienced senior geophysicist, having worked for over twenty years in the mining industry and academia. He holds a PhD from University of Cambridge, UK and an MSc from the University of the Witwatersrand, South Africa.