Bougainville Copper: will it get to play again?
Published by MAC on 2017-07-18Source: Business Advantage PNG, ABC, Pacific Island Report
Odds seem loaded against recent moves
When the great - no doubt sometimes also good, but frequently woefully ignorant - among mining outfits (and their desk-bound investment advisors) look at a risk-laden, problematic, prospect like Bougainville Copper Ltd's Panguna mine, any upturn in commodity markets are apt to be heralded as a golden opportunity.
And also give a boost to the fortunes of the existing incumbent company BCL, however dubious its ownership claims may be.
Two such "experts" - Greg Evans of KPMG and Satish Chand, a professor of finance based at Australia's Defence Academy (sic) - acknowledge some of the risks involved in finding a major player to bankroll restart of the Panguna mine, estimated by BCL itself to cost around US£5 billion.
But they appear to have little understanding of the increased financial burdens that will be incurred, not least in compensating a fully-independent Bougainville for the vast damages caused by former lease owner Rio Tinto, as well as the strong likelihood of local bitter opposition - especially by women - to the mine's re-opening (see article below).
These risks were clearly set out in a paper published by Nostromo Research and geophysicist Dr. Mark Muller at the end of 2015. It asserted that,
inter alia:
- 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;
- 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 [major] mining company – including Rio Tinto and Chinese ventures - would be seriously interested in re-opening Panguna (See: Would restarting Panguna contribute to Bougainville sustainable development?).
John Momis, head of Bougainville's Autonomous Government, earlier seemed to accept such evidence, and dispute BCL's right to resume mining (See: Has Bougainville president done a U-turn on Panguna?).
Alas - the lure of fresh money, however speculative, has proved a powerful force in influencing the president to place his faith in "the devil we know", rather than admit to the true nature and shameful history of that particular enterprise.
[Comment by Nostromo Research, 18 July 2017]
Global mining major needed to re-open Bougainville’s Panguna copper mine?
Kevin McQuillan
Business Advantage PNG
18 July 2017
Moves to re-open the Panguna copper mine on Bougainville are gathering momentum. Funding the re-opening is a key concern, however, says Bougainville President, John Momis. Could one of the global mining majors get involved?
Bougainville Copper Ltd (BCL) is currently advertising for a local Bougainville-based manager, and are looking at the payment of K14 million in rent and compensation that was owed to the 812 customary clan groups who own the blocks of land within the mining lease areas.
Autonomous Bougainville Government President John Momis tells Business Advantage PNG, that over the next year, he expects BCL to open an office and ‘start dealing with some of the legacy issues, demonstrating BCL’s commitment, in a just and fair way, to some of the real issues that have been bothering the land owners.’
That includes, he says, the ecological, environmental, and health damage issues caused by former owner, Rio Tinto.
‘They have walked away, so now BCL has to address that.’
Momis says the Joint Steering Committee preparing for the mine’s re-opening consists of representatives from the nine official landowner groups, BCL, the national government, and the ABG, and is to be chaired by an independent chairman.
Funding
A key challenge is the cost of reopening the mine; back in 2012, BCL estimated it would be US$5 billion.
‘BCL has to demonstrate to us they have ability to solicit funds and attract a developer and I’m sure they are thinking about this,’ says Momis, pointing out that under Bougainville’s 2014 Mining Act, BCL has first right of refusal about re-opening the mine.
‘The Panguna mine is a “high-risk, high-return” investment.’
‘We are giving BCL the opportunity to get funds and to meet the conditions as per the mining law. If they fail, then other companies will have to apply and be put through this process.’
Mining industry analysts describe the Panguna mine as a ‘high-risk, high-return’ investment, which only global miners would be interested in.
Greg Evans, KPMG’s Perth-based Global Leader, Mining Mergers and Acquisitions, believes there will be considerable interest.
‘If you look at what the resource is, and what it can deliver to both an owner and investor—and, probably more importantly, the local economy—it would have to be a definitive “yes”.
‘The copper price is heading in the right direction, the supply metrics are working in the favour of copper broadly and I would expect that BCL are being approached reasonably regularly by a number of metals traders.’
Evans points to growing demand for copper, noting that batteries in electric vehicles are likely to use 927,000 tonnes of copper a year by 2030, according to forecasts by Bloomberg New Energy Finance. That alone equates with 5 per cent of current production.
Global
Evans believes a global miner, ‘like Glencore or similar’, is likely to become involved.
‘KPMG just completed a survey around transaction activity across a bunch of sectors. In the mining sector, the preference of the majors was particularly for joint ventures at the asset level.
‘Batteries in electric vehicles are likely to use 927,000 tonnes of copper a year by 2030.’
‘To me, that would be the form that a transaction would likely take. BCL would ensure the social licence to operate, and look after stakeholder management, political and administrative management on the ground, with perhaps a partner coming in providing financial and operational support.
‘So, it is likely to be a large industry player used to dealing in remote locations, eliciting strong local community engagement, and creating local employment as an obligation and priority. All those things are going to be required.’
Risks
Satish Chand, Professor of Finance at the University of New South Wales and based at the Australian Defence Force Academy in Canberra, says risk assessment will be crucial.
‘There has been a history of conflict where a very small number within the population has the ability to stop a very large mine. That risk remains.
‘There is a contest over the distribution of proceeds and that has not yet been settled to my understanding. There is little that is known about the magnitude of the cost involved in the clean up.’
Chand notes that the Bougainville Mining Act says 51 per cent of the mine must be locally-owned. The non-binding referendum on Bougainville’s independence from PNG scheduled for 2019 must also be considered a ‘risk’.
Greg Evans agrees the local shareholding requirement makes the financing prospect ‘more challenging’.
‘The biggest successes that the majors have had in countries such as Africa and South America, have been where they’ve engaged local communities, shared the profits, and shared the benefits. The control over how those profits flow and are allocated is equally the challenge—as it is the solution.
‘You’ve always got to come back to the quality of the resource; which will always make it attractive.’
Bougainville Women Protest Signing Of Agreement To Reopen Panguna Mine
Pacific Islands Report
6 June 2017
Landowner deal with Autonomous Bougainville Government signed without input from women
The signing of an agreement is to be between the Autonomous Bougainville Government (ABG) and the Panguna landowners.
It will pave the way for the Bougainville Copper Limited to reopen the Panguna Mine.
The deadline is before June 2019.
The women are members of the Panguna landowners.
They marched to the office of the Special Mining Lease Osikaiyang Landowners Association in Arawa where they met former chairman Lawrence Daveona and his executives.
Panguna landowner representative Bernadine Gemel Kama said they raised their concerns with Daveona and his executives because they were the ones who wanted to sign the agreement with the ABG without consulting the women.
She warned that the Panguna issue would cause division among the people of Bougainville.
“As a landowner in Panguna, I want everyone to know that it is only a minority of people especially men who want to open the Panguna mine,” Kama said.
“All of us do not want BCL to ever come back to Panguna and mine.”
Youth representative Robert Baranangko, who joined the march with the women, said they were not aware of the agreement to be signed.
He said there was obviously a lack of consultation.
Bougainville Copper moving to reopen controversial Panguna mine with Government backing
By Papua New Guinea correspondent Eric Tlozek
ABC
4 May 2017
The company which used to the run the controversial Panguna copper mine on the island of Bougainville is now trying to reopen it with the support of the island's Government.
It has been almost three decades since Panguna was abandoned, after anger about the mine led to the outbreak of an armed insurgency known as the "Bougainville crisis".
Now the Bougainville Government believes it needs the mine to reopen, so the region can have a source of revenue that could enable it to become independent from Papua New Guinea.
Part of the bid by Bougainville Copper Limited (BCL) includes acknowledging and addressing the social and environmental problems it left behind.
But "this time it will be quite different and the landowners will be brought along on the journey," BCL secretary Mark Hitchcock said.
"We did have to leave in a hurry and things were not closed down the way that a normal mine would close," Mr Hitchcock said.
"When we go back, we'll be conducting our baseline studies to see what the situation is and we will, as the mine progresses, progressively work on some of those environmental issues.
"But with the people, the mine will only work if we involve them all the way along."
BCL was owned by Rio Tinto, but the mining giant gave its shareholding to the PNG Government and to the Autonomous Bougainville Government, the entity created as part of the Bougainville Peace Agreement to end the crisis.
The PNG Government said it would then give its shareholding to unspecified landowners in Bougainville, creating uncertainty about who the company must deal with and leaving the Bougainville Government without a controlling stake.
Mr Hitchcock said that has created another problem to be resolved.
"The ABG and the landowners are a little bit concerned about who the actual owners are, after Prime Minister O'Neill said that he was going to gift them to the people of Bougainville and the landowner," he said.
"So that's one of the issues we need to sort out. "
The PNG and Bougainville Governments have just agreed to create a Joint Steering Committee to resolve this and other issues.
BCL executive chairman Rob Burns said that was a major step forward.
"So we've got commitment in that respect that all parties are going to work together and it's terrific news for BCL," Mr Burns said.
BCL was stripped of its mining tenements and left with just an exploration licence, but it still has all the resource data for the site.
Other companies have expressed an interest in mining Panguna, but the Bougainville Government is giving preference to BCL because it owns part of the company.
Raymond Masono, Bougainville's Deputy President and Mining Minister, said "BCL is not longer the devil that we know".
"We actually own this devil as a major shareholder in the company," he said.
"Also, BCL under the Bougainville Mining Act has the first right of refusal to Panguna."
BCL return expected to face opposition
The main reason the Autonomous Bougainville Government is supporting a resumption of mining is revenue.
There will be a referendum in 2019 on whether the region should become fully independent of Papua New Guinea, and the Bougainville Government believes a mine is the best way to guarantee income for a new country.
"We believe that Panguna can bankroll Bougainville's autonomy and independence if the people so decide in the 2019 referendum," Mr Masono said.
The Bougainville Government says most landowners support the resumption of mining, but other residents may be less convinced.
A United Nations Development Program report in 2014 found there was no evidence of majority support for reopening the mine amongst the general population.
There are also some organised groups who oppose BCL's return.
Mr Burns said the company was aware of "active detractors".
"We believe that they're a very minor group and the most vocal of that group have competing interests in our Panguna mineral rights and they aren't truly representative of landowners," he said.
The push to reopen Panguna is part of a broader move by the Bougainville Government to lift its moratorium on mining in general.
BCL's attempt will surely be watched by companies and investors to see how well the damage of the Bougainville crisis has healed.