Papua New Guinea Update

Papua New Guinea Update

28th March 2006

After last week discounting a short-term interest in reviving the Panguna mine on Bouganville, Rio Tinto is now mooted to be interested in returning to Papua New Guinea.

Meanwhile, the south Pacific state hasn't done too well in the Fraser Institute's annual survey of mining companies. In fact, it ranks 50th out of 64 countries, placing it not much above DRCongo, Venezuela and Zimbabwe. What PNG has in common with Zimbabwe is being a "deterrent" to mineral investors, because of "uncertainties" over native land claims.

Nonetheless the country ranks top, with Russia, Peru, Mali, Ghana, and Indonesia, in terms of its mineral potential.

Rio may look to re-enter PNG: analyst

by Jesse Riseborough

28th March 2006

WITH the resumption of any mining and exploration activity on Bougainville remaining in limbo, Rio Tinto may be looking to re-enter PNG to take advantage of the country's geological prospectivity as well as current record highs being experienced by commodity prices, a leading analyst said.

"It is in a part of the world that does have the potential to host world-class deposits and I think that is what of interest to companies of that size and also we have seen the Chinese becoming very active in terms of farming into projects," Gavin Wendt of Fat Prophets told PNGIndustryNews.net.

Wendt said given Rio's level of expertise in copper, the number of porphyry-style copper targets made PNG a likely destination.

"I would have to think that potentially they [Rio] are looking at some involvement in PNG with the driving factor being the fundamentals for copper are very strong – PNG is host to numerous porphyry-style copper deposits.

"PNG from an exploration point of view probably still has a number of undiscovered deposits waiting to be found and I think that is probably what is of interest to Rio Tinto. The fact there is the potential for world-class ore bodies, in particular with a copper flavour, and it is obviously a metal that Rio Tinto has a major presence in."

Speculation surrounding Rio Tinto and PNG has increased after it was revealed last week the country's Mines Minister Sam Akoitai had met with Rio Tinto chief executive of copper and exploration Tom Albanese in London.

News of the meeting also sparked market interest in Bougainville Copper, within which Rio holds a majority stake, and its shelved Panguna copper-gold operation.

Wendt said any decision on Panguna or Bougainville was a long way off and was pure speculation at this point.

"I guess a lot of it has been speculation, we don't exactly know what is going to happen. Certainly the potential is there – the prospects are better than they have been for a few decades," he said.

"I think at the end of the day before they make a firm decision they would want to get on the ground – they want to have surety they could resume mining or at least get back on the ground without trouble reigniting.

"They have made the comment before that there is not much they can salvage out of the operation. Potentially they are looking at a possible cost somewhere in the vicinity of $A1 billion to restart operations."

Rio Tinto holds a 53% stake in Bougainville Copper. The company is run out of Port Moresby by Rio Tinto Minerals staff and also funds the day-today operations of the company.

A mixed bag for PNG

by Jesse Riseborough, PNGIndustry News

28th March 2006

THE attraction of PNG as an investment and minerals-hosting destination has been reviewed as part of the annual Fraser Institute's Survey of Mining Companies, with PNG posting mixed results.

The annual survey, highly regarded within the economic community, interviewed companies that had spent a combined total of $US1.83 billion ($A2.57 billion) on international exploration in 2005 (about a third of the global expenditure) to gauge their impressions of 64 different jurisdictions.

The overall result for PNG reflected its significant potential for hosting world-class mineral deposits. However, the survey also revealed serious concerns from the world's
leading explorers over policy, land access, the lack of both quality infrastructure and a
geological database.

The survey's 'Current Mineral Potential Index' ranks the "best" places to explore in the world, taking into account both the mineral prospectivity of a region and the current policy environment.

PNG was ranked 50th out of the 64 countries – posting a score of 31% - down on last year's ranking of 33rd from 64 and a score of 60%. Neighbours Indonesia also slipped to 42nd with a score of 45%.

The top 10 jurisdictions were Chile, Nevada, Mongolia, Quebec, Mali, South Australia, Ghana, Mexico, Ontario and Western Australia. Zimbabwe, the Democratic Republic of Congo and Venezuela were all in the bottom 10.

However, the 'Best Practices Mineral Potential Index' was where PNG shone. The index calculates the most attractive country for exploration assuming best practice and no land use restrictions.

PNG posted a perfect 100% rating and ranked equal first along with Russia, Peru, Mali, Ghana and Indonesia.

Other results of note for PNG included 'Uncertainty Concerning Native Land Claims', with PNG ranked second from the bottom, above Zimbabwe, in terms of the level of deterrent to investment in the country due to uncertainties over landowner rights.

The lack of infrastructure was also identified as a major area of concern for explorers, rating just over 60% in terms of lack of infrastructure being a strong deterrent to investment. The lack of a quality geological database was also seen as a deterrent to investment in PNG.

Of the 164 companies to respond to the survey, 130 had increased their exploration expenditure from last year. Gold was assigned 50% of the overall budget of the companies, with copper receiving 15% and nickel 8%.