Ok Tedi's final chapter

Ok Tedi's final chapter

The PNG National, http://www.thenational.com.pg/071907/editorial1.htm

19th July 2007

Without too much fuss or fanfare what is arguably the most important corporate position in Papua New Guinea has changed hands.

As noted in The National yesterday, Alan Breen has taken over from Keith Faulkner as managing director of Ok Tedi Mining Ltd.

Ok Tedi has had a long and difficult history dating back to the 1960s when geologists from Kennecott Copper were among the first western people to walk into the difficult terrain of the Star Mountains to discover the massive copper-gold orebody.

Kennecott walked away from the mine after a falling out with the government of the day, largely over currency issues that would potentially impact on profitability. Eventually BHP was invited by the government to take its place and to pursue development.

The mine was started up during very difficult times as the Bougainville crisis gripped the country, encouraging the government to fast-track
development despite some environmental concerns.

The giant US engineering firm, Bechtel, was forced to abandon the idea of building a tailings dam after an earthquake badly impacted on initial work and raised awareness of the enormous dangers presented by a large tailings dam.

The PNG Government subsequently allowed the mine to dump huge quantities of tailings into the Ok Tedi and Fly River systems after receipt of advice from various environmental scientists that these river systems would cope with the tailings.

History proved them to be wrong. What has ensued is a classic case of one of the worst environmental damages in the history of mining with vast virgin forest areas inundated by tailings that have caused widespread damage to the ecosystem.

BHP Billiton eventually did not want to face the odour of the environmental damage it had created and walked away from the mine, passing on its 52% equity to the newly established Papua New Guinea Sustainable Program Ltd.

BHP Billiton quit the mine even though it had known that the last decade of its mine life was likely to be its most lucrative years because higher grade ores would be mined.

It had taken 11 years from the start of gold mining in 1984 for the Ok Tedi mine to turn in its first corporate profit and, over the years BHP Billiton was forced to write off most of its development costs.

It was during BHP Billiton's departure as the mine operator that the no-nonsense, straight talking Keith Faulkner took over as managing director and, by all accounts, he successfully drove a cultural change that has greatly enhanced Ok Tedi's reputation and its ongoing role in the economy.

Even as he left, a big new programme to mitigate future environmental impacts was underway, and Faulkner concluded a mine continuation agreement that will see K1.1 billion spent over five years on community projects in vast areas of Western province.

Alan Breen has stepped into Faulkner's shoes at a critical juncture in Ok Tedi's history.

It is a tribute to the good work carried out by Faulkner, and the country's growing reputation as a significant copper and gold producer, that Ok Tedi has managed to attract a person of the calibre of Breen, one of Australia's highly regarded mining industry executives.

Breen has filled various senior mining industry roles over the past 30 years and has come to Papua New Guinea from his previous position as general manager of the big and highly successful Boyne Island aluminium smelter in Gladstone, Queensland, which is owned and operated by mining giant Rio Tinto.

At this critical juncture in Ok Tedi's history - it has been paying record profits, dividends and royalties to the PNG Government, landowners and its shareholders - as we have intimated, the mine is also at the closing chapter of its history.

Breen will have the critical role of trying to see if large quantities of inferred resources can be converted to reserves to provide additional life to the mine or he will conversely face the task of ensuring smooth mine closure.

On current plans the mine will run out of mineral reserves and shut down its operations in 2013, which is only six years away. Within the next year or two planning must begin in earnest on mine closure.

The latest mine continuation agreement will bear the brunt of the task of helping communities in Tabubil, Kiunga and along the Fly River cope with this eventuality, and mine closure plans that will be drawn up will strive to minimise ongoing and future environmental impacts.