While challenges remain, global demand is boosting long-term prospects

Situated within the Pacific ring of fire and immensely rich in mineral deposits, Papua New Guinea is one of the last frontiers for mining firms searching for unexploited treasure. Yet the same geologic forces which have concentrated gold, copper, nickel and other precious metals within the country – at the convergence of the Australian Plate to the south and the Pacific Plate to the north – have also contorted the earth’s crust into rugged mountain ranges and steep valleys. The logistical challenges posed by these geological conditions, combined with delicate social and cultural relationships among the country’s diverse inhabitants, have in previous years proven to be significant barriers for multinationals seeking to commercialise PNG’s vast natural resources.

On The Up

In spite of these issues, strong global demand for raw materials amidst the backdrop of the commodity super-cycle continues to fuel investment in the country’s mining sector. While mining development has slowed in recent years, several new, potentially large-scale mines are nearing the production phase and exploration work is continuing at other sites across the country. As of July 2014, 345 active mineral exploration and mining licences had been issued by the Mineral Resources Authority (MRA), covering a large area of the country. In addition there are 175 conversion tenements and 249 new or renewal applications under consideration.

As of early 2014, a total of seven mines produced the lion’s share of PNG’s mineral output, with all but one focusing primarily on the country’s rich copper/gold porphyry deposits. These are the Ok Tedi mine in Western Province, Porgera in Enga Province, Lihir and Simberi in New Ireland Province, Tolukuma in Central Province, Hidden Valley in Morobe Province, and Ramu in Madang Province (which produces nickel/cobalt).

Book Value

While still a major source of finance in the country’s ongoing economic development, mining revenues for the government have fallen significantly in sync with softening global commodity prices. These external factors, when combined with lower output from PNG mines and domestic uncertainty over new mining legislation, have been trying for the mining sector over the past year.

After peaking at PGK6.38bn ($2.59bn) in 2010, gold exports have fallen in consecutive years to PGK5.97bn ($2.43bn) and PGK5.2bn ($2.11bn) in 2011 and 2012, respectively, with first-quarter 2013 results of PGK999.5m ($406.3m), as per data from the Bank of PNG (BPNG), the central bank. Exports of the country’s second-most-valuable mineral export, copper, showed similar declines as shipments fell from PGK3.09bn ($1.26bn) in 2010 to PGK2.07bn ($841.4m) in 2012, and PGK325.7m ($132.4m) through the first three months of 2013. As a result, money generated from resource extraction industries, which includes both the mining and energy sectors, declined from an estimated 24% of government revenue in 2011 to just 12% in 2012, according to a January 2014 report released by ratings agency Standard & Poor’s.

After spiking from PGK614.5m ($249.79m) to PGK1.9bn ($772.3m) from 2009 to 2010, mineral payments to the government declined to PGK1.56bn ($634.1m) and PGK1.53bn ($621.9m) over the next two years, with first quarter 2013 receipts totalling PGK267.2m ($108.6m), according to BPNG data.

Government revenue from the mineral sector is derived primarily via company tax, which accounted for 78.63% of income in 2012, followed by dividends at 9.87%, with the remainder coming in the form of a dividend withholding tax. However, with domestic mines projected to boost production, exports and related government revenue are on course to bounce back. According to the country’s national budget, financing from the mining and petroleum tax is expected to increase from PGK815.7m ($331.6m) in 2013 to PGK1bn ($406.5m) in 2014, in addition to a further PGK133m ($54.1m) set to be accrued from dividends.

Ok Tedi

An important contributor to the economy for a number of years, the Ok Tedi mine is the longest-running gold and copper operation in PNG. Situated at Mt Fubilan in the Star Mountains of Western Province, the open-pit operation has been operating under Ok Tedi Mining Limited (OTML) since 1984 and has produced more than 4.3m tonnes of copper, 11.6m oz of gold and 27.25m oz of silver. Ore from the mine is extracted and transported by slurry pipelines and barges more than 1000 km down the Fly River to storage vessels situated in the Gulf of Papua before being loaded on to bulk freighters for further refining in Asia and Europe.

Production at the mine declined to around 120,000 tonnes of copper concentrate in 2013 from just over 125,000 tonnes in 2012 and 130,456 tonnes in 2011, according to OTML data. Gold production remained below annual average at around 450,000 oz as well.

Total reserves at the mine are estimated by OTML to measure 569 tonnes at 0.59% copper and 0.70 grams per tonne (g/t) of gold, with ore reserves of 129m tonnes at 0.70% copper and 0.79 g/t gold. Output was negatively affected by several factors in 2013, including pit flooding in July and August, mechanical failures with grinding and mill crushing machinery, and shipping complications with the mine’s largest customer, Pasar, due to the effects of a typhoon.

Similar to other mines, Ok Tedi has experienced leaner times over the past year, as lower commodity prices and lower concentrate shipments drove down aftertax profits to $17m in 2013 from the previous year’s earnings of $472m, according to company reports.

Injecting New Life

As the grades from the openpit mine decline, an interim mine extension approval was granted by the government in 2012 and further extended until September 2014. The state has approved an extension to the pit shell, which would allow mining to continue through to the end of the current special mining lease in 2022. The extension is expected to yield an additional 700,000 tonnes of copper and 2.3m oz of gold. While the mine will remain productive through 2022, its annual ore throughput will decline considerably during the transition as throughput will be constrained to 15m tonnes per annum (tpa) compared to current levels of 23m tpa, according to OTML.

Over this time gold recovery rates are expected to decline from current levels of around 450,000 oz per annum to just over 200,000 oz by 2021, before a brief spike in 2023 nearing 400,000 oz and then tailing off towards the end of the mine life. Copper output will follow a similar trajectory, declining from 120,000 tpa to about 75,000 tpa in 2021 before rebounding to almost 125,000 tpa in 2023.

Sector Challenges

The review of the mine’s extension options coincided with a more controversial decision to transfer ownership of OTML to the state, which was made by the government in September 2013. The move was initiated by legislation passed in Parliament at the behest of Prime Minister Peter O’Neill, which essentially cancelled majority-holder PNG Sustainable Development Programme’s (PNGSDP) 63% stake in OTML and transferred it to the state.

As a result, the government now holds a 100% share of the mine. Other legislation, passed at the same time, also annulled a 12-year-old decree providing former operator BHP Billiton, an Anglo-British mining company, immunity from prosecution for the environmental damages stemming from the mine in the 1990s, as well as taking control of a $1.4bn SDP developmental fund that is currently held in Singapore.

The PNGSDP has vowed to challenge the move, with the World Bank’s International Centre for Settlement of Investment Dispute registering PNGSDP’s arbitration request on December 20, 2013. Court proceedings have also been launched in Singapore, where PNGSDP is registered as a company by limited guarantee. No final decision had been reached at the time of writing, with the case still pending. PNGSDP has since transferred its operations to Australia.

The mine was originally owned and operated by BHP (now BHP Billiton) throughout the 1980s and 1990s until BHP divested its 52% stake in the project to the government in 2002 as part of a settlement for environmental damage incurred from waste dumped into the Fly River catchment. As part of the arrangement, the state took control of 36.6% equity in OTML, while the government-owned, but independently run, PNGSDP retained the remaining 63.4% (including an 18% stake purchased from Canadian mining company Inmet in 2011). This was under a mandate to create and manage a developmental fund to compensate landowners for damage incurred by the mine. In addition to the transfer of the PNGSDP, the mine was also ordered by PNG’s National Court to cease mining operations in January 2014 due to its waste disposal practices, which involve discharging rock waste into the river system. The mine was continuing to operate at the time of writing, with OTML representatives stating that they had yet to be served with a cessation order by the authorities.


The second of the country’s leading deposits is the Porgera mine, operated by heavyweight Barrick Gold, which is also one of the longest-running gold operations since it began production in 1994. Situated in the highlands of Enga Province in the centre of the country, roughly 600 km north-west of Port Moresby, the Porgera mine sits at an altitude of 2200-2700 metres and is accessible by a 680-km roadway winding down to the coastal port of Lae.

Along with Barrick Gold’s 95% equity stake held by a subsidiary in the joint-venture (JV) ownership, the remaining 5% share is split evenly between the Enga provincial government and local landowner groups.

The lion’s share of production is generated from the site’s open-pit mine, which boasts a maximum output of 100,000 tonnes per day (tpd) and is complemented by a higher-grade subterranean operation with an output of 3000 tpd. On-site processing operations have a capacity of approximately 17,000 tpd.

Production from the open-pit and underground mining operations for Barrick yielded 482,000 oz of gold, up from the 436,000 oz tallied the previous year, according to company reports. Operations in 2013 shifted towards focusing primarily on higher-grade underground ore (averaging approximately 7.5 g/t compared with 3 g/t for the pit mine), which has yielded higher output, but has also shortened the projected mine life from 13 years to nine. As a result of increased throughput and grade, total production at the site rose by 11% over 2012 output.

Proven and probable reserves for Porgera are estimated at 25.5m tonnes graded at 0.12% for 3.05m oz of gold at the end of 2013, with reserves declining significantly from 6.22m oz in 2012.

Although the company incurred fewer operational disruptions in 2013 compared to the previous year, the Porgera mine has continued to be plagued by illegal miners entering the site, resulting in losses due to theft and destruction of property, as well as increased safety risks. Local media reported in March 2014 that about 1000 illegal miners entered the open-pit area of the mine, hampering operations as well as damaging expensive and sophisticated mine equipment. Local and provincial government security forces have so far been ineffective in securing the area.


As other mines anticipate the winding down of their operations, the Lihir gold mine ratcheted up production in 2013 with the completion of its millionounce plant upgrade. With this $1.3bn investment now completed, operator and owner Newcrest Mining has been able to accelerate output at one of the largest working gold deposits in the world.

The Lihir operation is 100%-owned by Newcrest, following the acquisition of Lihir Gold in August 2010. Yearon-year (y-o-y) gold production ending in June 2013 totalled 649,340 oz, up from 604,336 oz produced the previous year, according to company records. In addition, the mine yielded another 19,770 oz of silver y-oy compared to 10,558 oz in 2012.

Situated on Niolam Island in New Ireland Province, around 900 km north-east of Port Moresby, the conventional open-pit mine operates within the extinct Luise Volcano Caldera. The mine employs traditional drill, blast, load and haul techniques of a single ore body with three linked open pits: Minifie, Lienetz and Kapit. Processing of the predominantly refractory sulphide ore is carried out using autoclaves pressure oxidisation before the gold can eventually be recovered by a conventional leach process.

Major expansion of the mine’s processing plant was completed in early 2013, resulting in a new annual maximum capacity of 1m oz. The improvements consist largely of a substantial replication of existing process streams including the installation of a fourth autoclave (nearly double the size of the three existing autoclaves) and milling equipment, oxygen production capacity, leaching capacity and flotation.

The new, 450-tonne-per-hour autoclave and a 70-tonne-per-hour oxygen plant are among the largest in the world. As a result of these upgrades, capacity of the facility has been dramatically improved, leading to a 52 % increase in tonnes milled in the second half of FY 2013 compared with the first six months, and the mine is expected to achieve a capacity of around 1.4m oz per annum by 2018. First discovered in 1982, the mine’s mineral resource is estimated by Newcrest to contain 64.2m oz of gold including an ore reserve estimated to hold 32.7m oz of gold as of December 2012. After production was initiated in 1995, gold mining is expected to continue at a high output until 2021, with processing of lower-grade stockpiles planned to continue through at least 2030. Early mining efforts have targeted primarily the Lienetz and Minifie pits, leaving future activity for the adjacent Kapit site.

Hidden Valley

One of the most recent additions to PNG’s mining portfolio, the Hidden Valley gold mine, operates as a JV between Newcrest and South Africa’s Harmony Gold Mining. The 50:50 partnership was cemented in 2008 when both companies agreed to form Morobe Mining JV to operate the Hidden Valley mine, in addition to Wafi-Golpu JV and the Morobe Exploration JV. Tapping into the same gold fields along the Papuan Orogenic belt already exploited by other productive mines such as Ok Tedi and Porgera, Hidden Valley is located roughly 90 km south-west of Lae in Morobe Province.

Mining operations consist of the Kaveroi and Hamata open-pit mines, set approximately 6 km apart, with a 5-km conveyor belt to transport ore to the processing facility. The on-site ore treatment plant was commissioned in August 2009 before being upgraded in 2010. Operating at full capacity the project is set to be able to extract more than 250,000 oz of gold and 3.6m oz of silver per year over a projected 14-year mine life.

Annual production for the financial year ending on June 30, 2013 totalled approximately 170,000 oz, down 4% from the 177,000 oz produced at the mine the previous year, according to Newcrest company data. Silver production remained steady at 1.71m oz in 2013, slightly down on the 1.72m oz produced in 2012. The decline in output was attributed to lower-grade ore being processed as well as a decrease in throughput due to processing inefficiencies and poor plant availability. Resources at the mine are estimated to contain 6.6m oz of gold and 115m oz of silver, including ore reserves of 3.6m oz of gold and 64.2m oz of silver.


PNG’s most recent mine is the Ramu nickel/cobalt development in Madang Province. Operations are run by Ramu NiCo Management (MCC), which was created by the project’s four stakeholders – China’s MCC (85%); Pacific Highlands’ subsidiary Ramu Nickel (8.56%); the PNG government, which is represented by Mineral Resources Madang (3.94%); and local landowners through Mineral Resources Ramu (2.5%). While the project has faced some opposition during its development, including environmental concerns and violent attacks in August 2014, production from the mine is expected to reach 22,000 tonnes in 2014.

Mid Range

While not every mine can boast diverse and extensive deposits, PNG also has a number of smaller mines supplementing gold production, including the Tolukuma, Simberi and Sinivit mines.

The most active of these mines is Simberi, situated on the northern-most island of the Tabar archipelago in New Ireland Province. The owner and operator of the mine, St Barbara, is investing heavily in new exploration infrastructure and a processing plant upgrade in an effort to boost production to more than 100,000 oz per annum. The upgrades include expansion of the oxide plant, as well as other measures which together are projected to boost throughput to 3.5m tpa by the end of FY 2014 in June.

The low strip open-pit mine has been in production since 2008, with output for the first 10 months of FY 2013 reaching 45,609 oz. The mine operator is projecting output for 2014 to reach between 85,000 and 100,000 oz. Proven and probable reserves at the mine totalled some 60.44m tonnes graded at 1.4g/t for 2.21m oz of gold, according to St Barbara data.

While it has been producing gold since 1995, the Petromin-owned Tolukuma mine located in the Owen Stanley Range has seen its output fall from a peak of around 80,000 oz in 2005 to 35,000 oz in recent years. The state-owned company is optimistic about a turnaround in the coming years, however, and has mounted an aggressive exploration campaign that has yielded promising results, in particular for exploration licence areas 580, 894, 1661, 1264, 683 and 1379.

The Sinivit mine, owned and operated by Torontolisted New Guinea Gold, has not been fully operational while the company attempts to raise capital and comply with PNG regulations, which would allow it to resume full-scale gold mining. The mine, which is located approximately 50 km south-west of Rabaul in East New Britain Province, has been active on and off since 2007. Output has averaged around 8000 oz per annum, with the most recent available figures showing output of 495 oz of gold and 504 oz of silver during a partial production run in the first half of 2012.

The government renewed the exploration licence on the claim in May 2012, extending its validity until 2022, but this was subsequently overturned by a National Court decision in December 2013. The renewal is currently being re-assessed. Exploratory results released by the company in February 2013 increased its indicated resource estimates on the primary Kavursuki vein system to 283,000 tonnes at a grade of 3.7 g/t, which equates to roughly 33,000 oz of gold.

Digging Deeper

The next wave of mineral projects is already moving forward to add to the current stock. Similar to their predecessors, these are primarily gold and copper development schemes, and include sites such as Frieda River, Yandera, Wafi-Golpu, Mt Kare, Solwara 1 (see analysis) and Woodlark Island. The Frieda River project in particular has the potential to become a high-performing copper and gold mine, which could produce upwards of 100,000 tonnes of copper and 160,000 oz of gold per year for a projected 18-year mine life, according to operator PanAust. The Yandera copper mine located in Madang Province is next in line with measured copper resources of 248m tonnes graded at 0.43% and contained copper of 1.07m kg, according to operator Marengo Mining. The project also contains measured gold resources of 155m tonnes, with a grade of 0.17% for 847,172 oz of contained gold, as well as 45.81m kg of measured contained molybdenum.

Situated in Morobe Province, the Wafi-Golpu deposit was first discovered in 1979 and holds an estimated 28.5m oz of gold and 9.1m tonnes of copper, while the Kula-Gold-operated Woodlark Island project holds 2.1m oz and an ore reserve of 766,000 oz. Kula Gold’s subsidiary Woodlark Mining (PNG) was granted a conditional mining lease for the site in June 2014.

The Mt Kare project, operated by Australia-listed Indochine Mining and located near Porgera in Enga Province, also contains mineral resources estimated at 28.4m tonnes, with grades of gold at 1.68 g/t and silver at 17.2 g/t, which amounts to a total of 1.53m oz of gold and 15.7m oz of silver, respectively.

In spite of the promising results, the current downturn in commodity prices and resulting tightening of capital available for mine development has pushed back the timetables for a number of projects. As many of the world’s largest mining companies are significantly scaling back exploration activity, the projected commissioning dates for the Frieda River, Wafi-Golpu and Yandera mines have all been postponed.


Lastly, Bougainville Copper, one of PNG’s most challenged mines, holds more than 5m tonnes of copper and 19m oz of gold reserves at the Panguna copper deposit. Once the country’s main economic driver, the mine, which is owned by the Rio Tinto subsidiary, has been closed since a separatist conflict began on the island in 1989 and the creation of the Autonomous Bougainville Government.

Prior to the suspension of mining, the Panguna site was producing about 180,000 tonnes of contained copper annually, along with a smaller quantity of gold. Recent overtures by the O’Neill government could be alluding to a thaw in relations as the PM became the first PNG leader to visit Bougainville in 15 years, when he made the journey in early 2014. Bougainville Copper, which is still listed on the Port Moresby Stock Exchange and is 53.83% owned by Rio Tinto, with the government holding a 19.06% share, has also stated that it is planning on setting up an office in Bougainville at some point in 2014.

Alluvial Mining

Another promising segment of PNG’s mining industry is alluvial mining, which has been practised on a small-scale level since the 1920s. PNG will host its first Alluvial Mining Convention in Lae in September 2014, with the intention of bringing together stakeholders interested in the segment. Although alluvial gold production has been declining since 2011, when PGK360.3m ($146.5m) was produced, the first half of 2014 saw PGK225.8m ($91.8m) worth of production, potentially marking a rebound.


While the volume of 2014 gold exports should exceed 2013 figures due to new mining activity, revenues are likely to remain flat as a result of softening commodity prices. Any production increases are expected to be spearheaded by Newcrest’s Lihir gold mine as a result of its first full year of operations after completing its million-ounce upgrade, as well as processing enhancements at the Simberi mine and increasing efficiencies at the Hidden Valley processing facility. Aside from these projects, the medium-term outlook in PNG is less clear due to the mining industry’s current global investment climate, which has led to delays in some of the country’s largest projects, all of which are unlikely to be realised before the end of the decade.


You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Papua New Guinea 2014

Mining chapter from The Report: Papua New Guinea 2014

Cover of The Report: Papua New Guinea 2014

The Report

This article is from the Mining chapter of The Report: Papua New Guinea 2014. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart