PNG’s vast untapped mineral deposits continue to draw investors

When the global economic downturn lowered demand for raw materials and depressed commodity prices, the mining sector as a whole was forced to reckon with a rapidly changing paradigm wreaking havoc on its collective balance sheets. Ripples from this slowdown continue to buffet the industry today, including in Papua New Guinea, as softer commodity price declines, exacerbated by the strength of the US dollar, left the Bloomberg Commodity Index in 2014 at its lowest level in nearly six years.

Taking a Knock

The index, which tracks 22 products, fell 17% in 2014 and kept below 100 as of June 2015 compared to 175 in April 2011. To adjust, established mining firms have been forced to reevaluate the economic feasibility of current and upcoming projects, while several smaller operations were bought out by larger competitors or forced to fold altogether. Longer-term growth prospects also took a significant hit, with the industry as a whole seriously curtailing the exploration and development funding that is the lifeblood for future earnings – a trend the sector has yet to recover from.

Budget Constraints

As a result of these continued poor commodity market conditions, mining companies responded with a sharp 26% decline in global non-ferrous metals exploration budgets in 2014. This brought the industry’s total non-ferrous metals exploration budget to $11.4bn on the year, down from $15.2bn in 2013 and $21.5bn in 2012. The steep plunge in exploration budgets was due to investor wariness of the junior sector, which made it difficult for most players to raise funds, and a strong pullback by producing companies on capital and exploration spending to improve margins.

Bucking the Trend

Yet, even with fewer dollars to spread about the globe in search of future payouts, PNG’s vast estimated untapped mineral deposits and the substantial success of previous mines have proven too attractive for a number of companies. At least four major mining projects are expected to launch over the coming decade, along with a host of smaller alluvial projects, which should generate significant new investment in the sector.

The Hells Gate proposal in Gulf Province is one of the largest alluvial prospects, along with several recently approved joint venture operations in Wau, Ok Tedi and Milne Bay. Woodclark and Crater Mountain mines were approved in 2014, with the latter already in production. Barrick’s underground Kainantu mine, which had ceased production in 2009, was sold in 2014 and the lease renewed under new ownership, with an expectation of both gold and copper production within two years.

Frieda River

One such enticing prospect is the Frieda River gold and copper project straddling the border of the Sandaun and East Sepik provinces within the 149-sq-km exploration licence 58. Extensive testing at the site has indicated that Frieda River could be as productive as the only other copper mine operating in the country to date, Ok Tedi, with exploration work still ongoing. The project is being headed up by new majority owner PanAust, a mid-tier mining company out of Australia, which finalised the purchase of an 80% stake in the project from Glencore Extrata in August 2014. In May 2015 PanAust was taken over by China’s state-owned Guangdong Rising Assets Management and has been delisted from the ASX. Local outfit Highlands Pacific owns the other 20% of the mine, with the PNG government holding an option to buy in for up to a 30% share on a sunk cost basis.

With a total mill feed of 600m tonnes graded at 0.5% copper and 0.3 grams per tonne of gold operating at a processing rate of about 30m tonnes per annum (tpa), the mine is projected to yield an average of 125,000 tonnes of copper concentrate and 200,000 oz of gold concentrate over its 20-year lifespan. PanAust expects to sink about $1.7bn into the project to get it to production, which would be a big upswing in investment in the current climate.

A feasibility study on the mine, which is projected to hold $1.5bn-1.8bn in copper and gold, is due by November 2015. The study will detail many operational parameters, including an engineered, permanent integrated storage facility for waste rock and tailings; road access to the site along a special access road from the lower Sepik River; a port on the Sepik River to facilitate exports of concentrate and imports of consumables; concentrate export facilities at Wewak; an intermediate fuel oil power station to be built adjacent to Sepik River port facility; and facilities to provide accommodation for the workforce during construction and operations.


Situated in Morobe Province, roughly 65 km south-west of Lae, the Wafi-Golpu project is in the advanced exploratory stage, with its pre-feasibility study having been completed in 2012. The site is being developed in a 50/50 joint venture partnership named Morobe Mining between Newcrest Mining and Harmony Gold Mining Company, both of which are active in other projects throughout PNG.

Exploratory results to date have raised hopes among the partners as the Golpu resource has displayed similar optimal gold and copper attributes as the legendary Grasberg mine located in neighbouring Indonesia. The Golpu prospect is estimated to contain 20.2m oz of gold and 9.4m tonnes of copper, with the Wafi resource thought to contain another 7.2m oz of gold with further exploration of extensions and nearby areas yet to come. Since the project’s initial pre-feasibility study, the joint venture has invested another $100m in further exploration to compile an updated pre-feasibility study that is expected to lower the mine’s production profile through a modular, phased expansion of the mine with common path infrastructure targeting higher-value ore blocks early on in order to fund further development of the site going forward.

The result of the update led to a December 2014 decision to split the project into two stages of development, with the first progressing to the feasibility study stage and targeting higher-value portions of the ore body. Meanwhile, work on the pre-feasibility study for the stage-two ore reserve in a third block cave mine will continue concurrently, with both studies scheduled for completion by the end of 2015.

Stage-one capital spending is forecast at $2.3bn, with a total lifetime expenditure estimated at $3.1bn. The first round of production for stage one, which consists of two block cave mines, is forecast for 2020. The initial block cave will operate at 3m tpa, which will later be replaced by a deeper block cave operating at 6m tpa starting in 2024. Over the projected 27-year lifespan for stage one, annual levels of production are expected to peak in 2025 at some 320,000 oz of gold and 150,000 tonnes of copper.


Another major copper deposit that has revealed significant potential is the Yandera resource located in Madang Province at an elevation of roughly 1800 metres in the Bismarck Mountain range, approximately 70 km inland from the north coast. One of the largest undeveloped copper projects in the Asia-Pacific region, the site is being developed by Australian junior Marengo Mining, which took over the four exploration licences in 2006. Following a resource update in 2012, the company rolled out additional exploratory plans in 2013 in preparation for a feasibility study and again in 2014 when it was decided that further exploration and development work was required in order to finalise the feasibility study for the project.

A series of ongoing exploratory drilling programmes continue to close in on the targeted resource, with the most recent results announced by Morengo in May 2015. The update revealed resources totalling 630m tonnes grading at 0.3% copper, 0.01% molybdenum and 0.07 parts per million gold; or 0.4% copper equivalent. Once the feasibility study is completed Morengo expects to develop the site as an open-cut mining operation with a minimum 20-year mine life, with copper concentrate transported via pipeline to the Port of Madang.

Mt Kare

Originally projected to begin producing as early as 2015, the Mt Kare gold mine, operated by Australia’s Indochine Mining, has recently passed some significant milestones that could bring the mine into production in the next few years. While Indochine managed to finish the required landowner investigation study in 2014, that has now been referred to court-led mediation, and Indochine itself entered voluntary administration in March 2015.

With the exploration licence currently under renewal application, it remains unclear how the development may progress. The Mt Kare prospect contains mineral resources estimated at some 28.4m tonnes, with grades of gold at 1.7 grams per tonne and silver at 17.2 grams per tonne, which amounts to a total resource of 1.53m oz of gold and 15.7m oz of silver. Optimism for the prospect continues to run high, boosted by its shared geology within the extremely productive Porgera Transfer Structure.