The country risk with MNP has always been a negative as well.
For those that see the proximity to Placer's Porgera mine as a positive, here is the flip side of that argument.
Regards, Ogi
Posted: 2002/08/28 Wed 21:29 ZE8 | © Miningweb 1997-2002
PERTH – In the aftermath of the recent national elections, continued unrest in the Southern Highlands of Papua New Guinea is threatening the future of the Porgera gold mine. Closure of the mine would be an absolute disaster, especially for stakeholder AurionGold [ASX:AOR] and PNG's political risk profile.
Only three days after the power was finally back on at Porgera following a five-week disruption, infrastructure was again attacked by locals lashing out at feeling unrepresented in the national parliament, effectively shutting down the gold operation.
Mining has been brought to a standstill and, according to the Porgera joint venture, the downtime would result in the loss of about 10 per cent in budgeted gold output this year, assuming it actually resumes production. The new PNG Government has apparently intervened, but the situation on the ground is far from under control. "Under present circumstances, it is expected to take approximately three weeks to restore power," the Porgera JV said. That could be wishful thinking if the present circumstances are volatile.
Porgera operator Placer Dome [NYSE:PDG], which owns half the mine, said it was confident, now that the government was involved, that the matter would be resolved shortly. However, managing director of Brisbane-based Placer Dome Asia Pacific, Peter Tomsett, conceded it was hard to know what would transpire and that it was certainly a difficult environment at the moment. "We've never had this sort of disruption in terms of duration since operating there," he told Miningweb. "There is still a lot of uncertainty in the Southern Highlands, which will be having supplementary elections after the results of six electorates were declared invalid."
Last week Miningweb revealed there were reports of ongoing threats to power infrastructure and possibly the mine and its workers following the recent election-motivated vandalism which caused Porgera power outages for about 35 days, the first time round.
Today (Wednesday) the chief partners in the large gold operation, Placer, AurionGold and Oil Search [ASX:OSH], confirmed the fears but were trying to play them down.
Power at Porgera was cut on 16 July when electricity transmission lines – between the mine and the Porgera power station fuelled by the Hides gas field – were damaged after power pylons were felled. Since then, additional power poles have been wrecked, resulting in ongoing power interruptions at the mine. Placer said power was eventually restored and the Porgera treatment facilities recommissioned on 20 August, however, it advised today that another power tower was vandalised on 23 August, which meant three of them were now out of commission. The company estimated it would be about three weeks before the power problems were fixed.
Consequently, the JV has temporarily ceased open pit mining and planned to reduce the workforce accordingly. "The expected impact of the production interruptions will reduce Porgera's gold production in 2002 by about 10 per cent, being 60,000 ounces, to 616,000oz of gold," the JV said.
"The JV is in talks with the communities and briefings to the PNG Government aimed at assisting the government to address the present problems," Placer added. Police presence has been increased in the trouble spot.
Tomsett was adamant the locals weren't directly targeting Porgera. He added there was a ministerial group currently preparing recommendations to the PNG cabinet for immediate implementation aimed at restoring law and order and essential services in the area. Porgera is about 600km north-west of the capital Port Moresby.
In the worst case scenario that Porgera is shut down, AurionGold (25 per cent partner) probably has the most to lose. The asset currently accounted for about 22 per cent of its reserves inventory and production compared with 7 and 13 per cent of Placer's, respectively, while Porgera contributed A$51.3 million (or 41 per cent) to AurionGold's EBIT on assets in 2001/02 out of total EBIT on assets of A$124 million and A$119.6 million (or 25 per cent) of its revenue of A$469.2 million, as against about 10-15 per cent of Placer's mine operating earnings and revenue (before realised metal hedging revenue) generated from Porgera.
This latest political unrest won't help the global investment market's perception of PNG nor the project financing efforts of Highlands Pacific [ASX:HIG], who this week appointed ABN AMRO Australia to arrange a US$25 million debt facility for the proposed development of the high-grade Kainantu gold project in the Eastern Highlands of PNG.
Highlands' managing director Ian Holzberger didn't believe the instability in the Southern Highlands would affect his company's plans as it was a localised issue. |
