August 18, 2014 1:27 pm
Rio Tinto puts Papua New Guinea copper mine under review
By James Wilson, Mining Correspondent
©AFP
Sam Walsh, chief executive of Rio Tinto
Rio Tinto is set to cut down further its portfolio of marginal projects after announcing a review of its options for the Panguna copper mine, shut for a quarter of a century after being embroiled in secessionist conflict in Papua New Guinea.
Panguna, on the Pacific island of Bougainville, was one of the richest copper mines in the world before it shut in 1989 amid a violent uprising on the island. Production was suspended in 1989 and all personnel withdrawn the following year. Since then the mine has barely been touched.
Rio’s chances of successfully reopening the mine fell this month when the autonomous government that now controls Bougainville stripped the mine’s operating company of its mining and exploration licences. An act by the autonomous region’s parliament in effect gives Bougainville Copper Limited, the mine’s operator, only an exploration licence and a right of first refusal over its renewed operation.
Rio, which controls Panguna through a 53.8 per cent stake in BCL, said on Monday the legislation made it an “appropriate time to review all options” for its holding. BCL had been in talks with the autonomous government, as well as with the government of Papua New Guinea and landowners on Bougainville, over a possible return to Panguna.
Reopening Panguna would be costly, according to Rio. Its annual report says a $5.2bn investment would be needed to reopen the mine with new infrastructure, according to a study completed by BCL last year.
Rio’s renewed presence on the island could also be controversial, after the civil war that erupted in 1989 lasted a decade and cost 20,000 lives, according to some estimates.
Panguna produced about 550,000 tonnes of copper concentrate in 1988, its last full year of operations. It is estimated to have remaining resources of at least 4.6m tonnes of copper and 16m ounces of gold, although the estimates rely on data gathered before the 1989 shutdown.
As it is, the mine is largely irrelevant to Rio’s strategy for its copper division, which is based on output from four large mines – in Mongolia, Chile, the US and Indonesia – as well as two projects that are inching towards board approval.
The mine is largely irrelevant to Rio’s strategy for its copper division
Under Sam Walsh, chief executive, and Jean-Sébastien Jacques, head of copper, Rio has been cutting out projects that executives think have little chance of advancing and are consuming management time.
A sale by Rio of its interest in Panguna would follow its decision this year to withdraw from Pebble, a copper project in Alaska that many observers think will be very difficult to develop amid environmental concerns.
Anglo American also withdrew from Pebble, underscoring how the world’s largest miners are trying to cut down bloated asset portfolios.
While Rio handed its Pebble stake to a group of local organisations, it is likely to try to seek a buyer for its BCL stake. BCL, which remains listed in Australia, has a market capitalisation of A$188m. Its shares rose 17.5 per cent on Monday. Rio was up 0.2 per cent in morning trading in London.
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