Partners in the $US1 billion Frieda River copper/gold mining prospect in Papua New Guinea yesterday issued an upbeat assessment of the possible development of the huge resource.
But it does look to have some skinny profit margins over world gold and copper prices and for all the talk in the document, the project remains a relatively high cost/low reward operation, based on current price levels for gold and copper.
PanAust (PNA) holds an 80% stake and Highlands Pacific (HIG) has 20%, (and that will change with the PNG Government coming into the mix if the mine goes ahead) and both companies said in yesterday’s release that the due diligence project parameters reported by PanAust on in November 2013 "have been superseded through further data analysis and the development of a definitive scope for the feasibility study and a base case development concept”.
"The preliminary capital cost estimate for the base case is approximately US$1.7 billion (2013 dollars including 15% contingency on direct development costs), excluding mining fleet and power station (leased costs included in all-in sustaining costs) and assumes power is supplied by intermediate fuel oil (IFO) generators.
"Preliminary analysis indicates that the base case development concept would be robust at a copper price of US$2.80/lb (and gold price of US$1,300/oz)," the partners said yesterday.
Copper prices are currently around $US3.15 a pound in New York and gold is trading around $US1,285 an ounce.
Metal prices next year and into 2016 and 2017 could be much higher, they could be much the same, or perhaps a touch lower than where they are now. Certainly metals prices are not being driven by demand so much as sentiment about what is happening in China.
PanAust is the target of a $1.1 billion takeover approach from China’s state-owned Guangdong Rising Assets Management Co., which holds 23% of the Brisbane-based company. Guangdong’s $2.30 cash a share proposed offer has been rejected by PanAust, which is now looking for rival offers from by October.
PNA 1Y – Frieda River high cost/low reward for PNA/ HIG
"Life-of-mine mill feed is estimated to be approximately 600 million tonnes, a 36% increase over that contemplated in the due diligence evaluation, with an average processing rate of 30Mtpa over a 20-year mine life to produce average annual copper and gold in concentrate of 125,000t and 200,000oz respectively," the statement issued yesterday said.
"Relatively soft ores are expected to be processed in the first five years of operation allowing mill throughput rates of more than 20% above the life-of-mine average.
"Thereafter the ore is scheduled to become progressively harder leading to throughput rates of approximately 20% below the life-of-mine average in the final years of operation.
"A staged development approach will be considered which would require lower initial capital expenditure with a deferred capital expansion of the processing facilities in years three to five.
"The base case demonstrates a higher value outcome than previous studies with a development concept comprising an open pit and a single process plant module incorporating a SAG mill and two ball mills," the statement said.
"This development concept leverages off the experience gained at PanAust’s Phu Kham Copper-Gold Operation in Laos which has a similar process plant configuration and compact footprint, and is located in very similar terrain.
"Given the extensive database that is already available for the Project, it is anticipated that the feasibility study will be completed and application for a Special Mining License lodged before November 2015.
"There are 50 million tonnes of Inferred Mineral Resources within the pit design used for the base case development concept. In the event that in-fill drilling improves the confidence of this material and elevates its classification to either Measured or Indicated, then the estimated life-of- mine strip ratio would fall to approximately 0.5:1 and the Project economics would be materially enhanced.
"Additional identified porphyry Mineral Resources at the Horse-Ivaal-Tukai (HIT) deposit and the nearby Koki and Ekwai deposits, coupled with the high-grade epithermal Nena deposit offer further potential for expanding production and extending mine life," the partners said yesterday.
The Frieda River Copper-Gold Project is located on the border of the Sandaun and East Sepik provinces in Papua New Guinea in the foothills of the Schattenberg Range. The Project comprises four copper-gold deposits and several prospects along a 10 kilometre trend and is one of the largest known undeveloped copper deposits in the world. The joint venture feasibility study will focus on the HIT porphyry deposit.
On Monday PanAust exercised its option under a Share Placement Agreement with Highlands Pacific, to acquire approximately 64.5 million fully paid ordinary shares in Highlands Pacific. The share placement completed on 1 September 2014, bringing PanAust’s cornerstone shareholding in Highlands Pacific to approximately 14% (128,865,980 shares) of the issued share capital.
Upon the granting of a Special Mining Licence, the Government of Papua New Guinea has a right to acquire, at cost, up to a 30% interest in the Frieda River Project and should the Government exercise its full entitlement to 30% of the Project, then PanAust will sell down to a 55% controlling share and Highlands Pacific will sell down to a 15% share.
Panaust and Highlands shares went in different directions yesterday after the statement was released. Highlands’ shares (HIG) rose 3.5% to 58 cents, while Panaust shares fell 1.7% to $2.22.
