In early April, Papua New Guinea (PNG) and the Autonomous Bougainville Government (ABG) signed a memorandum of understanding to transfer powers over minerals and oil and gas resources to Bougainville, lifting a moratorium on mining and clearing the way for investment. Rio Tinto could be the first to benefit from the decision - but it could take a while to see profits.
On April 28, the ABG set up the Bogenvil Resources Development Corp. Ltd. (BRDC) to promote exploration and development of mineral resources with foreign investors on behalf of traditional landowners for a period of 3 years with an option to extend to 5 years. BRDC will pay an annual $5 million Agreement Licence Fee to the ABG as well as undertaking a $35 million exploration programme over the first 3 years, according to a press release.
The business relationship defined by the Agreement arises out of the necessity to accelerate a broad based economic recovery on Bougainville and to manage the mining exploration process in the initial years after the Moratorium on Exploration is lifted, said Joseph Kabui, President of the Autonomous Bougainville Government.
The ABG and PNG governments are scheduled meet in June to discuss transfer of powers on mining, oil and gas activities. Rio Tinto’s [NYSE:RTP; LSE:RIO; ASX:RIO] majority-owned Panguna copper mine is waiting in the wings. Rio Tinto owns 53.85% of Bougainville Copper Ltd. [ASX:BOC], while the Papua New Guinea government holds another 19.9%.
Although the mine is now closed, it produced about 180,000 metric tonnes of copper annually and ranked as the world's third largest copper mine when it was in operation. The capital cost to restart the mine is estimated to be between $1.2 billion and $1.5 billion.
The mine operated from 1972 to 1988, but was forced to close in 1989 when it came under attack by the Bougainville Revolutionary Army. Explosives were stolen from the mine magazine by armed men, two buildings were burnt down and a number of other buildings and items of equipment were damaged. On two occasions, power transmission pylons were knocked down using explosives.
Bougainville islanders were unhappy with the negative effects of the company's activities on the area and the lack of benefits from mining flowing back to them and instead going to PNG mainland. A secessionist war in the 1980s and ‘90s killed thousands of people on the island. In 1997, peace talks brokered by New Zealand led to autonomy for Bougainville.
In early April, a PNG government official who wished to remain anonymous told media sources that the central government will seek to retain a stake in profits from Panguna and other projects on the island. Bougainville Copper furthermore holds nine additional mining licenses on Bougainville.
During its operating years, Panguna supplied substantial amounts of revenue to Papua New Guinea. Mining still accounts for 50% of PNG exports, and petroleum and gas together account for another 25%. Barrick Gold [NYSE:ABX; TSX:ABX], Lihir Gold [Nasdaq:LIHR; ASX:LGL] and Inmet [TSX:IMN] all have producing mines in Papua New Guinea.
In mid-April, Chief Executive Tom Albanese said at the company’s annual general meeting that a restart is still a ways off as some challenges remain. The company is in the midst of a tax dispute with the Internal Review Commission and a class action lawsuit in the United States filed by citizens of Bougainville.
Bougainville Copper Ltd. expects the Bougainville Copper Agreement re-negotiations will be revived and make significant progress, according to its website. However, a crucial component of the deal will be an environmental plan that meets the expectations of the local community.
The ultimate aim is to obtain landowner support for exploration and mining, the company concluded.