By Ross Verne
POSITIVES were few and far between for the mining sector at the 13th PNG Mining and Petroleum Investment Conference, with plunging gold and copper prices forcing players to talk harm-minimisation, while some producers tentatively pointed to new opportunities.
Newcrest Mining’s executive general manager of international operations David Woodall said the last time the conference was held, gold prices had been A$500 per ounce higher.
“[That is] a fall of 30 per cent. Clearly a fall in gold price of this magnitude means the economics and pressures of operating a gold mine have changed,” Mr Woodall said.
“Gold prices are volatile and like all gold companies we are price takers.”
He said Newcrest’s Lihir and Hidden Valley operations for 2014 were running at “close to the average realised gold price”.
“This is unacceptable – productivity must increase and cost must reduce to provide the margins necessary to run a successful business,” he said.
“Lihir’s unit costs have remained stubbornly high over the last two years while most of our other mines have been able to achieve reductions.”
Mr Woodall said during 2014 the Lihir operation represented 30 per cent of the Newcrest’s total production and its position had a “big impact on the company’s overall cost base”.
He said PNG was not currently a low-cost environment for resource companies, pointing to the lack of key infrastructure as a significant barrier to investment.
“It is absolutely imperative that we have fiscal and regulatory stability, a sound taxation framework, and supportive mining policy that provides clarity and certainty,” he said.
Treasurer Patrick Pruaitch said the mining industry was under “severe stress” in line with slower growth in China and the recession in Japan.
Speaking about Barrick Gold’s fortunes with the Porgera gold and silver mine, spokesman Chris Trainor said the company was “in a situation where you have to be significantly better than you were years ago”.
“All of us have to make sure we can maximise output and reduce costs,” Mr Trainor said.
“Costs are a major factor and we are not excused from the increasing costs.
“Freight, fuel, transport – our power at the moment costs us about 90 million dollars per year.”
Kula Gold chief executive Stuart Pether said today’s prices made it “challenging for our project” and the company was working to “enable the project to be advanced at lower gold prices”.
Ok Tedi’s new chief executive Musje Werror found few positives, reporting significant shortfalls in production targets and poor financial results.
“Like all other mining companies, with the reduction in price of gold and copper, for Ok Tedi it is tough times,” he said.
Ok Tedi’s production for 2014 had been “well below budget and well below historical figures,” Mr Werror said, with operational issues said to be hampering the miner.
Inclement weather, ageing infrastructure and sustained low commodity prices had affected outcomes for the company.
“Our budget in 2014 is A$2.66 per pound of copper [but the] forecast is only A$2.90 because we havent been producing,” he said.
PNG Chamber of Mines and Industry president Greg Anderson said producers continued to “hunker down” to weather the ongoing commodities downturn, with many staff laid off as companies slash budgets
“The junior explorers are certainly struggling and we’ve unfortunately lost a lot of our joint ventures with the majors,” Mr Anderson said.
“Generally speaking it’s very tough, there’s no doubt about that and we are suffering in that respect.”
Mr Anderson said despite the difficulties it was important to highlight positives for the industry.
“There’s some good stories in there too though,” he said.
Mr Anderson cited PanAust’s buying into an 80% stake in the Frieda River copper-gold project in August as a confidence-booster for the whole industry.
“It is a fantastic thing I believe, to have someone there to take up that project,” he said.
“Frieda River has really progressed a lot in the last few years and they’re taking a completely new approach to it.”
He said Kula Gold snaring approval for their Woodlark Island gold project was a boost for smaller producers.
Kula chief executive Stuart Pether said the company was “poised for production” on the project.
“All the reserves were determined at A$1,200 an ounce so even at today’s reduced prices our reserves are very robust,” Mr Pether said.
Mr Anderson said the progress on Newcrest’s Wafi-Golpu was also encouraging, with the project described by Mr Woodall as the company’s “most exciting development option”.
“Given the size and grade of the ore body… we want a strong and viable project that has attractive economics and a sustainable future,” Mr Woodall said.