Insight: Plans to restart giant Bougainville mine stall as operating rights battle rages

Bougainville Copper

06/10/2017 24:07

* Bougainville due to hold independence vote in less than 2 
yrs Bougainville government wants Panguna mine reopened in 2019 
    * BCL says emergence of Australian consortium impeding 
development 
    * Australian consortium head banned from Papua New Guinea 
    * Consortium member Hains says has good access to capital 
markets 
    * Consortium has been making payments to landowners 
 
    By Jonathan Barrett 
    SYDNEY, October 6 (Reuters) - Plans to reopen one of the 
world's biggest copper mines, shut by a civil war on the Pacific 
Island of Bougainville in 1989, have run into trouble.  
   The quarter of a million people of Bougainville are 
tentatively scheduled to vote on independence from Papua New 
Guinea in June 2019, and revenue from the reopening of the 
Panguna mine is essential for the otherwise impoverished island 
to have any chance of flourishing if it becomes the world's 
newest nation. 
    But there is now a struggle over who will run the mine 
between Bougainville Copper Ltd  BOC.AX  - the previous operator 
now backed by the Autonomous Bougainville Government and the 
Papua New Guinea government - and a consortium of Australian 
investors supported by the head of the landowners who own the 
mineral rights. 
    The dispute is opening old wounds - and is almost certainly 
going to delay any reopening. That could help to drive copper 
prices higher as many forecasters expect that demand for the 
base metal will exceed supply in the next few years. 
    The battle lines have been hardening on several fronts, 
Reuters has learned. 
    Papua New Guinea has told airlines that Sydney businessman 
Ian de Renzie Duncan, who set up the consortium, is banned from 
entering the country until 2024, according to a Papua New Guinea 
government document reviewed by Reuters. The request for the ban 
was made by the Bougainville government, three sources with 
knowledge of the document said. 
    The consortium has also acknowledged for the first time that 
it is paying some landowners a monthly stipend and has pulled in 
some big backers that have not previously been disclosed. They 
include Richard Hains, part of a billionaire Australian 
race-horse owning family which runs hedge fund Portland House 
Group.  
    In a sign of how ugly the row is getting on the ground, 
local opponents of BCL becoming the operator - and some who are 
opposed to the mine reopening altogether - blocked Bougainville 
government officials from entering Panguna in June. 
    They had hoped to get key landowners to sign a memorandum of 
agreement that would have endorsed BCL as preferred developer, 
according to a copy of the document reviewed by Reuters. The 
proposed agreement also stipulated the mine would be re-opened 
by June 2019, ahead of BCL's own timeframe of 2025-26. 
    The Papua New Guinea government didn't respond to requests 
for comment for this story. 
    Bougainville's main political leaders say getting the mine 
reopened is critical. "If the independence of the people is to 
be sustained then we need Panguna to run," Bougainville Vice 
President and Mining Minister Raymond Masono told Reuters in a 
phone interview.  
    He said he believes BCL has first right of refusal to 
operate the mine under laws passed three years ago, and only if 
BCL declined to take up that right should an open tender take 
place. 
     
    DEEP RESENTMENT 
    The abandoned copper and gold mine contains one of the 
world's largest copper deposits. During its 17-year life until 
the closure in 1989, Panguna was credited for generating almost 
one-half of Papua New Guinea's gross domestic product. 
    The civil war was largely about how the profits from the 
mine should be shared, and about the environmental damage it had 
caused. There was deep resentment among the indigenous 
Bougainville people about the amount of the wealth that was 
going to Papua New Guinea and to the mine's then operator, 
Conzinc Riotinto of Australia Ltd, a forerunner of Rio Tinto 
 RIO.L   RIO.AX . 
    The mine was forced to shut after a campaign of sabotage by 
the rebel Bougainville Revolutionary Army. 
    The conflict between Bougainville's rebel guerrilla army and 
Papua New Guinea forces left as many as 20,000 dead over the 
following decade, making it the biggest in the region known as 
Oceania since the Second World War. 
    Rio Tinto divested its stake in BCL in 2016, and the listed 
company is now just over one-third owned by the Bougainville 
government and one-third owned by Papua New Guinea. Papua New 
Guinea Prime Minister Peter O'Neill said last year his 
government would gift the shares received from Rio, or 17.4 
percent, to the people of Bougainville, although that is yet to 
take place. 
     
    "NEVER AGAIN" 
    The challenge from the Australian consortium that now 
includes listed gold and copper explorer RTG Mining  RTG.TO  
 RTG.AX  was made public in June. Duncan and his fellow 
investors have joined forces with a group of Panguna landowners, 
the Special Mining Lease Osikaiyang Landowner Association 
(SMLOLA) led by Philip Miriori. 
    Miriori was in the Bougainville Revolutionary Army as the  
private secretary to the late Francis Ona, the former BCL mine 
surveyor who became leader of the resistance. 
    Ona had declared that BCL should "never again" be allowed to 
run the mine and Miriori, Ona's brother-in-law, still supports 
that stance.  
    "They have caused a lot of damage, they don't have the money 
and they are not telling the truth and so I wouldn't accept 
them," Miriori said in a telephone interview from the 
Bougainville town of Arawa. 
    The consortium's challenge is based on new mining laws 
introduced in 2014 that downgraded BCL's mining rights to an 
exploration licence and gave landowners powerful rights over the 
minerals on their land to acknowledge the losses suffered by 
those in Panguna during the conflict.  
    Miriori told Reuters that the government did not have 
authority over mine negotiations. 
     
    PAYOUTS TO LANDOWNERS     
    Duncan, a former barrister with a background in mining law,  
heads an entity called Central Exploration that has a half share 
of the consortium. 
    Duncan's consortium has been paying money, described as a 
stipend, to some of the landowners, but denies this amounts to 
bribery. 
    "We are really talking about people receiving a couple of 
thousand kina ($608) a month," said Duncan, who added that the 
money helps the landowners to travel and find accommodation in 
towns where Panguna negotiations take place. "It's not bribery, 
it's business," he said. 
    BCL claims to have the support of eight other landowner 
groups in Bougainville with an interest in the project. They 
have land rights covering access roads and the port site, among 
other areas, though crucially not the mine site itself.  
   BCL chairman Robert Burns, who formerly worked for Rio Tinto, 
said Bougainvilleans were the ones being impacted by Duncan's 
attempt to gain control of the mine. 
    "Everyone is being frustrated and impeded by this issue," 
Burns told Reuters in a phone interview from the PNG capital, 
Port Morseby. 
         
    FINANCING DOUBTS 
    The uncertainty is going to make it difficult for either 
group to raise the capital that will be needed to get the mine 
restarted. 
    In 2012, BCL estimated the cost of re-opening at $5 billion. 
With few of its own assets, the company would need to secure the 
mining rights before tapping capital markets.   
    The Australian consortium may be in a stronger position, 
according to Hains, who is a 15 percent owner of RTG. He said 
the consortium has strong access to the North American capital 
markets and could re-develop Panguna in a "highly timely 
fashion". 
    As it stands, BCL has no mine without the support of the 
owners of the minerals, and Duncan's group has no project 
without road and port rights as well as government support. 
    Anthony Regan, a constitutional lawyer at the Australian 
National University and an adviser to the Bougainville 
government, said the immediate outlook for the mine is bleak. 
"The need of Bougainville to have a significant source of 
revenue if it's to be really autonomous or independent has 
become hopelessly enmeshed with the future of Panguna." 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
Panguna mine on Bougainville island    http://tmsnrt.rs/2yYCkTt 
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 (Reporting by Jonathan Barrett in SYDNEY; Editing by Martin 
Howell) 
 ((Jonathan.Barrett@thomsonreuters.com;)) 
 
Keywords: PAPUA MINING/BOUGAINVILLE