PanAust sees costs of PNG copper/gold mine doubling to $3.6bn

JOHANNESBURG (miningweekly.com) – The cost estimate of the Frieda River mine, in Papua New Guinea, has more than doubled to $3.6-billion, from an earlier estimate of $1.7-billion, China-owned PanAust reported on Thursday.

An additional $2.3-billion would be spent over the life of the mine on development and sustaining capital.

The company published a feasibility study for the project, which contemplated a large-scale, openpit mining operation producing 175 000 t/y of copper and 250 000 oz/y of gold over 17 years.

The higher capital expenditure costs stemmed from the larger production capacity of the project, additional spending on waste and tailings management solutions and increased construction costs.

The feasibility study estimated that the project would have an average life-of-mine C1 cash cost of $0.69/lb and an all-in sustaining cost of $1.23/lb of copper. PanAust stated that the project would be in the first quartile of the global copper cost curve once hydroelectric power was introduced in year five.

The application process for the mine was expected to take about two years to complete, after which construction would take about six years. Frieda River would thus only enter into production in 2024/25. The development of the project, ultimately, would be subject to a final investment decision by the project owners.

PanAust would apply for a special mining lease for the project before the end of June.

Copper is hovering near its lowest price in several years, owing to a supply glut. However, with fewer new mines being opened, a deficit is forecast to emerge by 2020.

Using a copper price of $3.30/lb, a gold price of $1 455/oz and a silver price of $23/oz, the feasibility study estimated that the project would generate a net present value of $820-million and have an internal rate of return of 10.8%.

The price assumptions used in the study are higher than current prices, with copper currently at about $2/lb and gold trading at $1 250/oz.

ASX-listed Highlands Pacific holds a 20% interest in the Frieda River project and the government of Papua New Guinea has a right, prior to the grant of a mining lease, to buy up to 30% equity in the project. Should the State exercise its full entitlement, PanAust would sell down to a 55% controlling interest and Highlands Pacific would sell down to a 15% interest.

State-owned Guangdong Rising Assets Management bought PanAust, and delisted it from the ASX, in 2015 to secure the large undeveloped Frieda River project. Chinese companies are increasingly buying international copper assets.