Australia’s gold ambitions paint PNG success

St Barbara’s Simberi project is a small and safe operation in the New Ireland province of PNG.

Mining affairs in Papua New Guinea are often portrayed as tricky, but St Barbara and Geopacific Resources are two Australian companies that say otherwise. Vanessa Zhou writes.

Favourable relationships with the local community and all levels of government are the common thread of conversation among ASX-listed companies that operate in Papua New Guinea (PNG).

Home to some of the world’s standout gold deposits, PNG is therefore no stranger to some of its leading gold miners. This includes Newcrest Mining, the largest gold producer listed on the ASX, and ASX200 company, St Barbara.

Newcrest’s former executive general manager of Cadia, Lihir and global technical services, Craig Jetson, now oversees St Barbara’s Simberi operation as the company’s chief executive officer.

Simberi is in the New Ireland province of PNG. It is a successful gold mining operation that will produce over 100,000 ounces this financial year.

The site is a valuable part of St Barbara’s global footprint. After a couple of years of re-establishing the mine since its acquisition from Allied Gold in 2012, operations at Simberi have consistently been strong, setting the site up for its next expansion.

A Simberi pre-feasibility study (PFS) released in May shows that its mine life could be extended to the 2035 financial year. The study highlights a 38 per cent increase in ore reserve from 1.3 million ounces to 1.8 million ounces.

This is aligned with St Barbara’s plan to transition the operation from the processing of oxides to sulphides.

“We just increased our reserves and resource statement on the back of the PFS, and we believe that we have a strong business investment model that can expand the operation and extend its mine life,” Jetson tells Australian Mining.

“Today, our oxides sit between two and three years of life. But the PFS presented an opportunity for us to transition from oxides to sulphides and extend the life of mine by 12 to 13 additional years.

“This transition would be a simple step and it is not technically challenging. We have a far better understanding of the Simberi orebodies than we did two or three years ago.”

The lack of technical complexity involved in the transition makes the idea highly appealing for the company.

St Barbara would receive a return on investment from two years after commissioning with a gold price of at least $US1300 ($1874) an ounce.

“There wouldn’t be many mines where you can find a production of 100,000 to 120,000 ounces for 10 years for just $US150 million, so we’re very excited about it,” Jetson says.

St Barbara anticipates reaching a potential investment decision in March next year, with construction taking place within two years.

Simberi has an existing mine lease in place until December 2028, thanks to a successful 10-year renewal application process last year. Of note, St Barbara operates under a traditional mining licence rather than a special mining licence, which applies to some other mining operations in PNG.

“There are many proof points that supported the successful signing of a new mining licence. If you look at the impact Simberi has and the reason for our support on the island, it’s because around 70 per cent of our workers are local people. We work closely with the provincial government, who has been supportive of Simberi’s continuity,” Jetson says, noting this as the reason production at Simberi has not been affected by COVID-19.

Around 70 per cent of the Simberi workforce is made up of local people.

 

“We have a small amount of fly-in, fly-out (FIFO) national workforce, with extremely small portion of expatriates. That’s significantly different to what you may see in other operations. Simberi is a nice, small operation that has run very, very safely for many years.

“We have an experience working in PNG and with all levels of government for the last eight years; we are located in the middle of the South Pacific; and we are able to operate for 12 years under the proposed framework. All these lessen our operational complexity and provide stability for our future.”

Jetson says St Barbara has all the processes and systems in place to continue operating, stating that, “We certainly understand the political environment in PNG very, very well, and we’ve got very good experience on the ground, particularly with the land owners.

“These pieces put together a very good base for an operation 12-13 years from now.”

Jetson himself also has a limited proficiency in Tok Pisin – a spoken language in PNG. He acknowledges that this ability in the language helps to establish relationships in PNG.

“I can reasonably talk to our national PNG workforce, clan leaders and communities,” Jetson, who once lived on Lihir Island not far away from Simberi, says.

Jetson, recipient of the MaiMai (chief) status in the Namatanai district, PNG, is looking forward to putting his linguistic skills to use again as COVID-19 restrictions lift and he is able to visit Simberi.

In the meantime, he remains confident in the capabilities of the operations team, which has capably and confidently managed Simberi throughout COVID-19.

Ron Heeks, who stepped down as CEO and managing director of PNG-focussed explorer-developer Geopacific Resources in May, also testifies about the success of Simberi.

This is evident in the amount of investment St Barbara has made in the Simberi project over the past couple of years, Heeks says.

“St Barbara has been working so successfully in the New Ireland province of PNG and they’ve been pumping a huge amount of cash in the past couple of years,” he tells Australian Mining.

“One-hundred per cent of our issues is people having a perception that operating in PNG is very difficult.

“I’ve worked in many countries before … (But) we have the friendliest people in PNG. If you talk to anybody about that, they’ll agree.”

At the Woodlark gold project on its namesake island off the coast of PNG, Heeks says the company’s faces no inter-tribal issues because everybody is of the same tribe and speaks the same language: English.

This makes operating on the island a lot easier, despite PNG having over 700 distinct languages across the country.

Barges used to transport goods into the Woodlark Island.

 

Geopacific also faces no logistical issues thanks to the flat surface of the island, as it moves things around by barge.

“The two big issues that you have in PNG, we don’t have,” Heeks says confidently. “The issue is, everybody has a perception that the government is funny. I’m not 100 per cent sure why that is.

“We’ve changed seven prime ministers in Australia during the time that they’ve changed (three). They’re somewhat more stable than we are. Certainly you have third world problems, but we don’t deal at that level.

“You don’t see the mines minister, you see the mines department. I’ve worked in many countries, but PNG is easily the best I’ve dealt with. They’re very professional.”

The PNG Chamber of Mines & Petroleum is supportive of the continuity of mining operations in the country.

It reiterated the importance of Barrick Gold’s embattled Porgera project to the country’s economy and investor confidence in May.

Though the chamber did not wish to discuss the legal rights of the parties, it expressed a firm belief that optimal outcomes would come about when the national government and investors work together and respect the rule of law.

Geopacific, whose PNG mining licence has been renewed twice, has also received assistance from the mining department, which was working on site and helping local residents see the progress of the mine construction.

“They are very proactive in getting us to where we want to go. In addition, we employ walk-in, walk-out employees rather than FIFO,” Heeks says.

Given this experience, it’s not surprising that Heeks hails PNG as one of the world’s greatest countries for gold exploration. The junior company acquired all of Kula Gold’s rights and interests in the Woodlark operation last year to have 100 per cent ownership in the project.

Since then, the company has redone all of the mining studies and transitioned the plant from 1.8 million to 2.4 million tonnes a year.

It has also revised Woodlark’s entire mining schedule, reduced the strip ratio and increased mining dilution effects.

“We’re using 25 per cent mining dilution so we’ve got something real, whereas most plants are using 5–8 per cent dilution. That is the single reason you’re seeing gold operations in Western Australia fail,” Heeks says.

“They have been using dilution factors that are way, way too low and nobody picks up on it. It is the single factor that is sending most mines broke.”

Upon Heeks’ departure from Geopacific, acting managing director and executive chairman Ian Clyne now oversees the Woodlark project.

“We would not be in a position where we’re in discussions with debt providers and future equity raisers without all the efforts of Ron Heeks,” he says.

“It’s a mutual view that for the second build phase, we needed a different skill set, a new set of eyes to ensure that we deliver on our commitments to stakeholders.”

As for PNG’s national executive council, it has approved a commission report to review the controversial Mining Act of 1992 and the Environment Act 2000. It speaks loudly of PNG’s intention to improve the safety of mining activities in the country.

This article also appears in the July issue of Australian Mining.

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