Return to Treasure Island?

By any measure, 17 years is a long time between drinks. But, if some speculators have got it right, the time has come to dust off the files on Bougainville Copper (BOC), though not for the obvious reason.

The company itself, which once ran one of the world’s biggest copper and gold mines, might benefit from changes under way on the war-ravaged Pacific island of Bougainville, but so might a few small players circling a multi-billion dollar prize.

On offer, if the politicians of Papua New Guinea and locals on Bougainville can finally agree how to resolve a dispute that shut the giant Panguna mine in 1989, is an estimated one million tonnes of copper and two million ounces of gold, in an already opened pit.

Getting to the copper and gold has, until now, been a dream because of the destruction of all mining and processing equipment at the site, and the understandable refusal of Bougainville Copper to send employees back to a war zone.

Times change, as this speculator’s check list shows. Over the past year:

• Peace has broken out on Bougainville.
• Islanders have set up their own Autonomous Bougainville Government (ABG).
• The PNG Government is transferring power over mining to the ABG.
• A plebiscite of all Bougainvillians is planned on the question of re-starting mining.
• Since late 2003 the price of copper has more than trebled and gold has almost doubled.

First mover in what is shaping as a stampede to reclaim the right to mine Bougainville’s copper and gold is Ord River Resources (ORD), a small Sydney-based mineral explorer with close Chinese connections, and a colourful management team.

Second mover, according to market chatter, is Gallipoli Mining, the unlisted business established by former MIM chief executive Vince Gauci.

Third is a Canadian company called Invincible Resources, which has held early talks with the ABG and offered $US7 million to the ABG for a slice of future mining activity.

Fourth is the original miner at Panguna, Bougainville Copper itself, a business 54%-owned by the Anglo-Australian mining giant Rio Tinto.

Since early July, Ord’s share price has been on the move, rising from about 9¢ to a recent peak of 41¢ on August 10, a 355% rise that saw the stock cop a speeding fine from the Australian Stock Exchange on August 11 – to which there was the standard “we know of no reason” reply. Since that exchange, Ord’s price has eased back to recent trades at 31.5¢.

'Quiet' discussions

In hindsight, the ASX appears to have been a week early with its query because on August 18 Ord’s name was linked for the first time to the events unfolding on Bougainville.

Local media in the PNG capital of Port Moresby reported that the ABG was “quietly discussing” mining on Bougainville with Ord. Not a word of that story in the Post Courier newspaper appeared in Australia, but it was picked up by the BBC Monitoring Service two days later, with London apparently showing more interest in what’s happening on Bougainville than Sydney or Canberra.

No details of what Ord is offering the ABG has leaked out, but it is understood that the plan involves offering the new government on Bougainville, or islanders themselves, a majority stake in any new mine development.

Ord is run by sometimes controversial company promoter, John Towner, the man behind the float of the coal-bed methane companies, Sydney Gas and Sunshine Gas, and a retractable needle company, BioMD.

But, the real interest in Ord lies in another of its big shareholders, a Chinese Government agency called China Non Ferrous Metal Industries, which holds a 20% stake in Ord, has signed a project development alliance with the Australian company, and whose chairman, Tao Luo, is deputy chairman of Ord.

Chinese demand for copper, a key metal in most electronic appliances, cars and construction, is the major force behind the rise in the world copper price from less than $US1 a pound as recently as late 2003 to about $US3.50 a pound today. (Gold has risen from $US360 to $US621 an ounce over the same period.)

China Non Ferrous, which already operates a copper mine in Zambia, is keen to get its hands on Bougainville’s mothballed copper resource. The gold would be a bonus.

Gallipoli, one of the other rumoured runners in the rush to Bougainville, is said to have taken a preliminary look at the shifting conditions on the island, but is also busy exploring the Alto Dorado copper/gold project in Peru.

Bougainville Copper, which has been waiting patiently on the sidelines since being kicked off the island in 1989, has also been a target for speculators. Over the past 12-months, the stock has risen from a low of 53¢ to a high in mid-March of $1.06. It has since retreated to about 68¢, a price that still capitalises a business that is little more than a cash box with the promise of something good in the future, at $272 million.

Trading volumes in Bougainville Copper are low, averaging about 25,000 shares a day. But that there are any buyers at all for a business that has done little for 17 years speaks volumes about the market sensing change. If nothing else, the higher price has given some of the 15,000 shareholders stuck in the stock since 1989 a chance to exit '” leaving the way clear for the investors with a greater appetite for risk.

Chairman's hints

Just how much risk will become clearer over the next few months with a growing number of telltales blowing in the wind. Last May, as political (and military) conditions started to improve on the island, the chairman of Bougainville Copper dropped several hints about a return to mining in Bougainville in a supplementary statement filed with the ASX.

Totally ignored at the time, largely because Australian media has tired of repeated false starts on Bougainville, those May comments from chairman Peter Taylor now look farsighted, particularly his remarks about “renegotiating” the Bougainville Copper Agreement (BCA).

After noting the changes flowing from the creation of the ABG and the need to create a situation where there was clear title to mining and exploration assets, Taylor said: “There is reason to be optimistic that the proposed review of the BCA will provide all parties with positive outcomes.”

However, Bougainville Copper might have a problem in determining exactly who it should be dealing with because its original agreement is with the PNG Government, which is in the process of ceding power over mining to the new, and autonomous, government of Bougainville (the ABG).

Taylor, in his view of the year ahead, warned that uncertainty over title was “another reason not to expect any quick decision on Panguna’s future”.

That official line from the company that last worked the giant mine is to be expected because it has a major image problem in Bougainville where it is blamed for being part of the cause of the civil war, and still faces allegations of environmental pollution and an unfair profit-sharing deal with the locals.

It’s the transfer of mining power from the central government of PNG to the ABG that has fired up interest from companies such as Invincible, Gallipoli, Ord, and its Chinese backers.

Size of the prize

The question left hanging is whether the copper and gold prize on Bougainville is really worth the effort. Repeated prior attempts to resurrect mining on the island have failed, and there is no guarantee that disaffected Bougainville tribes, particularly the aggressive Meekamui, will accept any fresh deal '” whether organised by the PNG government or the ABG.

It is partly to iron out remnant instability that the head of the ABG, Joseph Kabui, has promised a plebiscite on the question of allowing mining to resume on Bougainville. Kabui is keen to see mining and exploration resume so he can sever the last chain that binds Bougainville to the central PNG Government: financial reliance.

In June, Kabui made a trip to Canada to speak with Invincible Mining about its offer of financial assistance. But, that visit triggered a hostile reaction in Port Moresby with the central Government calling for an investigation into Invincible’s background.

The gathering of evidence of a political solution on Bougainville is largely why earlybirds have taken up residence on the Ord share register, and why Bougainville Copper itself continues to attract support.

But, the real underlying interest in Bougainville (the island, and the company) is what lies in the old Panguna pit, what might lie deeper if exploration resumes, and how much easier it would be today to start a mine than it was when Rio Tinto first went to the island in the 1970s.

Assuming all remaining equipment on site was simply pushed to one side, the re-start game would probably involve de-watering the existing pit, mining easily accessible ore, upgrading it to a concentrate, and re-start exploration across a richly mineralised island. A figure of $600 million has been mentioned, but it would probably be much more in today’s hothouse climate for resource projects where delays and budget overruns are the norm.

When mining stopped in 1989, Bougainville Copper estimated that the Panguna deposit still contained 510 million tonnes of ore grading an average of 0.42% copper and 0.55 grams a tonne of gold. There was an additional 530 million tonnes of material described as low-grade.

Getting at those ore reserves, and potentially finding a lot more with the aid of exploration tools developed since 1989, is the prize attracting a range of international mining companies, not to mention the Chinese Government itself.