Analysts welcome PanAust takeover of Frieda River mine project


The entry of PanAust—a new player in Papua New Guinea’s mining sector—is good news for the giant Frieda River gold and copper mining project in East Sepik Province. The move has also been welcomed by analysts.

Frieda River. Credit: Xtrata Copper

Frieda River. Credit: Xtrata Copper

Since Glencore Xstrata indicated late last year that it wanted to get out of the project, there’ve been concerns for the future of what has been regarded as one of the world’s top ten gold and copper prospects.

Brisbane-based PanAust, a company with mining interests in Laos, Thailand and Chile, has agreed to buy an 80% stake in the project for US$79 million (K205 million). The other 20% will continue to be held by Australian junior miner, Highlands Pacific, a company with a strong history in PNG. As with all mineral projects, the PNG State has the right to acquire up to a 30% interest in the venture.

A ‘good deal’

UBS analyst Joe Battershill described the deal as ‘good for PanAust’.

‘PanAust places a lot of emphasis on sustainability and corporate governance’

It would take 12 to 18 months to complete the feasibility study and another two or so years to get production up and running, he told Business Advantage PNG, which fits into the company’s projected schedule.

It’s PanAust’s first foray into PNG, and Battershill says one of the strengths that the company brings to the country is its track record in Laos.

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‘When they first went to Laos, there were very few Western countries operating there.

‘It was a difficult from a geopolitical perspective—the terrain, and unexploded ordinances—and what it has achieved there in the last 10 years is nothing short of significant for the country.

‘PanAust places a lot of emphasis on sustainability and corporate governance and I’d like to think it gives the PNG Government a sense it’s doing the right thing by local communities, the government, shareholders and the company.’

Massive project

The project is ‘one of the largest undeveloped copper and gold deposits in the world,’ according to a company statement, which also said Frieda River could produce 100,000 metric tons of copper and 160,000 ounces of gold a year and have a mine life of 18 years, and will need development capital of $1.5 billion to $1.8 billion.

PanAust's Gary Stafford

PanAust’s Gary Stafford

These figures contrast somewhat with the more bullish December 2012 estimates from Xstrata Copper, which identified an estimated capital cost of $5.6 billion, and an estimated average annual production profile of 204,000 tonnes of copper and 305,000 ounces of gold, over a 20-year mine life.

‘From a strategic point of view, Frieda River provides us with the basis for growing production beyond our current mine life in Laos,’ PanAust Managing Director Gary Stafford said in an analysts’ interview. ‘It gives us another string to our bow.’

If the development is successfully completed, departing owner Glencore Xstrata will receive a two per cent royalty payment.

PanAust Profile

  • PanAust is an Australia-based S&P/ASX100 copper and gold producer
  • Market Cap: A$1,168 million
  • Employees: 3,320
  • Principal assets: include the Phu Kham copper-gold property and the Ban Houayxai gold-silver property located 100km north of the Lao capital Vientiane
  • It also holds a 60% share of the Inca de Oro copper-gold project in Chile through an alliance with Codelco.
  • Net first-half profit 2013: US$18.9m million (down 38%)
  • Expected earnings to December, 2013: between US$260 million and US$ 300 million.