Page 290 - Introduction to Mineral Exploration

11: PROJECT EVALUATION 273

BOX 11.4 Case history of Ok Tedi Mine.

The Ok Tedi Mine, Papua New Guinea (PNG), provides an example of the valuation of mineralisation
and associated project financing. This porphyry copper deposit (Rush & Seegers 1998) was discovered in
1968 by Kennecott Copper Corporation (USA). Negotiations between this company and the host
government on the development of the project broke down in 1975 and Kennecott left PNG. The PNG
Government continued further exploration and development work. In 1976 Broken Hill Proprietary
(Australia) (BHP) agreed to evaluate the deposit and established that more than 250 Mt of mineralisation
at 0.7% copper (in the form of chalcopyrite) occurred in the porphyry and 115 Mt of material at 1.2 g t −1
gold in the capping gossan. A definitive feasibility study was completed in 1979. A consortium was
formed which included BHP, Amoco Minerals (a subsidiary of the Standard Oil Company of Indiana,
USA), and a German group of companies that largely represented copper smelting activities. This
sponsoring consortium, managed by BHP, presented proposals for the development of the deposit to the
PNG Government in November 1979 which were accepted in early 1980 (Pintz 1984). The proposals,
based on the feasibility study, were that development would take place in four stages for the production
of gold metal, and copper concentrates for export to Germany and other locations. A copper smelter and
refinery was not envisaged in PNG.
Construction: 1981–84

−1
Production To produce 22,500 t d gossan
−1
Stage 1: at 2.9 g t gold to produce
1984–86 about 22,000 kg of gold a year, depending on the grade and recovery
Production Gold production to continue as
Stage 2: previously, but also to mine copper
−1
1986–89 ore (average grade 0.7% copper) at a commencement rate of 7000 t d and expanding to
−1
60,000 t d by the end of 1989. Stripping ratio for the overall open pit is 2.5:1
Production Gold mining is phased out and
Stage 3: copper production continued at
−1
post 1990 60,000 t d ore. At an average grade of 0.7% copper, 80% recovery and 300 production
−1
days a year this is equivalent to 100,800 t yr copper metal in shipped chalcopyrite
concentrates containing 25–27% copper
In the early years low cost material with high value (the gold ore) was produced in order to repay rapidly
the project finance. In later years after this gold ore had become exhausted copper ore would be mined
from a large open pit. Copper sulfide concentrates only were to be produced on site and these con-
centrates sold to a German copper smelter group.
A separate project company was formed, Ok Tedi Mining Co. Ltd, with the following shareholders and
sponsors: BHP 30% (managers), German Group 20%, AMOCO 30%, PNG Government 20%.
In 1981 the estimated total cost of Stage 1 was $US855M with a project debt to equity ratio of 70:30.
Consequently the amount of equity required from the sponsors was $US256M and the remaining $599M
was raised as project finance from a consortium of banks in several countries.
Construction was completed on time and production stage 1 was successfully concluded. However,
the commencement of stage 2 coincided with a decrease in the price of copper and the ensuing delays in
project development caused renegotiation of several aspects of the initial agreement between the project
company and the host government. The project is continuing, although the lack of a tailings facility
caused intense controversy in the early years of the twenty first century and BHP Billiton’s 52%
shareholding has been transferred into a company promoting sustainable development in PNG.