PanAust has delivered joint venture partner Highlands Pacific the feasibility study for the Frieda River Copper-Gold Project in Papua New Guinea. The study outlines a much larger-than-expected development with a $US3.6 billion cost.
Highlands holds a 20% interest in the JV with PanAust, which is the manager of the project, holding 80%. PanAust, which is a wholly-owned subsidiary of Guangdong Rising Assets Management Co Ltd (GRAM), has been working on a feasibility study since acquiring its interest in the Frieda River project in August 2014.
The study contemplates a project comprised of a large-scale, open-pit mining operation feeding ore to a conventional process plant with nominal annual throughput capacity of 40 million tonnes. Average annual production of metal in concentrate is 175,000 tonnes of copper and 250,000 ounces of gold, with an initial mine life of 17 years.
The project will have an average life of mine C1 cash cost of US$0.69/pound of copper and an all in sustaining cost of US$1.23/pound of copper.
The study concludes that the project will have an estimated initial pre-production capital cost of US$3.6 billion, excluding mobile mining fleet and an oil-fired power generation facility. An additional US$2.3 billion will be spent over the life of the mine on development and sustaining capital.
The project capital cost compares with the US$1.7 billion estimate of the previous development concept announced by PanAust in September 2014. The higher capex of the updated development concept reflects the larger annual production capacity of the project, additional spending on waste and tailings management solutions and increased construction costs.
PanAust has estimated the updated project will generate a net present value (NPV) of US$820 million, using a discount rate of 7.8%, a copper price of US$3.30/lb, a gold price of US$1455/ounce and a silver price of US$23/ounce. The Internal Rate of Return for the project based on those parameters is 10.8%.
This NPV is calculated from a start date of June 2018 when the project may commence construction. The NPV as of June 2016 is US$705 million and assumes there is no expenditure from now until June 2018.
PanAust, on behalf of the Frieda River Joint Venture, intends to use the study to support an application, which Highlands intends to support, for a special mining lease, to be submitted to the PNG Government by June 30, 2016. A condition of the exploration licence is that such application be lodged on or before that date.
The application process and associated community consultation and environmental studies are anticipated to take approximately two years. Following permitting, construction would take approximately six years, leading to potential production in 2024-25.
Highlands notes the initial results of the study, and that the metal price assumptions adopted in the financial analysis are above current market prices. It also recognizes that project funding remains challenging in the current economic climate.
Further refinement will be required to enhance the economics of the project over the coming months and years while the process of negotiating a special mining lease is completed. Highlands remains hopeful that with further work the project can be viably developed and can create significant value by providing highly leveraged exposure to future increases in metal prices.
Highlands Pacific managing director John Gooding said the PanAust study demonstrated that there was significant potential value to be derived from the Frieda River project under the right conditions. “This is one of the biggest undeveloped copper projects in the world, and this study represents an important step in the process towards developing the project profitably and in the interests of all stakeholders.”