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Frieda River Copper-Gold
About Frieda: Frieda River represents one of the largest undeveloped copper-gold deposits in the world. The Horse-Ivaal-Trukai, Ekwai and Koki (HITEK) global Mineral Resource is estimated at over 2.7 billion tonnes of mineralisation at an average grade of 0.42% copper and 0.23g/t gold and contains 13 million tonnes of copper and 20 million ounces of gold.
Location: The Frieda River project is 70kms south of the Sepik River on the border of the Sanduan and East Sepik Provinces of Papua New Guinea some 500kms upriver from the coast.
Ownership: Highlands Pacific holds a 20% interest in the project, with 80% held by PanAust Ltd, which is a wholly owned subsidiary of Guangdong Rising Assets Management Co. Ltd. of China.
The PNG Government has a right to acquire up to a 30% interest. If the Government exercises its right to its full extent, Highland's holding would reduce to 15% and PanAust’s to 55%.
Development Concept: PanAust has prepared a Frieda River Feasibility Study, which was delivered to Highlands in May 2016. The Study contemplates a project comprised of a large-scale, open-pit mining operation feeding ore to a conventional process plant with nominal throughput capacity of 40 million tonnes per annum. 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/lb1 of copper and an all in sustaining cost of US$1.23/lb2 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 an earlier 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$1,455/oz and a silver price of US$23/oz. 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$705m and assumes there is no expenditure until June 2018.
PanAust on behalf of the Frieda River Joint Venture has submitted an application for a Special Mining Lease. 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.
Joint venture partner commitment to development of the project remains subject to a range of challenges, including debt and equity funding, commodity prices, design refinement, environmental and community approvals. The future development of the project ultimately would be subject to a final investment decision by the project proponents, the grant of an SML and all necessary permits, approvals and agreements required from the PNG Government, landowners and other stakeholders. It also will be affected by such matters as government infrastructure support and the level of ownership that the national government elects to acquire in the project.
Licence Status: The Frieda River Joint Venture has several exploration licences with the main resource area being covered by EL58 which is current until November 2015. Environmental studies are significantly advanced but are yet to be finalized as an Environment Impact Statement. This will occur in the coming months.
Footnote: (1) C1 cash cost: Brook Hunt convention for the reporting of direct cash costs comprising: mine site, product transportation and freight, treatment and refining charges and marketing costs; based on payable metal content and metal prices of US$3.30/lb copper, US$1,455/oz gold and US$23/oz silver. (2) All-in sustaining cost: the C1 cash cost plus royalties, corporate support and shared services costs; and, sustaining capital; and lease principal and interest charges.