: Super User; Region; 12 January 2011; Hits: 1098

Minefield at PNG Copper Mine

WILL Rio Tinto, the major investor in one of the world’s richest copper mines, get it right this time? Spiralling global copper prices are prompting investors to consider reopening a controversial copper mine on Papua New Guinea’s (PNG) Bougainville Island that triggered almost a decade of civil war in the 1990s.

The closure of the Panguna copper mine run by Rio Tinto subsidiary Bougainville Copper Ltd (BCL) in 1989 led to important changes in the way large mining companies deal with host communities all over the world. Current moves to reopen it are therefore likely to be closely watched.

Located off the west coast of PNG, Bougainville Island is rich in copper and gold. It is also geographically and ethnically distinct from the rest of the country, a factor that has long encouraged secessionist sentiment.

Disputes over the mine date from the late 1960s. At the time, Australian colonial officials actively encouraged Rio Tinto’s endeavour, believing the mine would become an important source of revenue for the soon-to-be-independent nation. In this at least, it had some success. From 1972 to 1989, the mine contributed about 44 per cent of PNG’s exports and about 17 per cent of the government’s revenue. Bougainvilleans also enjoyed the highest living standard in the country.

But the mine had been built in the face of strong landowner opposition. Tensions simmered throughout the 1970s as women – through whom land in much of Bougainville is inherited – lay down in front of bulldozers. Widespread violence erupted in 1988, forcing the mine to close the following year.

By 1990, the situation had deteriorated into a full-scale civil war. Hostilities ended with a truce in 1997 and a peace agreement in 2001. Under current arrangements, the government in Bougainville is responsible for all activities except defence and foreign affairs. A referendum on independence is scheduled for some time between 2015 and 2020. The mine remains closed.

But with the global copper price now four times higher than what it was in the late 1980s, the pressure to reopen the mine is growing. Along with BCL’s shareholders, company chairman John Taylor agrees. But his cautious tone and reluctance to provide a timetable reflect the company’s bitter experience.

“We must ensure the landowners retain No. 1 importance,” he said. “And the Bougainville government’s support is also critical,” he told the Australian media last month. Mr Taylor also acknowledges the fact that everything will need to be renegotiated, including issues such as ownership, the employment of local people and tailings disposal.

Bougainville’s new president, Mr John Momis, elected for five years in June, also wants the mine opened. But he may impose tough conditions on the company. Campaigning during the PNG elections in 1987, he demanded that BCL hand over 3 per cent of its gross income to the Bougainville provincial government. BCL’s subsequent refusal contributed significantly to the tensions that triggered the civil war.

Several disagreements among Bougainvilleans regarding the conditions under which they would accept the mine’s reopening also need to be resolved.

Some activists have been insisting that all demands made by the rebels during the fighting, including those involving environmental compensation, must be met before the mine is opened.

On balance, however, the outlook seems hopeful. Apart from the current focus on the concerns of landowners, technological developments now allow tailings to be stored more safely. Previously, they were dumped in the Jaba River, a practice that triggered considerable controversy.

The World Bank is also funding a programme to help the Bougainville government develop the necessary regulatory environment.

Meanwhile, with the nation’s attention focused elsewhere, there is less likelihood that politicians in the capital would attempt to interfere. Economic planners are currently preoccupied with a huge S$21.4 billion ExxonMobil project to pipe natural gas from the Southern Highlands to Port Moresby for export to Asia.

All that remains is to raise the estimated S$3.9 billion that reopening the mine is expected to cost. That should not be too difficult.

Resource-hungry China is widely believed to be interested. And anyone seriously considering reopening the mine would surely be aware that the project already has access to a port via a 30km access road. There is also a reported 200 million tonnes of pre-stripped ore ready for extraction.

Reopening the mine would also help cement investor confidence in the rest of the PNG economy, which is already on the cusp of a resources boom as a result of other mining-related projects. Last year the PNG economy grew by 6 per cent. It is expected to expand by another 8 per cent this year.

For BCL, however, the Bougainville landowners remain key. Nothing will happen, Mr Taylor told Australian radio last month, “until they say to BCL, as a united group, ‘We want the mine and we want you to run it’”.
It is hard to disagree with that.

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Key Political Risks

Asia is the fastest growing region in the world, and is likely to remain so in 2013. However, a number of risks cloud the picture.

The good news is that domestic demand in the region remains strong and should continue to cushion the impact of weaker external demand on overall economic growth. The completion of national elections in Japan and South Korea in December 2012 should also help reduce political uncertainties.

But Asian governments will need to guard against the adverse impact of prolonged easy financial conditions on inflation.

Rising inequality also continues to threaten social stability. Ethnic and religious rivalries remain just below the surface in many countries. When combined with government corruption and (in some countries) high youth unemployment, this could become a deadly mix. This seems particularly true of China.

Territorial disputes also require close monitoring. Much diplomatic activity in the new year is likely to be centered on finding ways to reduce tensions over resource-rich islands in the South China Sea, where Beijing's claims overlap with those of Japan, Vietnam and other Southeast Asian states. South Korea and Japan also have rival territorial claims.

North Korea remains the wild card. Inclined to believe its own propaganda, Pyongyang's new leadership could miscalculate, making belligerent moves that plunge the region into a military conflict that nobody wants.