The Geology and Mineral Potential of PAPUA NEW GUINEA. Edited by Anthony Williamson and Graeme Hancock

Transcription

1 Edited by Anthony Williamson and Graeme Hancock

2 Edited by Anthony Williamson and Graeme Hancock

3 The Papua New Guinea Department of Mining wishes to thank the World Bank Technical Assistance Project in the Mining Sector for its support in making this publication possible. Compiled by Edited by Publisher Supported by Graphic Design Production Dr Greg Corbett Anthony Williamson and Dr Graeme Hancock Papua New Guinea Department of Mining World Bank Technical Assistance Project in the Mining Sector Lian Rigano Alan Caudell and Associates Copyright Papua New Guinea Department of Mining 2005 ISBN X Photographs The publishers wish to thank the following companies and individuals. Highlands Pacific Group United Pacific Drilling Ok Tedi Mining Limited Lihir Gold Limited Greg Corbett Trevor Neale Rocky Roe Photographics

4 INDEX Acknowledgements 4 Foreword 5 1. Papua New Guinea An Overview 6 2. Mineral Discovery and Mining in PNG 9 3. The Mining Sector s Contribution to the PNG Economy Geological Framework of PNG Geological Terranes and Mineralisation Tectonics and Mineralisation Mineralisation Styles Mineral Projects and Mines Environment Other Relevant Agencies of Government References 142

5 Acknowledgements Many geologists contributed to this publication, some as independent consultants, employees or contractors. It is only fitting that due acknowledgement be given for their individual efforts as far as is possible. The main contributor was Dr Greg Corbett, who was primarily responsible for the first draft of the book whilst consulting to URS Australia Pty Limited, the principal contractor for the work. Dr Corbett has extensive practical knowledge of Papua New Guinea mineralisation and geology. He has worked extensively throughout the Pacific Rim as a geological consultant. More specifically, Dr Corbett s ideas are reflected in the sections entitled Geological Framework of PNG, Geological Terranes and Mineralisation; and Mineralisation Styles. The latter section contains a wealth of data that provides technical background on epithermal and porphyry related mineralisation using examples from Papua New Guinea. The section entitled Tectonics and Mineralisation is a combination of interpretations from Dr Corbett, Professor Hugh Davies, Dr Robert Findlay and Dr Richard Rogerson. The editors have taken liberty in amalgamating the contributions and this proved to be the most difficult section to present to the reader. Professor Davies gained his PhD many years ago based on new tectonic theories in Papua New Guinea, and is currently employed as head of the School of Earth Sciences at the University of PNG. Dr Findlay, until recently, was employed in the regional geology section of the Geological Survey Division of the PNG Department of Mining. Dr Rogerson has extensive regional geology experience in PNG, having worked in the country for many years. He is currently employed by the West Australian Department of Minerals and Energy. Dr Corbett s experience is again relied heavily upon through his compilation of the section entitled Mineral Projects and Mines. The editors and Dr Findlay had further input into this section. The Compendium of Prospects, presented on the companion CD, was compiled by experienced Papua New Guinean field geologists Kassy Akiro, Jerry Garry, and Khon Digan, with input from Peter Macnab. The remaining sections were compiled by, or had input from, the editors, Anthony Williamson and Dr Graeme Hancock. Dr Chris McKee and Lawrence Anton made an important contribution via the seismic interpretation and earthquake data maps and profiles. 4

6 Foreword It is widely recognised that Papua New Guinea (PNG) is well endowed with natural resources, in particular, economic minerals that are sources of gold, silver, copper, nickel and chromite. PNG has been on the world mineral map since the early 1970s after its first porphyry copper mine came into production. Subsequent to that, the geological understanding of the nature of gold mineralisation in epithermal and porphyry settings has deepened, with the result being the development of a second large copper-gold mine and several major gold mines in PNG. There are currently three world-class mines that collectively produce in excess of 65 tonnes of gold and 200,000 tonnes of copper each year, so the opportunity for a return on investment in the PNG mineral sector is proven. In addition, one of the objectives of this publication is to highlight to potential investors in the PNG minerals sector that there remain numerous untested, or incompletely tested exploration targets, not to mention the as yet undiscovered resources. The Minerals Tenement administration system used by the Department of Mining is based on the Mining Act (1992) and provides the investor a high degree of security over their investment. The country has a competitive fiscal regime that operates under terms and conditions that most accountants and financial advisers would be familiar with. The regional geology sections of this publication may appear repetitive to the informed, but our intent is to provide sufficient information within each section in an effort to stimulate the readers imagination. One of the most obvious comments I would like to make based on my experience with the minerals sector in Papua New Guinea, is that management persistence, support and patience is an essential element for success in any PNG operation. This publication details numerous prospects that are yet to reach economic thresholds due to the fact that they have not yet been fully explored, mainly as a result of management decisions to curtail exploration due to disillusionment of a project s potential. Some may see this as a lost opportunity for one but a gain for another. The point is that the rugged, deeply weathered tropical terrain of Papua New Guinea does not easily yield up its riches. KUMA AUA, OBE Secretary Papua New Guinea Department of Mining 5

7 1. Papua New Guinea - An Overview BRIEF FACTS Full name: Land area: Population: People: Language: Legal system: Government: The Independent State of Papua New Guinea 474,000 square kilometres 5.3 million, 85% of whom are rural based 95% Melanesian, 5% Polynesian, Micronesian and Chinese 805 indigenous languages plus Pidgin, Motu and English Based on English common law Constitutional Monarchy with a Parliamentary Democracy GDP: K11.63 billion (approx US$3.6 billion) GDP per head: US$675 Inflation: 4% Major industries: Gold, oil, copper, coffee, silver, copra, palm oil processing and logging Trading partners: Australia, Japan, USA and China GEOGRAPHY Papua New Guinea lies in the southwest Pacific, just below the equator, between Asia and Australia. It comprises more than 600 islands and covers 474,000km 2. The country has a wide variety of landscapes. Rugged highlands over 1000m high form the core of the mainland and are flanked by rainforestclad foothills and savannah. Extensive swamps with navigable rivers dominate the western mainland to the north (Sepik River) and south (Fly River) of the highlands. The major islands of New Ireland, Bougainville and New Britain are surrounded by striking coral formations. Numerous active volcanoes and geothermal areas stud the islands and are often scenes of unpredictable natural violence in 1994, the once-beautiful New Britain town of Rabaul was destroyed by the Tuvurvur eruption. CLIMATE The country extends from the equator to latitude 10 south and the climate is typically monsoonal often being hot, humid and wet all year-round. There are defined wet (December to March) and dry (May to October) seasons, but both are subject to regional variation (especially in the islands). Rainfall, for example, varies remarkably: Port Moresby, on the southeast coast, usually experiences an annual rainfall of 1000mm (39 inches) while Lae, on the north coast, has over 4500mm (176 inches). In extreme rainfall areas, such as West New Britain, the annual rainfall can exceed 6m (20 feet) per year. Temperatures on the coast are reasonably stable all year (between 25 and 30 C; 77 to 86 F) but the humidity and winds are changeable. Temperatures are noticeably lower at higher altitudes, and it can be very cold in the highlands. Cyclones occasionally affect the eastern islands. Papua New Guinea is subject to El Nino influenced climatic variations. Most recently, an extensive drought during 1997 caused the Fly River to become un-navigable, interrupting the operations of the Ok Tedi Mine. POPULATION Papua New Guinea is essentially a southwest Pacific Melanesian culture with Polynesian and Micronesian influences, sandwiched between Asia to the west and north and the western cultures of Australia New Zealand to the south. Archaeological evidence indicates that people arrived about 50,000 years ago and began farming 30,000 years ago, making them probably the world s first farmers, domesticating crops such as sugar cane. The population of 5.3 million people can be loosely divided into four regional groupings: Highlanders living in the mountainous part of Papua New Guinea, and make up approximately 30% of the population of Melanesian origins Papuans from the south coast, where the Polynesian influence is most apparent New Guineans from the north mainland coast Islanders from the offshore islands of mostly Micronesian and Polynesian influences. Internal migration, which began with plantation labourers in the 19th century and continued with the modern mobile work force, has blurred these original distinctions. The number of foreign nationals in 6

8 Papua New Guinea - An Overview (cont.) Papua New Guinea has declined from a preindependence peak of 50,000 to the current 24,000. The principal expatriate groups comprise refugees from West Papua living in camps near the border, expatriate professional workers, plantation owners and missionaries. GOVERNMENT Papua New Guinea became an independent parliamentary democracy on 16th September There are three levels of government national, provincial and local. The government is formed in the National Parliament, the Head of State is the Prime Minister and the ceremonial Head of Government is the Governor General. The National Parliament, sometimes referred to as the House of Assembly, has 109 seats; 89 members are elected from open electorates and 20 from provincial electorates. In the past, the members have been elected by popular first past the post style vote to serve five-year terms. The constitution has recently been amended to introduce limited preferential voting. Elections were last held during June 2002 and April and May 2003, being completed in May The next elections will be held no later than June There is a multiparty system and most governments are formed from a coalition of parties and independent members. Each of the provinces has a provincial assembly, governor and a bureaucracy to handle provincial matters. A further 150 local councils function at village level where there is an overlap with the traditional clan system in which elders (bigmen) provide leadership. JUDICIARY The highest judicial body is the Supreme Court. The Chief Justice is appointed by the Governor General on the proposal of the National Executive Council after consultation with the minister responsible for justice. Other judges are appointed by the Judicial and Legal Services Commission. EDUCATION Papua New Guinea recognises the importance of basic education, with about 70% of children attending primary (community) school and about 30% passing onto secondary school. Secondary education is delivered mainly in the government-operated National High School System, supplemented by many mission schools and several international schools. Tertiary institutions that train professional geologists, engineers and metallurgists include the University of Papua New Guinea at Port Moresby and the University of Technology at Lae. LANGUAGE In a country comprised of isolated mountain or island communities, over 800 discrete languages (tok ples) have arisen. Police Motu was adopted as the lingua franca of Papua by the early Papuan administration from the simplified Motuan tongue historically used as a trading language on the south coast of Papua. In New Guinea, Melanesian Pidgin evolved in the post- German administration times by integrating words of many languages, including German, Malay and Kuanua (Tolai), with basic English (in which many words were given altered meanings). Pidgin has continued to evolve as a dynamic language, such that with the integration of the Papua and New Guinea administrations at independence, and the greatly increased mobility of the population in recent decades, the use of Motu has largely died out except around Port Moresby, where Hiri Motu is the traditional language. Pidgin is almost universally understood and used between members of different language groups. English has been adopted as the country s official language and it is widely spoken amongst educated people. There are people who understand English in most areas of PNG. RELIGION Christianity is the dominant religion (96%) with the main denominations being Catholic (27%), Lutheran (19%), United Church (11%), Seventh Day Adventist (10%), and other protestant (19%). Other significant minorities include the Baha i Faith (1%) and indigenous beliefs (1%). 7

9 Papua New Guinea - An Overview (cont.) CURRENCY The national currency is the Kina (K), which is made up of 100 toea, with each name being based upon traditional shell monies. In September 2004, the Kina was valued at US$0.30 and AUS$0.43. There is an adequate network of locally owned and foreign (mainly Australian) banks operating in the major centres. TRAVEL The isolated mountain and island communities of Papua New Guinea and the mining industry have a long and enthusiastic relationship with air travel (see section entitled Mineral Discovery and Mining in PNG ). The national carrier Air Niugini provides national and international services, many of the latter in code share arrangements with other airlines. Key services and connections include: Australia - to and from Cairns (1.3 hours flying time), Brisbane (3 hours flying time), Sydney (4 hours flying time, ex-brisbane); Europe - via Air Niugini services to Narita, Manila and Singapore; North America - via Australian or through Asian connections. Air Niugini also connects to Honiara in the Solomon Islands. Domestic Air Niugini services link most of the major regional centres. Several helicopter companies service the mineral and petroleum exploration and mining industries using aircraft ranging from the smaller Hughes 500 and Longranger, to Mil 8 helicopters. INTERNATIONAL TREATIES Papua New Guinea is a party to the following treaties: Antarctic Treaty, Biodiversity, Climate Change, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, and Wetlands. Channel chip sampling on a remote prospect site. 8

10 2. Mineral Discovery and Mining in PNG INTRODUCTION For thousands of years the indigenous people of Papua New Guinea have mined and traded stone implements and ochre, and used clay to make pottery. Gold was first discovered in Papua New Guinea in 1852 as accidental traces in pottery from Redscar Bay on the Papuan Peninsula (Fig. 2.1). This summary of prospecting in Papua New Guinea is taken from Nye & Fisher (1954), Cotton (1975), Nelson (1976), Lowenstein (1982), Williamson (1982), Loudon (1984) and Davies (1992). EARLY EXPLORATION PRE-WORLD WAR I By the 1870s, gold prospectors, who had migrated northwards along the east coast of Australia, progressed to the islands of Papua New Guinea (Fig. 2.2). In February 1873, Captain Moresby of HMS Basilisk reported traces of gold from the vicinity of what is now Port Moresby, and this was exaggerated in a speech to the Colonial Institute in London the following year. At that time, Papua New Guinea was unclaimed by any European powers. Aviation pioneer Lawrence Hargrave found a speck of gold and a specimen of copper at the furthest point of D Albertis exploration voyage in the Ok Tedi River in In 1877, gold was again reported from the vicinity of Port Moresby and a small rush prospected the Laloki River without success many of the miners died from malaria. In 1884, Britain established a protectorate over Papua, and Germany colonised northern New Guinea. Papua New Guineans, returning from labouring on Queensland plantations, may have identified the first meaningful quantities of gold in PNG at Sudest Island. David Whyte produced 142oz of gold from there in 1888 and sparked a rush of miners from Australia, resulting in a further 15,000oz produced to The rush of 400 miners soon exhausted the shallow alluvial and eluvial gold on the island, so the British Administrator, William MacGregor (later Sir William), used HMS Swinger to take miners prospecting on nearby islands, eventually finding gold on Misima in October By 1895, gold had also been identified on Woodlark Island. As the miners began to prospect the Papuan Peninsula, gold was identified at Mambare River in 1896, Gira in 1897, and Yodda in 1899 (where platinum and osmiridium were also discovered). The prospectors moved progressively to Milne Bay, Cloudy Bay and eventually, by 1909, the rich Lakekamu River alluvials on mainland PNG were identified. Lode mining for gold began on Sudest Island as early as 1890; miners began to work the lodes at Woodlark in 1900 and on Misima in These operations remained active until World War II. Further details are included in the discussions of those projects later in the text. At the Astrolabe mineral field near Port Moresby, massive copper ore was mined from 1907 to 1926 at the Laloki and Dubuna Mines and transported by light rail and aerial ropeway to a smelter near the Tahira Inlet wharf. Two other mines provided ore for another smelter from 1938 to 1942 (Davies, 1992; Williamson, 1982). In German New Guinea, Ernst Tappenbeck discovered gold in the lower Ramu River in 1898 and a German syndicate worked gold in the Waria River from 1901 to Some prospectors entered the Waria Valley from Papua with the blessing of the German administration, and an area was reserved for the Rudolf Wahlen syndicate. In 1910, a Canadian- Australian, Arthur Darling, identified gold in what became the Morobe Goldfield. However, the focus of the German administration in New Guinea was more on scientific endeavours than prospecting, as distinct from the Australian administration in Papua, which saw gold mining as a valuable source of revenue. Table 2.1 summarises gold production in Papua New Guinea to Goldfield Production (oz) Date field proclaimed Sudest Misima Island Woodlark Island Gira River Milne Bay Yodda River Keveri River Lakekamu River Astrolabe (Port Moresby) Morobe Total (rounded) Table 2.1 Gold production from Papua New Guinea to 30 June 1926 (after Nelson, 1976 and Lowenstein, 1982). 9

11 Mineral Discovery and Mining in PNG (cont.) Fig. 2.1 Prospects, mine sites and localities cited in this book. Fig. 2.2 Pre-World War I gold field proclamations and discoveries. 10

12 Mineral Discovery and Mining in PNG (cont.) THE WAR AND INTER-WAR YEARS ( ) At the start of World War I, Australia took possession of the German colony of New Guinea, which was administered from Rabaul at that time. In 1922, New Guinea was made a Mandated Territory of Australia by the League of Nations. In the same year, a mining ordinance was put in place to legalise prospecting. After Arthur Darling s death in 1921, William Shark Eye Park rediscovered Darling s gold find at Morobe in 1922, and together with Jack Nettleton began to work gold in secret at Koranga Creek, in what is now the Morobe Goldfield. By 1923, miners began to flock to the field, which was proclaimed that year. The number of expatriate miners grew rapidly to 219 in Also in 1926, William Royal and Dick Glasson climbed past substantial waterfalls to discover the incredibly rich alluvial gold deposits in Upper Edie Creek, winning up to 240oz/day from a single sluice box (Lowenstein, 1982). At that time, it took eight days for labourers to carry supplies from the coastal port of Salamaua to Wau, consuming part of the cargo along the way. A milestone in prospecting and gold mining came in 1927 with the first Lae to Wau aeroplane flight, leading to the next stage in development of the Morobe Goldfield. From 1932, Bulolo Gold Dredging, floated by a precursor of the international Canadian gold mining company Placer Dome, constructed eight dredges at Bulolo and Wau from dismantled parts flown in using three Junkers aircraft. This resulted in a total airlift of 39,417 tons of freight, for production of 1.3 million ounces of gold, until the planes were destroyed by Japanese fighters in The Morobe Goldfield reached its peak production in 1938 when 700 expatriate and 6,218 national miners produced 404,000oz gold. Dredging resumed after the war and continued until the last dredge closed down in the mid-1960s. By the mid-1980s, the field had produced 3.5 million ounces of alluvial gold and 0.5 million ounces of hard-rock gold (Nelson, 1976; Loudon, 1984). Prospecting by Ned Rowlands in the Eastern Highlands led to the discovery in 1928 of gold near Kainantu, while in 1930 the Upper Ramu River was declared a provisional goldfield, and from 1934 the Sepik and Torricelli regions were explored. Table 2.2 PNG gold production

13 Mineral Discovery and Mining in PNG (cont.) Government patrol officers who entered new territories panned to test drainage systems for gold, and between 1933 and 1939 Jim Taylor and John Black identified gold downstream from Porgera. The government sanctioned epic prospecting expeditions such as the 1933 patrol of the Leahy brothers (the film of which still remains). Between the two World Wars, gold mining represented a significant source of income to the Papua New Guinea administration. (Table 2.2) POST-WORLD WAR II After World War II, prospectors moved to follow up on the Porgera discovery in 1948, but only Joe Searson remained to work the alluvial gold. A road completed by army engineers linking Wau to Lae greatly aided mining in the Morobe Goldfield. Jack Thompson, the Chief Government Geologist, promoted mineral exploration in PNG and in the late 1950s initiated geological surveys. International mining companies extended these surveys to evaluate the Papuan Ultramafic Belt on the Papuan Peninsula for lateritic Ni Co deposits. At Porgera, during the 1960s, Searson focused on the hard-rock potential, forming a syndicate to finance initial adit development. With the help of the Administration, he attracted other explorers such as Bulolo Gold Dredging and later Mount Isa Mines (MIM), which began to drill test the Waruwari hardrock resources at Porgera. Eventually, in 1983, continued geological studies by a consortium of Placer (now Placer Dome), Renison Goldfields Consolidated (RGC) and MIM identified the Zone VII high-grade mineralisation, dramatically improving the economics of the project. THE 1960s PORPHYRY COPPER BOOM At the time Searson was promoting Porgera to major mining companies, the science of porphyry Cu Au mineralisation was beginning to emerge. In 1962, Ken Phillips of Conzinc RioTinto of Australia (CRA) applied a geological model, based on Philippine porphyry deposits, to Papua New Guinea mineral exploration. In 1964, following the advice of Jack Thompson and a 1930s report of alluvial gold and lode copper on Bougainville, Phillips identified the Panguna porphyry Cu Au deposit. Panguna went into production in 1972, and had produced 30Mt of copper and 9.6 million ounces of gold by its closure at the end of The Australian Bureau of Mineral Resources (BMR) provided geological services to PNG from 1948 to The BMR contribution to the geological understanding of PNG was significant. In the late 1950s, BMR geologists discovered the Yandera copper mineralisation, were responsible for the preparation of most of the 1:250,000 scale geological maps of PNG, and in 1962 discovered the Ramu lateritic Ni-Co deposit. The Ramu project has been periodically evaluated ever since. Again in 1966, the BMR geologists recognised mineralised float in streams which subsequently led to the discovery of the Frieda porphyry Cu Au system. MIM acted on reports of the BMR discovery to take up ground covering the Frieda prospect. Further exploration of the Frieda area led to discovery of the Nena high sulphidation Cu Au mineralisation in Regional exploration continued elsewhere in the rugged jungles of Papua New Guinea. In 1968, Kennecott Copper Corporation geologists followed a cupriferous float train from the junction of the Ok Menga and Ok Tedi drainages to identify the Ok Tedi porphyry Cu Au intrusion at Mt Fubilan. After its success with the discovery of Panguna, CRA outfitted a ship (the CRAEStar ) with its own laboratory and helicopter, which was used to prospect the western Pacific rim for porphyry Cu Au deposits. Many anomalies identified during this time are still being explored (e.g. Wafi), and surprisingly, some still remain to be followed up. From the mid 1960s to the early 70s, vast areas of Papua New Guinea were subjected to first-pass prospecting for porphyry copper style mineralisation. This work was carried out at a time of relatively low gold prices. Thus, the exploration programs gave little or no consideration to gold as a possible exploration target. THE 1980s GOLD BOOM When Papua New Guinea gained independence in 1975, Panguna was the only major mine operating. As the price of gold rose in 1974 and again more spectacularly in 1979, there was increasing international recognition of the gold potential of Papua New Guinea. This led to a significant increase in applications for Exploration Licences. 12

14 Mineral Discovery and Mining in PNG (cont.) A moratorium was placed on granting new applications in 1980 to enable the Department time to assess and process the Applications. The moratorium was lifted in November 1982, resulting in a flood of new applications from international companies and consortia (e.g. Niugini Mining Kennecott Joint Venture, CRA, RGC), and many other junior exploration companies. The 1980s saw the start of a new gold rush in the country (Fig. 2.3). As mentioned above, much of the earlier porphyry copper exploration did not include assaying for gold (e.g. CRAEStar) as it was not considered economically significant at that time. The new gold discoveries in areas such as Kerimenge, Hamata and Hidden Valley (all in the Morobe Goldfield), as well as Mt Kare and Tolukuma, were the result of a new generation of helicopter-supported reconnaissance which explored much of Papua New Guinea for gold mineralisation. The exploration efforts were given a conceptual basis by the Geological Survey of Papua New Guinea which promoted the application of new tectonic theories (Rogerson et al., 1988). Geochemical studies by the BMR (Wallace et al., 1983) played a distinct role in discovery of the giant Ladolam gold deposit on Lihir Island, while the application of new conceptual geological models led to discoveries such as Rafferty s at Wafi in 1989 (Corbett and Leach, 1998). Guinea for gold mineralisation first took hold in 1982, and was subsequently validated with several new discoveries being made over the ensuing few years. In addition to the examples cited above, the gold rush at Mt Kare ( ), the bonanza gold grades produced from early mining at Porgera Zone VII ( ), and good results from drilling the Minifie Zone on Lihir Island could be added to substantiate the high prospectivity for gold mineralisation of PNG. All of this has encouraged further prospecting and exploration. The 1987 stock market crash brought the 1980s gold exploration boom to an abrupt end in Papua New Guinea and indeed throughout the world. Mergers, acquisitions, a declining commitment to explore, and lacklustre investor sentiment in the mining sector, reigned throughout the nineties. Only recently has there been an increase in exploration activity in PNG. Detailed accounts of the discovery and development of mines (e.g. Lihir, Tolukuma) and many exploration projects (e.g. Wafi, Hidden Valley) are presented later in this document. Reappraisal of the oxidised lowgrade gold mineralisation surrounding the previously mined (underground ) high-grade mineralisation at Umuna, on Misima Island in by Peter Macnab, led to its redevelopment as an opencut mine in the late 1980s. Tolukuma, discovered during helicopter-supported regional reconnaissance geochemistry in 1985, saw mine construction begin in May The mine now operates without a road link, depending entirely on helicopter support. The perceived high prospectivity of Papua New Fig. 2.3 Exploration expenditure and licence applications per year. 13

15 3. The Mining Sector s Contribution to the PNG Economy INTRODUCTION The economy of PNG is dominated by a subsistence and cash agriculture sector, yet since the early 1980s mining and petroleum continued to be the driving force in the economy, contributing significantly to total exports, government revenue and GDP. Mineral product exports alone accounted for 55% of total merchandise exports in 2003, equivalent to some PNGK 4.2 billion (approx US$1.1billion) (Fig. 3.1). Employment directly attributable to mining is estimated to account for 5% of the total available workforce; furthermore this figure represents about 20% of the total formal rural workforce (Table 3.1). The indirect employment figure derived from support services, contractors etc not classified as mining but engaged on mining related projects, obviously makes the overall employment figure due to mining significantly higher. Fig. 3.1 Export value in US$. Fig. 3.2 Real GDP Growth Source: Bart Philemon, Economic and Development Policies; Department of Treasury 2003, Mike Manning (INA) SECTOR EXPORTS Nominal EMPLOY- % GDP % MENT % ESTIM- ATED 2000 Agric./Forestry/Fisheries % 23 Mining % 5 Petroleum % Manufacturing - 9.3% 15 Construction - 4.8% 7 Wholesale/Retail Trade - 9.7% 17 Transport/storage/comms - 4.8% Electricity/gas/water 1.3% Business Services - 3.4% Community/Social/Others % 33 Other 1.8% Total Table 3.1 Sectoral Contributions to the PNG Economy. Source: Dept of Treasury; Lavantis, Since the early 1990s, minerals and petroleum sector products have consistently comprised around 70% of total merchandise exports; comprised over 20% of total government revenues and; was between 16% (Nat Stats Office) and 25% (Dept of Treasury) of GDP, on average (Fig. 3.2). As mentioned previously, systematic mineral exploration of Papua New Guinea commenced in the 1960s with attention largely directed towards finding porphyry copper deposits. By the mid-1970s, three world-class deposits and several smaller systems had been discovered. In the 1980s, attention shifted to gold exploration in previously known as well as virgin areas, and resulted in recognition of two world-class deposits, each containing >200t of gold, and numerous smaller deposits of economic interest. 14

16 The Mining Sector s Contribution to the PNG Economy (cont.) Fig. 3.3 B=Bougainville; O1=Ok Tedi Gold; O2=Ok Tedi Copper; M=Misima; P=Porgera; T=Tolukuma; L=Lihir, Black line = Bougainville closure in Fig. 3.4 Year 2003 ranking of top ten gold producers in PNG and Australia. Papua New Guinea has been ranked as the 11th largest gold producer in the world over the past few years and is a significant copper producer, with a very real potential to exceed the present production level for both commodities. Silver is a commercial byproduct from most of the mines. Accordingly, most exploration and mining carried out within Papua New Guinea is, and has been, for gold and copper. Mineable reserves of nickel, cobalt and chromite have been identified, but remain to be exploited. Sizeable mineral sand prospects are known to occur, but have not received much exploration attention over the last 20 years. Manganese has also been mined in a small way in the past. It is fortunate that there has been a positive turnaround in interest in the mining sector since 2003, which will afford PNG a renewed opportunity to grow and diversify its economy. This is timely, as the average lead-time for the 6 major mines which either still are, or were in production stands at 14.7 years. The average time between mine commissioning is 5.9 years (including Kainantu which is scheduled to commence production in 2005). The five remaining advanced projects (Simberi, Hidden Valley, Wafi, Ramu and 15

17 The Mining Sector s Contribution to the PNG Economy (cont.) Fig. 3.5 Years 2003 and 2004 gold production. Frieda) have been subject to an average of 26 years of systematic exploration and are yet to reach development. In other words, there has been a long lead time between discovery and development in PNG. The mines of PNG are some of the largest in the region and have collectively produced over 60 tonnes of gold each year for the last 13 years. The interplay between geological (high prospectivity/large occurrences/ease of discovery) and commercial (high capital/operating costs) are the main reasons why the mines are large. Smaller, higher grade mines will be a part of the sectors future in PNG. Projected gold and copper production to 2013 should exceed 70 tonnes and 195,000 tonnes per year respectively, appreciating significantly after 2007, because it is anticipated that there will be three new mines commissioned over the coming three years. FISCAL PROVISIONS APPLICABLE TO THE MINING SECTOR A summary of the mining fiscal terms for new mining projects are presented in the Table below. These provisions came into effect in January Income tax rate 30% Dividend withholding tax rate 10% Accelerated depreciation allowance 25% DB Pool Royalty rate 2% Deductions of exploration expenditures 200% Additional profits tax Abolished Ring fencing Relaxed Mining levy None Capital gains tax None State equity Under review Fiscal stability Optional at 2% premium Table 3.2 Mining Fiscal provisions. Royalty The holder of a special mining lease or a mining lease must pay a royalty to the state equivalent to 2% of the net proceeds of sale of minerals (calculated as net smelter return or fob export value, whichever is appropriate). Royalty distribution At least 20% of the royalties from a project are 16

18 The Mining Sector s Contribution to the PNG Economy (cont.) Fig. 3.6 K=Kainantu; S=Simberi; HV=Hidden Valley; W=Wafi; F=Frieda. distributed to the landowners of the project area; the remainder is spent within the mine impact area and the province in which the project is located. These royalties are not wholly distributed as cash. They are to be primarily spent on an approved Community Sustainable Development Plan. General taxation provisions Persons taxable under these provisions are taxed the same way as other businesses in Papua New Guinea. Such entities are liable for corporate income tax. Import duties Project companies (or their subcontractors) may import specialised goods for exclusive use during mining operations at a reduced tariff for large-scale projects tax review The Papua New Guinea fiscal regime was reviewed in 2002 with the view to proposing a more attractive regime for the sector. The result of the review elevated the internal rate of return (IRR) for both model copper and gold mines within Papua New Guinea, as shown in Table 3.3. The following changes have been implemented as a result of the 2002 tax review. Double deduction of pre-production exploration costs Most mining tax systems allow pre-production exploration costs to be expensed or deducted in a relatively short time period. Papua New Guinea s ring fencing provision has in the past limited the write down of exploration expenses. In order for the country to better promote itself as a nation that welcomes and supports mineral exploration, a double deduction for the incurred expenditure has been offered. The current system has been modified to allow a 200% deduction allowance for exploration expenditures incurred after 1 January The first 100% is allowed as a deduction against assessable income in accordance with the current deduction rules. The second deduction would only arise after a mine commences commercial operation. Depreciation In order to improve investor returns, Papua New Guinea has moved to using a 25% declining balance depreciation pool arrangement for all assets for any new mineral development. 17

19 The Mining Sector s Contribution to the PNG Economy (cont.) Country Foreign investor s IRR (%) Total effective tax rate (%) Lowest taxing quartile Sweden Chile Argentina Papua New Guinea Zimbabwe Philippines nd lowest taxing quartile South Africa Greenland Kazakstan Western Australia China USA (Arizona) nd highest taxing quartile Indonesia (7th, COW) Tanzania Ghana Peru Bolivia Mexico Highest taxing quartile Indonesia (non-cow 2002) Poland Papua New Guinea Ontario, Canada Uzbekistan Ivory Coast Burkina Faso Table 3.3 Comparative fiscal regimes for a model copper mine in selected jurisdictions (indexed on Foreign Investor IRR, Otto, 2002). The proposed regime has the additional benefit of removing the requirement for mining companies and the Internal Revenue Commission (IRC) to retain complex asset registers in order to determine the amount eligible for deduction in any one year. Loss carry forward time limit The loss carry forward time limit was increased to 20 years in Investors viewed this period as attractive, but it presented mining companies and the IRC with the administrative requirement to maintain records of losses for the full 20-year period. As a result of this issue, many nations have now moved to eliminate any maximum time period for the carry forward of losses. Similarly, Papua New Guinea has now removed any time limit on the carry forward of losses. Premium for entities wishing to make use of the Fiscal Stabilisation Act Papua New Guinea currently offers fiscal stability under the Fiscal Stabilisation Act requiring payment of a small premium for this benefit. Papua New Guinea has a 2% company tax premium for the offer of fiscal stability for the duration of the financing period. THE MINING ACT, MINERAL PERMITS AND IMPLEMENTATION The principal legislation in Papua New Guinea that regulate mining activities are the Mining Act 1992 and the Mining Safety Act (Ch. 195A), administered by the Department of Mining. 18

20 The Mining Sector s Contribution to the PNG Economy (cont.) Under the Mining Act, the State owns "all minerals existing on, in, or below the surface of any land in Papua New Guinea, including minerals contained in any water lying on any land in Papua New Guinea." A person must not carry on exploration or mining on any land unless duly authorised under the Act. Consequently, the Act sets out the procedure whereby the State s Minister for Mining can issue various types of leases or licenses (mining tenements) to interested companies on application, to enable them to engage in various exploration and/or mining activities in Papua New Guinea. Papua New Guinea citizens are allowed to carry out non-mechanised mining of alluvial minerals on land owned by them (using handtools and equipment but not pumps or machinery driven by electric, diesel, petrol or gas-powered motors), provided that the mining is carried out safely and in accordance with the Mining Safety Act, and that the land is not the subject of another tenement (other than an Exploration Licence). Licence types The various types of mining tenements (licences and/or leases) issued under the Mining Act on recommendation from the Mining Advisory Board include: Exploration Licence (EL) Mining Lease (ML) granted for a term not exceeding 2 years and may be extended for periods up to 2 years; granted for a term not exceeding 20 years, which may be extended for such period not exceeding 10 years; Special Mining Lease (SML) may be granted for a term not exceeding 40 years and may be extended for such period not exceeding 20 years; Alluvial Mining Lease generally used by Papua New Guinea citizens for small-scale mining activities. Exploration Licence (EL) The area of land in respect of which an EL may be granted must not be more than 750 sub-blocks (one sub-block = about 3.41km 2 ). When applying for an extension of the term of the EL, not less than half of the area held at commencement of that term must be relinquished. Where the area of an EL has been reduced to not more than 30 sub-blocks, the EL holder will not be required to make any further relinquishment on renewal. Where, as a result of relinquishments, the area has been reduced to not more than 75 sub-blocks, the EL holder may apply to the Director to waive or vary the requirement to relinquish, but the total area permitted to be held after such waiver shall not exceed 75 sub-blocks. An EL authorises the holder to: enter and occupy the land that comprises the EL for purposes of carrying out exploration for minerals on that land; to extract, remove and dispose of such quantity of rock, earth, soil or minerals as may be permitted by the approved work program; take and divert water situated on or flowing through such land and use it for any purpose necessary for exploration activities subject to, and in compliance with, the Environment Act 2000 which is administered by the Department of Environment and Conservation; do all other things necessary or expedient for the undertaking of exploration on that land. Applications for the grant or extension of an EL must comply with two main requirements, namely the technical and financial capacity to undertake an approved work program. Minimum annual expenditure in connection with an approved program is prescribed in the Act. An approved program may be varied at any time on written application to the Director based on one or more of the grounds specified in the Act. An EL holder is also required to lodge the following reports in duplicate with the Director: a Bi-annual Exploration Report and a Bi-annual Expenditure Statement calculated from the date of grant, on expiry, on cancellation and also on 19

21 The Mining Sector s Contribution to the PNG Economy (cont.) making an application to surrender the EL; an Annual Report calculated from the date of grant of the EL; a Relinquishment Report in respect of the period up to the date of relinquishment or surrender of the whole or any portion of an EL, or on expiry or cancellation of the EL. Mining Lease (ML) An ML shall not be more than 60km 2 in area. The main difference between an ML and an SML is the scale of the operation. In any event, the EL holder has the exclusive right to apply for a ML (or SML) over ground covered by the EL. Special Mining Lease (SML) An SML is generally issued to the EL holder for largescale mining operations. The EL holder must also be a party to a Mining Development Contract with the State. Before the grant of an SML, the Minister is required to convene a Mine Development Forum to consider the views of those persons and authorities that the Minister believes will be affected by the grant of the SML. Those represented at such a forum include the applicant for the SML, the landholders affected by the application, appropriate National Government departments, and the Provincial Government in whose province the SML application is situated. Mining Development Contract (MDC) Under the Act, the State has the discretion to enter into an agreement consistent with the Act, relating to a mining development or the financing of a mining development held under a mining tenement. Some of the factors that the Minister may consider in determining whether the mining of a mineral deposit should take place under an MDC between the State and a tenement holder include: the size or distribution of a mineral deposit, the method of mining or treating it, the infrastructure required for it and its financial or economic attributes. An SML applicant is obligated to enter into an MDC, but an ML applicant may elect to enter into a MDC. Avoiding uncertainty concerning the administration, interpretation and enforcement of existing regulations in the Mining Act As mentioned above, the Department of Mining is charged with the responsibility of both regulating and promoting the mining industry. The primary legislative authority providing the mandate for this task is enshrined in the Mining Act 1992 and the Mining Safety Act Chapter 195A. The Mining Act sets out the general law relating to minerals and mining activities whilst the Mining Safety Act provides for the regulation, and inspection of mines and actual works undertaken. The administrative structure as set out in the Mining Act to implement the Act involves the following: (a) The Minister for Mining; (b) A Director, who is the Head of the Department of Mining; (c) A Mining Advisory Board (MAB) which consists of: (i) the Director, who is the Chairman; (ii) three (3) officers of the Department appointed by the Director; (iii) three (3) persons appointed by the Minister; (iv) one (1) person appointed by the Minister on the recommendation of the Premier s Council; (d) A Registrar of Tenements who is also an officer of the Department and serves as the Executive Officer to the Board; and (e) A Chief Mining Warden and other Wardens who are also officers of the Department. The officers or persons appointed to be on the Mining Advisory Board must have qualifications and experience in mining, geology, finance, law or related fields. The Mining Advisory Board s functions are to advise the Minister on such matters as the Minister may refer 20

22 The Mining Sector s Contribution to the PNG Economy (cont.) to the Board, and such other matters as specified in the Act (eg. make recommendations to Minister on various applications for grants / extensions of mining tenements). Mining Advisory Board s Recommendation The Board considers each application for the grant or extension of the term of a tenement together with the program or proposal submitted by the applicant and reviews the Registrar s report, the Mining Warden s report, the report of officers of the Department who are responsible for technical assessment of applications, and any other reports submitted by a Provincial Government affected by the application. The Board also considers any objections that may have been lodged against the applications. After consideration of all these matters then the Board can do the following: (a) recommend the grant or extension of the application; or (b) recommend the refusal of the application; or (c) defer further consideration of the application and request the applicant to amend the application or provide further information or revised programs or proposals within a reasonable time specified by the Board. Grant and Extension of the Term of a Tenement After considering the recommendation of the Mining Advisory Board, the Head of State (acting on advice of the National Executive Council) has the authority to grant a Special Mining Lease (SML). The Minister for Mining is reponsible for granting an Exploration Licence (EL), Mining Lease (ML), Alluvial Mining Lease (AML), Lease for Mining Purpose (LMP) and Mining Easements (ME) based on a recommendation from the MAB. On the grant or extension of the term of a tenement, the Registrar advises the applicant of the Minister s decision and requires the applicant to submit the prescribed annual rent within 30 days, and in the case of the grant of a tenement, requires the applicant to lodge within 30 days the prescribed security deposit as required by the Act. Where the applicant complies with these requirements then the Registrar will issue to the applicant the title document to the tenement. If the applicant fails to comply with these requirements then the Minister may cancel the grant or extension of the tenement. Payments of various fees for rents, royalties and security deposits are required under the Act. These fees are prescribed in Schedule 2 of the Mining Regulations. Port Moresby. 21

23 4. Geological Framework of PNG INTRODUCTION Papua New Guinea s unique geology and substantial mineral resources result from its position on the Pacific Rim of Fire, the interactive tectonic boundary between the cratonic Indo-Australian Plate to the south and the oceanic Pacific Plate to the north (Fig. 4.1). This tectonic boundary occurs as a complex arrangement of active subduction zones and associated island arcs extending as a crustal-scale suture, east and south through the Solomon Islands, Vanuatu and Fiji to New Zealand, and west into Indonesia and on to the Philippines and Japan. The boundary and arcs have not always had the current configuration, and changes in the tectonic setting through time have provided complex overprinting relationships that are reflected in the geology and have influenced the mineralisation of Papua New Guinea. This can be seen on the accompanying Gravity map (Fig. 4.3). Over many millions of years, Papua New Guinea has undergone uplift and deformation as a result of collision of up to 100mm/y (Tregoning et al., 2000; Hill and Hall, 2002) between the northward-moving Indo-Australian Plate and westward-moving Pacific Plate. This is one of the fastest plate movements on Earth and projection of this motion back through geological time provides an indication of the degree of shortening inherent in the description of Papua New Guinea as a classic terrane of craton island arc collision (up to 100km per million years). The geological framework of Papua New Guinea comprises a series of geological terranes (discrete geological regions) that are commonly separated by geological elements (structures, etc.) (Fig. 4.4). The geological elements are discussed in this section with more detailed descriptions of terrane geology presented in the following section. The terranes are presented as individual metallogenic units in the discussion in the compendium of prospects. The terminology used to describe the individual structures and terranes reflects the increased understanding of plate tectonic theory, as applied to Papua New Guinea over the past 30 years or so. The components that define the tectonic setting of Papua New Guinea include: The Australian Craton, which underlies the Fly Platform and much of Papua New Guinea as a rigid continental block extending to the south. Fig. 4.1 Papua New Guinea in relation to major geological elements of South East Asia and Australia. The New Guinea Orogen, represented by the mountainous spine of Papua New Guinea, formed as a collision zone and can be divided into the Western (Highlands and Ramu Sepik regions) and Eastern (Papuan Peninsula and Islands) Orogens. It is a composite terrane of metamorphosed 22