ASIAN EXPLORATION — Exploration on the rebound in PNG — Yamana revisits deal with Union Mining

According to foreign-based juniors active in Papua New Guinea, the recent political turmoil in that country is subsiding, as are the associated adverse affects on early-stage exploration programs there.

The latest troubles in Papua New Guinea (PNG) began in January, when Prime Minister Julius Chan signed a A$35-Million deal with London-based Sandline International to use mercenaries to take back the rebel-held Panguna copper mine on Bougainville Island.

The mine, which is 54% owned by Bougainville Copper, a subsidiary of RTZ-CRA (RTZ-N), has lain dormant since fighting forced its closure in 1989.

The country’s army resented Chan’s hiring of foreign mercenaries, and, in March, led by Brigadier-General Jerry Singirok, troops gathered outside the capital Port Moresby and demanded the prime minister’s resignation. Some rioting occurred.

The outcry forced the cancelation of the Sandline deal, and a judicial enquiry was held in April. Chan himself stepped down during the enquiry, though he is running in PNG’s national elections this June.

Yamana Resources

One of the casualties of PNG’s political uncertainty was Spokane, Wash.-based Yamana Resources (YRI-T). In late March, the company was forced to abandon its purchase of Australian-listed Union Mining when financing for the A$30-Million deal fell apart just prior to closing. The company attributed the deal’s collapse to three factors: the PNG crisis, fallout from the Busang scandal, and weak gold prices.

Union, in which Yamana already owns a fully diluted 17.6% interest, is involved in PNG through a small producing gold mine at Wapolu on Fergusson Island and through properties in PNG’s other d’Entrecasteaux Islands, including a mining lease in Milne Bay province.

Despite the setback, Yamana has already begun revisiting the Union deal.

“What we are doing now is seeing if something can be put together,” says Victor Bradley, Yamana’s president. “Where we go from here, I really don’t know. Earlier this year, we had the ability to raise money for exploration, whereas that scenario is now going to change radically. A lot of Canadian firms that were looking to do financing have pulled their horns in. I sort of doubt that Toronto will be amenable to raising money for exploration in the future. In acquiring Union, we may have to be a bit more ingenious than just slapping cash on the table.”

When asked if Australia could be a source for financing, Bradley replied, “I don’t think Australia is going to change — I still don’t think you can raise significant amounts of money down there for exploration.”

Overall, Bradley says the situation in PNG has returned to normal. “We have a good view of PNG. All of these `new’ countries are going to go through some growing pains. PNG is a place we have chosen to be.”

.SUnion Mining

Unaffected by the turmoil in PNG was Yamana’s earlier agreement with Union to spend A$10 million over four years to earn a 51% interest in Union’s PNG land package. Yamana is overseeing the exploration program and has budgeted A$3.6 million for 1997. Currently, there are two rigs drilling on Fergusson Island, with a third scheduled to begin operating soon.

Union Mining President Robert Murdoch, speaking from Yamana’s executive office in Spokane, says that in PNG there is typically much political posturing during the three to four months leading up to national elections.

And despite the high turnover rate for politicians from election to election, Murdoch says that “every PNG politician on every side of every party that I’ve met is fully supportive of the mining industry. They understand what it means to the economy, so, regardless of who is elected, the mining act never really changes from what was left over by the Australian colonial system.” Regarding the Bougainville crisis, Murdoch feels it should have been solved by Australia or the United Nations long ago. “Getting the PNG government in there is like waving a red flag at a bull. Bougainville doesn’t consider itself part of PNG, and, [while Panguna was operating,] the people on Bougainville got very upset carrying so much of the country’s gross national product, with the profits being siphoned off to all the other provinces and very little being spent back in Bougainville.”

Murdoch stresses that, to PNG’s credit, when people talk about Panguna being reopened, it is understood that the mine would be purchased by the incoming party from Bougainville Copper, and not confiscated.

“PNG gets bad press in Australia because the average Australian doesn’t understand PNG. They figure it ought to be like Australia. But if you understand the culture, then you can work with it.”

.SWestern Pacific

Political instability in PNG has also delayed Edmonton-based Western Pacific Gold (WPI-A) in its attempts to secure exploration licences for the PNG properties it obtained through its January acquisition of the Australian exploration company Magma Mines.

“The government there has put a few things on the back burner because they spend more time positioning themselves for the election rather than clearing up a lot of the outstanding business,” says Donald Caron, Western Pacific’s vice-president. “But if you have a project that has been developed past the stage of requiring ministerial approval, then it’s pretty well business-As-usual.”

Western Pacific was granted its first tenement in PNG at Telefomin, a 1,280-sq.-km property between the Ok Tedi mine and the Frieda-Nena project, near the Indonesian border. The company has completed its financing and is preparing for more exploration work, with about $1 million budgeted for PNG this year.

The company’s Wamum and Ofi Creek tenement applications are still at the hearing stage. “These are the ones that are caught up in the bureaucratic red tape with the elections and such,” says Caron, “but we anticipate that they will be approved shortly.”

.SNord Pacific

Pierce Carson, president of Albuquerque, N.M.-based Nord Pacific (NORPY-Q) says the PNG political crisis did not adversely affect its wholly owned Tabar Islands gold project or its 35%-owned Ramu nickel-Copper-Cobalt project, noting that most of the paper work had already been completed before the disruptions of the past few months.

The company is pleased that the A$190-Million Highlands Pacific float, underwritten by Merrill Lynch and Wilson HTM, is being arranged, after being delayed several weeks by the Sandline situation.

Highlands Pacific was formed to acquire the assets of Highlands Gold, other than the Porgera gold mine, following its takeover by Placer Dome (PDG-T).

The principal assets of Highlands Pacific will thus be the Frieda-Nena copper-gold project and a 65% interest in the Ramu nickel-Cobalt project.

“The fact that the float is going ahead is viewed as a big vote of confidence in PNG by the investment community,” says Carson.

He adds that that while there is a tendency to compare PNG with some developing countries in Africa, PNG is quite different in that it is so heavily influenced by Australia and does not have a tradition of military dictatorships. He notes that many of the government officials in PNG are really civil servants from Australia and, though their power has waned since PNG gained independence from Australia in 1975, there remains a strong tie between the two countries, particularly in the form of economic aid.

Because of the fragmented infrastructure and social structure of PNG (more than 700 languages are spoken), Carson says a foreign mining company’s success there depends very much on where it is and on what relationships it forms with the landowners. “Once you recognize that, and take that into account, PNG is not a bad place in which to work.”