Papua New Guinea scaring off miners

Aldridge Minerals (AGM-V) has added its name to a growing list of mining companies leaving or looking to leave Papua New Guinea (PNG).

The company will abandon its Kili Teke gold-copper property in the country now that its licence renewal has been denied.

Aldridge’s president and CEO Mario Caron says that the government offered no explanation for the denied renewal.

“The rejection of our renewal application supports current management’s position that PNG is too volatile,” the company says in a statement.

Caron calls the business environment in PNG “difficult” and says it makes more sense for Aldridge to focus on its Yenipazar polymetallic project in Turkey than dispute the government’s decision.

The move could tarnish PNG’s reputation in the eyes of foreign investors. Nautilus Minerals (NUS-T) is also locked in a dispute with the government over funding agreements for developing its Solwara 1 seabed project, and Xstrata (XTA-L) is looking to sell its share of the Frieda River copper project, and is considering leaving the country altogether.

The news isn’t positive for Aldridge — the company sunk $2.8 million into an exploration program at the project last year — but it’s not a company killer.

Over the last few years Aldridge has put most of its capital and attention into developing Yenipazar, and leaving PNG could free up  even more capital. Caron points out that Kili Teke’s remoteness — exploration was helicopter dependent — made it an expensive project to explore.

Aldridge’s unease about the business climate in PNG showed in a February press release, where it said it was looking for a partner or a transaction that would let it realize some value from its investments in Kili Teke.

“Until we got notice of the non-renewal we were trying to find another party to joint venture with,” Caron says. “But the current market conditions meant there was no expression of interest. If there had been some interest we would have fought the decision, but instead we’ll focus on Yenipazar.”

The company is walking away from 338 sq. km of ground in the country’s Southern Highlands province. Initially the permits covered even more ground, but in 2009 Aldridge was required to give up 25% of its 450 sq. km, as per PNG regulations.

The property is located 50 km west of Barrick Gold’s (ABX-T, ABX-N) Porgera gold mine and 150 km east of the Ok Tedi copper-gold mine.

As for whether he believes there is a correlation between weakening global economic conditions and a rise in political risk, Caron argues that if anything, the opposite is true.

“There are just some jurisdictions that are difficult in good and bad times,” Caron says. “There was a lot of talk about windfall taxes in the good times, so no, I don’t think the global economic downturn brings about a more difficult situation to do business in. If anything, I think it opens up the eyes of some governments, and they realize that they need to work with companies to generate economic growth.”

With PNG fading in its rearview mirror, Aldridge can focus on developing Yenipazar. The project hosts a VMS deposit containing gold, silver, copper, lead and zinc.

Caron, who has developed mining projects in countries as diverse as the Central African Republic and Vietnam, is enjoying the relative ease of doing business in Turkey.

“The government works in Turkey, and they’ve established a system where the rule of law prevails,” Caron says. “And there are other benefits to the project as well. Infrastructure is not an issue as we have power, rail and road access. It’s very refreshing. The quality of manpower and labour is excellent as well.”

The company is building on a December 2010 preliminary economic assessment (PEA), and plans to finish a feasibility study by year-end outlining a project that is 30% larger than the one envisioned in the PEA.

The PEA proposed mine throughput of 5,700 tonnes per day and a capital expenditure of US$200 million. An updated resource estimate in June outlined indicated resources of 26.6 million tonnes grading 1.04 grams gold, 31.3 grams silver, 0.3% copper, 1.04% lead and 1.4% zinc, or a gold-equivalent grade of 3.05 grams.