SYDNEY-- Rio Tinto PLC's grip on its closed Bougainville copper
mine--one of the world's biggest deposits of the metal--remained
firm in the 1990s throughout bloody independence clashes in Papua
New Guinea.
But as the mine edges toward restarting after a quarter of a
century and copper prices rise, Rio is considering heading for the
exit.
On Monday, the Anglo-Australian miner said it was reviewing its
options for its controlling stake in Bougainville Copper Ltd., the
mining company that owns the Panguna mine in Bougainville, Papua
New Guinea, after the government passed new mining laws that may
strip the company of its lease on the site.
For a country best known for its jungles and tribal society,
Papua New Guinea saw in Panguna a path to riches when the mine
started up in 1972. The impoverished country was then still under
Australian control, and had little industry of its own other than
fishing the schools of tuna that swam near its shores.
However, islanders soon became envious of the revenue that was
flowing to government coffers in Port Moresby rather than being
used for Bougainville schools, health clinics and boosting local
incomes. Those frustrations, combined with worries over the mine's
poor environmental record, burst into violence in 1989 when
militants forced the mine to shut down.
At the time of its closure, the mine was producing around
166,000 metric tons of copper and 450,000 troy ounces of gold
annually. That is enough copper for 7.3 million typical
American-made cars.
Earlier this year, there were signs the mine was on the path to
being rebuilt. Bougainville Copper had been pushing forward with
negotiations in recent years amid a rally in copper prices,
underpinned by rising demand from China, which uses the metal in
everything from apartment buildings to electricity grids.
Landowners, officers from both the Bougainville and national
governments, and mining executives have been working toward a
customary reconciliation ceremony known as "bel kol," which Peter
Taylor--chairman of Bougainville Copper for more than a
decade--says is "best translated as a cooling of the heart, or a
lowering of the emotional temperature."
What became a decadelong secessionist rebellion on the island,
leading to thousands of deaths, ended in a cease-fire in 1998.
However, earlier this month new mining laws were passed that will
devolve the power to regulate mining to Bougainville's autonomous
government from the Papua New Guinea national government.
Under the legislation, Bougainville Copper--in which Papua New
Guinea's government holds a 19% interest--would lose its mining
lease for Panguna, which would be exchanged for an exploration
license. The company would have to reapply for the lease.
"Rio Tinto has decided now is an appropriate time to review all
options for its 54% stake in Bougainville Copper," said Rio Tinto,
which is still reviewing the implications of the mining bill.
About 27% of Bougainville Copper is owned by private
shareholders. Some economists question the viability of the mine if
Rio were to decide to walk away.
"Rio Tinto is large enough to have done their sums, looking at
the costs of benefits, so I don't know if we will see a new player
on the scene" if they can't make it work, said Satish Chand, a
professor of finance at the University of New South Wales.
Chinese buyers have proven interested in major copper deposits,
though, as they look to feed a voracious appetite for the
industrial metal in the world's No. 2 economy.
Guangdong Rising Assets Management has been mulling a takeover
of PanAust Ltd., an Australian company that is about to acquire
Glencore PLC's majority stake in the Frieda River project, another
major copper deposit in Papua New Guinea.
Bougainville Copper has estimated it would take between five and
seven years to reopen the Panguna mine, should it win approvals and
secure financing. A 2012 study forecast a capital expenditure
budget of US$5.2 billion was needed to get the site back into
production.
It also estimated there was at least another 5 million tons of
copper and 19 million ounces of gold to be mined at the site,
sustaining operations for more than two decades.
But many landowners oppose the reopening of the mine, and have
been demanding more compensation for past environmental damage
along the Jaba River.
"At the moment, a lot of income is earned through exports of
cocoa, and the government will need to look at the impact the mine,
and so-called Dutch disease, may have on agriculture," said Mr.
Chand.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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