png getting more attractive

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    Monday, November 01, 2004
    MINERAL rich Papua New Guinea's renewed pitch for explorers and miners is continuing, with a soon to be flown aeromagnetic survey the latest initiative in a program that has already resulted in increased interest from majors and juniors alike.

    Exploration licence applications are already significantly up on last year, and are approaching levels not seen since the late 1980s. On a macro scale, PNG has turned around the decline in the percentage of global exploration expenditure it has been attracting to just over 0.05% of the US$2.25 billion or so spent in 2003. (In 2002 it was below 0.05%).

    Department of Mining records for 2003 total mineral exploration expenditure indicate that K46.85million (US$13.6 million) was spent.
    Reported total exploration expenditure for the first 9 months to the end of September 2004 was K60.2 million. Significantly, K8.6 million of that amount was "grass roots" expenditure spent by companies trying to find mineral targets or, further define known prospects to bring them into the project category. This is seen as encouraging as explorers have only spent an average of K5.6 million per year since 2000 on this class of exploration.

    Aside from providing improved digital data for explorers, a key to PNG's increasing popularity has been the new fiscal regime implemented over the past few years.

    Features of the regime include an income tax rate of 30%, a 10% dividend withholding tax rate, and accelerated depreciation allowance – 25% declining base pool.

    PNG also features a royalty rate of 2%, a generous 200% deduction of exploration expenditures and relaxed assessment of ring fencing.

    Additional profits tax and the previous mining levy have been abolished, and capital gains aren't taxed. Fiscal stability agreements for 10 years can be implemented if required at a 2% income tax rate premium. Meantime PNG is reviewing state equity in mining projects.

    All of which has seen PNG achieve an IRR on copper projects (after tax) of just under 14% in 2003, placing it fourth after Sweden, Chile and Argentina – some 16 places better than it rated in 1999.

    A swag of new projects in the pipeline that PNG will be hoping further improve the fiscal fundamentals, include the Kainantu gold project (owned by Highlands Gold and currently being developed), and the Morobe gold and Wafi copper/gold projects owned by Harmony Gold.

    Development of the 350,000 ounce per annum Morobe is set to begin next year, whilst Wafi/Golpu (300,000oz/80,000t of copper) could get the nod in 2006/07.

    The mining world's eyes will also be on the Ramu laterite nickel project, with Chinese interests taking a stake in the potential US$650 million, 33,000tpa annum project earlier this year. Officials from the Chinese Metallurgical Construction Company are understood to have recently met with PNG officials in Port Moresby.

    Also of note is the emerging Frieda copper/gold project which has a total resource of over 1 billion tonnes grading 0.5% copper and 0.3gpt gold. Within this is the relatively high grade Nena high sulphidation resource containing 60 million tonnes at 2% copper and 0.6gpt gold. Moreover the project recently recorded a drill intersection south of Nena of 230m at 2.12% copper and 1.21gpt gold.


 
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