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Papua New Guinea suffers new blow reviving copper mining
* Xstrata flags exit from Papua New Guinea copper project
* Latest setback to country's once-mighty copper sector
* Move comes ahead of contentious national elections
By James Regan
SYDNEY, June 21 (Reuters) - Papua New Guinea on Thursday suffered the latest in a series of setbacks as the impoverished nation tries to re-establish itself as a world class supplier of copper after a major producer said it might sell out of a big mining project.
Swiss-based Xstrata said it was considering a whole or partial sale of its 81.8 percent interest in the Frieda River copper project in western Sandaun Province after investing $200 million in pre-development work.
Xstrata said it was considering exiting Papua New Guinea as part of a wider review of its worldwide Papua New Guinea on Thursday suffered the latest in a series of setbacks as the impoverished nation tries to re-establish itself as a world class supplier of copper after a major producer said it might sell out of a big mining project.copper assets.
The move comes just three weeks after Canada-based Nautilus Minerals warned that its plans to mine copper in territorial waters off Papua New Guinea might be scrapped unless an ownership dispute with the government can be resolved.
Once Papua New Guinea's top export revenue earner, copper mining has been reduced to a small number of lodes, the biggest of which is nearly depleted.
Political rivals seeking ways to sustain economic growth for the South Pacific nation and ease concerns of political instability are making foreign investment in new copper mining projects lynchpins of campaigns ahead of a national election that starts on Saturday to decide the next prime minister.
Still, targets to boost annual copper output by around a half-million tonnes within several years and by even more in later years now appear stretched.
"The issue of country risk for Papua New Guinea has become a significant talking point," Ken MacDonald Chairman of Highlands Pacific, which owns a minority stake in the Frieda River project, said recently.
"The lack of constitutional and political certainty, threats to judicial independence and conflicting policy statements, some of which would be seriously detrimental to investment in this country, are issues which need to be resolved," he said.
To date, other than the now-jeopardised deal with Nautilus, there has been little headway in starting new mines, with copper production set to decline for the tenth year running in 2012.
"There is a lot of copper in Papua New Guinea that is not getting mined," said Greg Anderson, head of the country's Chamber of Mines and Petroleum.
China's largest importer of copper concentrate, Tongling, agreed to buy over a million tonnes of copper ore a year from Nautilus before the dispute with the government erupted.
Copper mining in PNG under the control of sector behemoths BHP Billiton and Rio Tinto supplied millions of tonnes to smelters in Asia and Europe in the 1980s and 1990s. Neither company has mined in Papua New Guinea for years.
The first blow came in 1990 when Rio was run off the restive Bougainville Island by residents who wanted to reintroduce an agrarian society and secede to neighbouring Solomon Islands, forcing Rio to abandon its giant Panguna copper mine there.
A decade later BHP relinquished ownership in the Ok Tedi mine to a government trust following claims by landowners over toxic mine waste disposal into local tributaries.
The Panguna mine still holds the potential to annually produce 200,000 tonnes of copper, which would provide a higher yield than BHP Billiton's Olympic Dam mine in Australia, the world's fourth-largest known copper deposit.
But considerable deterioration has occurred in the intervening period, due to a lack of maintenance along with vandalism and militant action, making it near-impossible at this stage to venture a restart date.
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