Xstrata lifts cost estimate for Frieda River copper mine by $300 mln

Sun Dec 23, 2012 8:52pm EST

* Highlands says received feasibility study from Xstrata

* Study estimates Frieda River copper mine cost at $5.6 billion

MELBOURNE Dec 24 (Reuters) - Global miner Xstrata Plc has lifted its initial capital spending estimate for the undeveloped Frieda River copper mine in Papua New Guinea by $300 million to $5.6 billion, a minority partner in the project said on Monday.

A number of new mining projects in Papua New Guinea and neighbouring Australia have needed to rethink costs during or before construction begins, given unfavourable currency movements and higher energy and labour costs.

Australia-listed Highlands Pacific said it had received a feasibility study from Xstrata that indicated the new estimate and also cited a proposed switch from hydro-electric power to gas if the project proceeds.

Papua New Guinea is in the midst of exploiting large quantities of natural gas, which could lower operating costs for mining projects.

Xstrata had estimated the Frieda River project at $5.3 billion when it released an earlier study two years ago.

Xstrata, with an 81.8 percent stake in Frieda River, sees the mine yielding 304,000 tonnes of copper at an average cost of 71 U.S. cents per pound over the first five years. This would rise to an average of 204,000 tonnes annually at a cost of $1.11 a per pound over the entire life of the operation.

London Metal Exchange copper closed trading on Friday at $$7,831 a tonne ($3.52 a pound).

Xstrata earlier this year flagged its willingness to potentially sell all or part of its stake in the project after conducting a review of its operations worldwide.

Xstrata is following the course of other mega miners, including BHP Billiton and Rio Tinto , in conserving capital amid uncertainty over global growth and falling commodity prices.

Highlands said discussions were planned next year to determine future ownership of the project.

"During 2013 we will hold discussions with all parties, including the PNG government to determine the project's development path and the desire of the PNG government to take up a direct 30 percent equity stake in the project," it said.

Via its Petromin investment arm, PNG has invested in 17 projects, including a $19 billion liquefied natural gas field under construction by Exxon Mobil.

It is allowed to take up to 30 percent of mining and 22 percent of oil and gas projects, which it must then help fund.

Exxon Mobil in November said it faces a $3.3 billion spike in costs at its gas project in Papua New Guinea.

This year BHP scrapped an $80 billion spending plan, which included delaying indefinitely the expansion of its Olympic Dam copper mine in Australia, where analysts estimated cost had ballooned three-fold to more than $30 billion in just two years.

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