PanAust sees PNG project transforming it into top copper producer

SYDNEY Thu Nov 7, 2013 4:02am EST

SYDNEY Nov 7 (Reuters) - Australia-listed miner PanAust Ltd said its acquisition of an exploration project in Papua New Guinea from Glencore Xstrata could transform it into one of the world's top independent copper producers.

PanAust has a market capitalisation of A$1.17 billion ($1.11 billion), dwarfed by a $24 billion capitalisation for Southern Copper Corp, the biggest independent copper producer.

But the Australian miner is benefiting from moves by big mining companies to sell off undeveloped assets and tighten their belts after a cooling of the commodities boom.

PanAust last week agreed to buy 80 percent of the Frieda River copper project in Papua New Guinea from Glencore Xstrata for $125 million.

It expects to spend between $1.5 billion and $1.8 billion to develop a mine initially producing only 100,000 tonnes of copper annually -- mid-sized by sector rankings.

Less than a year ago, Xstrata put the capital spending estimate for Frieda River at $5.6 billion.

Xstrata had big plans for Frieda River, which was being designed to yield 300,000 tonnes of copper a year ahead of a decision to merge with Glencore and trim down via asset sales.

The merger was completed in May 2013.

If PanAust reaches the scales envisioned by Xstrata, it would out-produce many of the world's biggest mines, including BHP Billiton's Olympic Dam lode in Australia.

Xstrata invested more than $250 million in Frieda River and the work undertaken should help PanAust meet its initial production targets.

PanAust agreed to buy the project only after determining it could be developed on a smaller scale, according to Managing Director Gary Stafford.

"Because it is such a big resource, there will be opportunities to build the business and leverage off that world-class scale deposit," Stafford told reporters.

PanAust is one of only two companies mining copper in Laos.

It has set an annual production target of 90,000 tonnes of copper in concentrate in Laos in 2018, up nearly a third from the 62,000-65,000 tonnes it expects to mine this year from its Phu Kham deposit.

Under a five-year plan, PanAust could be the world's sixth-largest independent copper producer immediately behind Kazakhmys, Kazakhstan's biggest copper producer, according to Stafford.

Stafford said he was undeterred by concerns of flickering resource nationalism in Papua New Guinea.

PanAust reached the deal with Glencore Xstrata within weeks of Papua New Guinea's parliament passing laws allowing the government to take full ownership of the neighbouring Ok Tedi copper mine.

After meeting with Prime Minister Paul O'Neill and discussing Ok Tedi, Stafford said he was convinced Papua New Guinea wasn't threatening foreign investors.

"I was happy with his explanation and in that context it was a one-off," Stafford said.

Once the deal is concluded, PanAust will own 80 percent of Frieda River and Australia-listed Highlands Pacific 20 percent. The Papua New Guinea government has a right to acquire a 30 percent stake in the project.

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