PNG Ok Tedi facing precarious future

Transcript

The long term future of the Ok Tedi mine in Papua New Guinea's Western Province is in doubt with drastic cutbacks on staff and a production shut down.

In a statement last week the company outlined plans to reduce expatriate staff by 30 percent and local staff by 15 percent.

The company has declared a force majeure event, saying the current dry conditions mean it cannot meet its obligations.

PNG blogger Martyn Namorong spoke with Koroi Hawkins about the mine's predicament.

MARTYN NAMORONG:  The thing about OK Tedi that we all need to understand is that unlike other mining operations and mining companies, OK Tedi has survived on the cash it makes so it doesn't have some sort of financial banking kind of relationship where people can bankroll it so if it's not making its cash it can't continue to operate and that seems to be the case.  I guess what the CEO means by long-term viability is basically to keep the company above water until such time it can make enough money to continue.

KOROI HAWKINS:  They say they are going to be putting off staff and calling for staff to vacate the mine accommodation as well as closing schools.  This sounds like a very tense situation could be developing in the mine area.

MN:  The mine has a history of.. it has a strong workers' union and it has a history of some tension between the mining workers and the company.  For instance, when they were trying to restructure the benefits there were some protests by mining workers and I can imagine that some of the workers because of the broad nature of the eviction exercise, people won't be happy being forced to move like that but it is a difficult situation for everybody because OK Tedi's figures are definitely in the red and to maintain a township it would be very costly for a company that is currently having production and financial difficulties.

KH:  How big a part of the PNG economy is this mine?

MN:  In terms of government revenue, the OK Tedi mine it provides about a quarter of national government budgetary support.  It is going to be a really big dent in terms of government revenue if the mine shuts down.  Apparently the government has a major budget deficit that is going through the roof because of the hosting of the Pacific Games recently that cost us 1.4 billion kina to run and there are calls for a supplementary budget to be introduced.  The shutting of OK Tedi's operations would be a really big blow to the Papua New Guinea economy, particularly in relation to the procurement contracts that businesses get from dealing with OK Tedi but also directly in terms of funding of the national budget.

KH:  Do you see the mine reopening and how soon do you see it going back into production?

MN:  Right now it is the dry season in the Western Province.  The dry season runs from about this time until December.  Worst case scenario, the mine could be shut until December when the rains come back and the Fly River water levels allow for ships to travel through.  In terms of whether within this time period the global prices for copper will be at commercially viable levels that is open to interpretation.  From my understanding, most analysts actually think that the commodity prices would be down, at least for the medium term.