PanAust sees PNG project transforming it into top copper producer

Reuters

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

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

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

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

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

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

Xstrata had big plans for Frieda River, which was beingdesigned to yield 300,000 tonnes of copper a year ahead of adecision 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, itwould out-produce many of the world's biggest mines, includingBHP Billiton's Olympic Dam lode in Australia.

Xstrata invested more than $250 million in Frieda River andthe work undertaken should help PanAust meet its initialproduction targets.

PanAust agreed to buy the project only after determining itcould be developed on a smaller scale, according to ManagingDirector Gary Stafford.

"Because it is such a big resource, there will beopportunities to build the business and leverage off thatworld-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 ofcopper in concentrate in Laos in 2018, up nearly a third fromthe 62,000-65,000 tonnes it expects to mine this year from itsPhu Kham deposit.

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

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

PanAust reached the deal with Glencore Xstrata within weeksof Papua New Guinea's parliament passing laws allowing thegovernment to take full ownership of the neighbouring Ok Tedicopper mine.

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

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

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

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