Ok Tedi CEO looks to the fu­ture

2013 was a ‘mo­men­tous’ year for Ok Tedi Min­ing Limited, ac­cord­ing its CEO, Nigel Parker. Busi­ness Ad­van­tage’s An­drew Wilkins spoke to him about the sta­tus of Pa­pua New Guinea’s largest mine—and its likely fu­ture.

Business Advantage Papua New Guinea - - Mining -

In some­thing of un­der­state­ment, Nigel Parker de­scribes 2013 as the most ‘in­ter­est­ing’ of the seven years he has spent with Ok Tedi Min­ing Limited (OTML), the com­pany that runs the mas­sive Ok Tedi mine in Pa­pua New Guinea’s West­ern Prov­ince.

Price falls

First of all, global prices for the cop­per, gold and sil­ver the mine pro­duces have fallen dramatically this year.

‘It’s just like rid­ing a tiger,’ he ob­serves. ‘World metal prices have been all over the place since March 2013. Our bud­geted cop­per price was $3.50 a pound in 2013, but the cop­per price has been US$3.00 to US$3.20 a pound. Our bud­geted gold price was US$1650 an ounce, and it’s lan­guish­ing be­tween US$1300 to US$1350, while our sil­ver bud­get was US$32.00 an ounce and that’s been lan­guish­ing be­tween US$18 and US$22.

‘The dif­fer­ence be­tween what we bud­geted for and what we’ve been achiev­ing has had a big cash im­pact go­ing straight through the busi­ness.’

Op­er­a­tional is­sues

Global fac­tors aside, the mine has also been faced with ma­jor op­er­a­tional is­sues that have slowed pro­duc­tion.

‘One of our pro­cess­ing mills split its ends back in May, so we lost two months while that was all rewelded and re-set up. This pushed us into our low-grade stock­piles of ore and that im­pacted out­put as well, big time … Our pri­mary crusher had an un­sched­uled re-build too, and that took us an­other month.’

Then there has been the rain. High rain­fall at Tabu­bil, where the mine is sit­u­ated, is not un­usual—it av­er­ages be­tween ten and 11 me­tres a year—but Parker de­scribes this year’s rain­fall as ‘ex­tra­or­di­nary’. The mine suf­fered land­slides and a bridge col­lapse, while its hy­dro power plant is still un­der­go­ing re­ha­bil­i­ta­tion.

‘Our job is to run this busi­ness, and keep it op­er­at­ing. What­ever the share­hold­ers do, the share­hold­ers do.’

The weather af­fected the mine in an­other way too. Ok Tedi’s largest cus­tomer, the Philip­pine As­so­ci­ated Smelt­ing and Re­fin­ing Cor­po­ra­tion (PASAR), suf­fered heavy struc­tural dam­age in Su­per Ty­phoon Haiyan, leav­ing one of OTML’S ships un­able to un­load its cargo.

‘It’s been quite a mo­men­tous year!’ ad­mits Parker.

‘Un­like other min­ing com­pa­nies, Ok Tedi has no bal­ance sheet debt. We have no leas­ing com­mit­ments. We don’t hedge our prod­uct. We’re not be­holden to any­body, ex­cept the board and share­hold­ers. So, that puts us in quite a unique sit­u­a­tion.’

State takeover

The other ma­jor is­sue for OTML has been its ef­fec­tive na­tion­al­i­sa­tion, an event Parker says hasn’t ac­tu­ally had an im­pact on busi­ness:

‘The Prime Min­is­ter has made a con­sis­tent com­men­tary that the mine will be in­de­pen­dently man­aged with an in­de­pen­dent board.

‘From man­age­ment’s point of view, that’s a share­holder mat­ter and that’s the ap­proach we’ve taken all through this year. Our job is to run this busi­ness, and keep it op­er­at­ing. What­ever the share­hold­ers do, the share­hold­ers do.’

Ex­tend­ing the life of the Ok Tedi mine

Twelve months ago, Parker had just com­pleted an ex­haus­tive sched­ule of com­mu­nity meet­ings to get up the landown­ers to agree to ex­tend­ing the mine’s life. Twelve months on, is the ex­ten­sion still mov­ing ahead?

‘We sub­mit­ted a Change No­tice to the State in Septem­ber 2012, say­ing we wanted to con­tinue min­ing … but we needed to change es­sen­tially two things—widen the pit shell and change the way we dis­charge the waste,’ says Parker.

‘The Depart­ment of the En­vi­ron­ment wanted a third party con­sul­tant to have a look at the en­vi­ron­men­tal as­pects of the fea­si­bil­ity study. That study has now just been com­pleted. We think that we’ll get the fi­nal clear­ance early in 2014, which will ex­tend the mine life up to 2025.'

As part of the changes, OTML’S con­tro­ver­sial dis­posal of mine tail­ings into the Ok Tedi River may cease.

‘Within two years, we’ll know whether or not we’ve got an en­gi­neered so­lu­tion for a tail­ing stor­age fa­cil­ity,’ says Parker. ‘There is still a lot of work to be done on that, but we’re well ad­vanced in our ini­tial po­si­tion­ing on it.’

Down-siz­ing

Mean­while, the mine is un­der­go­ing a tran­si­tion to a smaller op­er­a­tion that has been years in the plan­ning, with its orig­i­nal ore re­serves in decline. In 2010, the mine pro­duced 160,000 tonnes of cop­per; in 2013 it pro­duced 100,000.

‘We’ll be pro­duc­ing about two-thirds of what our tra­di­tional out­put’s been, which means we have to ad­just our cost struc­tures to match,’ Parker ex­plains.

To save money on ves­sel char­ter costs, OTML is hav­ing four cargo boats built to ship ore. It has also de­cided to start own­ing and main­tain­ing its own min­ing and ex­plo­ration equip­ment from mid-2014. Re­duc­ing the cost of the mine’s work­force is the next task. While some jobs will be lost, Parker says ‘it’s not just the ac­tual labour cost it­self, it’s all about rosters, ac­com­mo­da­tion, terms and con­di­tions … we’re tak­ing a holis­tic view on our work­force costs.’

‘We’re only look­ing at about a 12% re­duc­tion in the work­force, but cost-wise it’s about 33%.’

An­other casualty has been OTML’S ex­plo­ration pro­gram, which has been cut back sig­nif­i­cantly to fo­cus only on ar­eas within the mine lease.

‘Strangely enough, we’re fall­ing over small pock­ets of ore that were not in our re­source state­ment,’ says Parker. ‘We’re ac­tively en­gaged in ex­plor­ing near-mine, as we call it … It’s a highly prospec­tive area.’

More un­cer­tainty to come?

So, does Parker fore­see more rid­ing of tigers over the com­ing year?

‘We’re just in the process of do­ing our bud­get for the next three years. We’re set­tling on cop­per at US$3.00 a pound, gold at US$1300 an ounce and sil­ver at US$20 an ounce. The treat­ment and re­fin­ing con­tracts [with metal smelters], of course, are a big un­known at this point.’

For all 2013’s chal­lenges and the un­cer­tainty ahead, Parker feels OTML re­mains well-placed:

‘Un­like other min­ing com­pa­nies, Ok Tedi has no bal­ance sheet debt. We have no leas­ing com­mit­ments. We don’t hedge our prod­uct. We’re not be­holden to any­body, ex­cept the board and share­hold­ers. So that puts us in quite a unique sit­u­a­tion.

‘That be­ing said, of course you still have to man­age the cash in th­ese tough times.’

An­drew Wilkins is Pub­lish­ing Direc­tor at Busi­ness Ad­van­tage In­ter­na­tional.

The Ok Tedi mine.

Ok Tedi Min­ing’s Nigel Parker

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