The Chief Executive of copper and gold producer Ok Tedi Mining, Peter Graham, believes the Papua New Guinean company will enjoy a ‘sweet spot’ in the next few years. He says efficiency gains have substantially improved the mine’s competitiveness.
Graham, speaking in London recently, said PNG’s largest copper mine is benefiting from higher copper prices. He points out that there is often a lag between changes in supply and demand and new production coming on.
‘In 2011, we were at the top of the cycle. The price was about US$4 a pound for copper. It then dropped every year for the next five years to about $2 a pound in 2016.
‘In more recent years, there has been insufficient incentive to bring on new production. As a consequence analysts are now forecasting a supply deficit from this year and beyond for the next few years—hence the rising prices.’
Graham said in 2017 Ok Tedi averaged $2.79 a pound from its copper production. This year, he expects the price to be between US$3 and US$3.20 a pound, and then trading at US$3.40-50 between 2019 and 2025.
‘In 2013, Ok Tedi was at the 99th percentile and on death row. Today, we are at the 12thpercentile.’
He described the gold price as harder to predict, because it is perceived as a safe haven and ‘not driven by (supply and demand) fundamentals.’
Graham said Ok Tedi Mining has made major advances in its costs.
‘In 2013, Ok Tedi was at the 99th percentile (on a comparison of global costs) and on death row. Today, we are at the 12thpercentile.
‘We have been able to lower our costs, get them down to the best quartile of copper producers around the world.’
Graham said because of the cost reductions the company has improved both ‘production and productivity’. Resources adjacent to the existing operations are now being explored.
‘We have reinvested in the mine itself and it has been recapitalised; we have now shifted our focus to reducing risks in the processing part of the operation to make sure that we have a reliable operation.
‘The financial performance at Ok Tedi has allowed us to invest in sustaining the business but also to look for high growth opportunities’
Graham said US$50 million (K163 million) is invested in sustaining the business and, in 2018-2019, US$200 million (K650 million) will be allocated to replace the crushing and conveyancing system.
‘The after-tax profit was US$266 million dollars.’
‘That particular investment allows us to access some high grade material that is underneath the current facilities’
Ok Tedi, he said, mines 90 million tonnes of material every year, of which 20-24 million tonnes is processed as ore.
The company annually produces 110,000 tonnes of copper and 300,000 ounces of gold.
Graham described 2017 as ‘one of Ok Tedi’s better years for a good many years’. He said there was one lost time injury.
‘It is a disappointment but it is the best performance Ok Tedi has seen in 15 years.’
Graham said the company has US$240 million in cash. ‘We distributed US$120 million dollars as dividends to our shareholders.’
The after-tax profit was US$266 million dollars (K865 million), from revenues of ‘around’ US$1 billion dollars (K3.25 billion).
‘We feel like Ok Tedi is well positioned.’
Graham said operating costs are US$0.93 per pound. ‘In 2013, we were spending $US65 million a month on operating costs.
‘In 2017, we spent $US39 million a month. We need to hang on to those costs as price increases.
‘One of the challenges is that, as the price goes up, so do the costs.’
Graham, who joined Ok Tedi in 2015 after setting up the PNG LNG project for ExxonMobil, said the company finished 2017 with US$180 million in cash on hand and had no borrowing. He said the company is looking at identifying further business opportunities.
‘By no means have we reached the peak of performance. We still have another 10 or 15 per cent performance improvement that we can gain through simple business initiatives.
‘We feel like Ok Tedi is well positioned to take advantage of profitable growth. The market fundamentals are positive.
‘While we expect to see in 2018 continued price volatility, the trend generally for our products is on an upward trajectory.
‘We have ample reserves and resource and exploration potential adjacent to the existing operation, a clear business strategy, discipline and execution.
‘We also have a strong work force, which is 96 per cent PNG nationals.’
Graham claimed the company enjoyed strong community support, and strong support from its shareholders (67 per cent is owned by the PNG State, with the balance to landowners and the government of Western Province).
‘We are cost-competitive and we have got a strong balance sheet and we are focused on now continuously improving the performance of the business.’