Fred Hess, Managing Director, PanAust: Interview

Interview: Fred Hess

To what extent could Chinese investment in the mining sector help spearhead investment at a time of persistently weak commodity markets?

FRED HESS: In the case of PanAust, which was taken over by Guangdong Rising Assets Management from China in a deal worth A$1.2bn, it means we will have easier access to financing, which is one of the major stumbling blocks for the industry, especially among small and medium-sized enterprises.

For an entity with the track record of PanAust, it would not have been difficult to raise capital and pull a deal together by aligning a number of banks in the current business environment, which is undeniably tighter compared to some years ago. It certainly would have taken longer and have required more effort. Increased Chinese investment in the Papua New Guinea mining industry should have the same effect and perhaps jumpstart some of the projects that have remained dormant over the last few years.

Looking forward to 2017 and beyond, we expect that the market for copper will recover significantly, as we see continued growth in demand; whereas the market for gold, which is tied to the strength of the US dollar and other geopolitical issues, is always more difficult to predict. Having said that, we believe that international gold prices are probably at their lowest point and are likely to move towards higher prices in the near future.

What is the status of the Frieda River mining project, and what is the proposed timeline leading up to production at that site?

HESS: Our objective is to finish the feasibility study by the end of 2015, which would allows us to submit our application for a special mining lease to be approved by the government. Once that approval is granted, we will commence a roughly three-year construction period before delivering the Frieda River project. This means there will be about four and half years between now and the start of production at the mine. However, that would only be the beginning, as far as I am concerned, as we would also like to explore the wider area surrounding Frieda.

I expect to see a great deal of exploration activity once the project is delivered and the required infrastructure has been established. Due to the project’s remote location, equipment and workers can only be transported there by helicopter at present. Once a new access road to the site is constructed, however, the costs of mining development in these areas will be substantially reduced.

How have industry players been able to contribute to the mining law now under review, and what do you expect its impact to be?

HESS: Impending policy changes inevitably raise concern among investors. One of the reasons why PanAust became involved in PNG in the first place, and specifically the Frieda River project, is that we believed the country had a pragmatic approach to mining. Its policies remained reasonably stable over a long period of time, supported by successive governments that were pro-business, pro-mining and pro-development. We were also reassured by the completion of the ExxonMobil-led PNG liquefied natural gas project, as we know it has received full support from the government.

Our hope is that the new mining act promotes the development of mining projects in PNG, and we certainly do not expect to see any significant changes that would make it harder for us to reach an investment decision. In drafting the new law, the government has sought input from mining companies via the local Chamber of Mining, and PanAust has certainly put forward its views, as have a number of other mining companies. Due to the long-term nature and size of investments around projects like Frieda, we made it clear in our submissions that any changes introduced should preserve the existing favourable status that PNG has as an investment destination.