By Brien Murphy
In December 2023, First Quantum’s mine Cobre Panama, was forced to close by the Panamanian administration following a supreme court ruling that concluded the mine’s contract was unconstitutional. First Quantum, through its wholly owned subsidy, owned 90% of the Cobre Mine. Cobre Panama is located in the Colon Province, approximately 120 km west of Panama City. The mine boasts 3.0 billion tonnes of provable and probable reserves and at the time of closure a significant copper producer (330,000 t/a copper). The mine closure garnered international news, and showed the significance of the government’s role within the mining. This got me curious about how operations have faired, developed, and operated in cooperation with local governments and have a partial government ownership structure.
Ok Tedi Mine (Papau New Guinea):
The Ok Tedi Mine, situated near the headwaters of the Ok Tedi River in the Star Mountains Rural LLG of the North Fly District in the Western Province of Papua New Guinea, operates as an open-pit copper and gold mine. Partially owned by the government, it has a rich history. The first gold extraction occurred in 1981. Ok Tedi Mining (OTM), predominantly owned by the PNG Sustainable Development Program Limited (PNGSDPL), manages the mine in a remote area atop Mount Fubilan, which offers unique challenges such as high rainfall and frequent earthquakes.
Initially explored by the Kennecott Copper Corporation in the 1970s, the mine’s focus shifted to copper mining after BHP Billiton, in partnership with Bechtel, undertook engineering, procurement, and construction. Subsequently, BHP collaborated with the government, Amoco, and Inmet Mining. By December 31, 2004, the mine had produced 8,896,577 tonnes of copper concentrate, containing 2,853,265 tonnes of copper and 218.83 tonnes of gold.
However, in 1999, the Ok Tedi Mine faced a significant environmental disaster that disrupted the lives of 50,000 people and impacted over 1,000 km of river systems in Papua New Guinea. Annually, 81 million tonnes of mine waste were discharged into the Ok Tedi River and the Fly River system. During heavy rainfall, mine tailings were swept into the surrounding rainforest. Initially, a catchment tailings dam collected heavy metals and assisted in solid separation. Unfortunately, in 1984, an earthquake collapsed half the dam. No corrective action was taken. It is estimated that it will take 300 years to clean up the water system adjacent to the Ok Tedi mine.[1]
Environmental concerns prompted the transfer of majority shares to the government of Papua New Guinea (PNGSDPL) in 2002. Currently, PNGSDPL holds 52%, the State of Papua New Guinea holds 30%, and Inmet Mining Corporation (a subsidiary of First Quantum) holds 18%. The Ok Tedi Mine plays a significant role in PNG’s economy and the Western Province. It represents over half of the province’s economy and contributes 25.7% of the country’s export earnings. The economic importance is the principal driver for the decision to extend mine’s Life of Mine (LOM) beyond its initially 2013 scheduled closure.
Until the closure of the site, two-thirds of the profits are being allocated to a long-term fund, ensuring that the mine continues to contribute to the PNG economy for up to half a century after its closure as per their long-term fund plan.
The Ok Tedi Mine serves as an example of the delicate dance between corporations and the government. Driven by environmental concerns, BHP sought to remove Ok Tedi from its financial records, recognizing that the environmental disaster associated with the mine would significantly harm its public image. However, the government of Papua New Guinea faced a different dilemma. Despite the environmental damage, economic prosperity generated by the mine for the local population has made the closure and reclamation of the site politically difficult.
The Grasberg Mine (Indonesia):
The Grasberg Mine, located in the Mimika Regency of Central Papua, Indonesia, near the imposing Puncak Jaya, is a remarkable mining operation managed by PT Freeport Indonesia (PTFI). This collaboration involves the Indonesian and Papua governments and Freeport-McMoRan (FCX), operating under a Contract of Work (CoW) agreement with the Indonesian government. As of December 31, 2022, the mine boasts proven and probable mineral reserves totaling 30.8 billion pounds (14.0 million tonnes) of copper, 26.3 million ounces (808 tonnes) of gold, and 121.3 million ounces (3773 tonnes) of silver. The mine comprises four main operations: Grasberg Block Cave underground mine, Deep Ore Zone underground mine, Deep Mill Level Zone underground mine, and Big Gossan underground mine. In 2022 alone, it produced 711,000 tonnes (1,567,000,000 lb) of copper, 55.9 tonnes (1,798,000 t.oz) of gold, and 196 tonnes (6,300,000 t.oz) of silver.
The history of this mining venture dates back to 1936 when Dutch geologist Jean Jacques Dozy explored the area around Mount Carstensz (now Puncak Jaya), noting peculiar black rock with greenish coloring and estimating significant gold and copper deposits. He filed a report about the Ertsberg (Dutch for “ore mountain”) in 1939, setting the stage for subsequent regional developments. Over the years, various companies and geological studies continued until the mine evolved into today’s massive operation.
This mining venture embodies economic prosperity and a complex relationship with the Indonesian government, showcasing a delicate balance between economic interests, security considerations, and environmental concerns. Since its inception, the government has played a pivotal role in the mine’s development, providing legislative frameworks to attract foreign investment and foster economic growth. However, challenges such as security threats and environmental stewardship have shaped the government’s responses and highlight the intertwined nature of government interests, security imperatives, and economic development goals associated with the mine.
In 1998, the transition from the Suharto militaristic dictatorial regime to subsequent administrations brought about shifts in government priorities and approaches to governance, impacting the level of government support and oversight of the mine.
The Indonesian government’s 2018 acquisition of a majority stake in PT Freeport Indonesia marked a significant milestone, signifying a strategic shift in the government’s approach to managing natural resources. However, it also brought environmental and social responsibilities to the forefront and the need to address pollution and improve community welfare. This intricate relationship underscores the complex interplay between governments, multinational corporations, and local communities in pursuing sustainable development.
Oyu Tolgoi Mine (Mongolia):
The Oyu Tolgoi mine, also known as Oyuutolgoi, is a significant mining project located in Mongolia’s South Gobi Desert, around 235 kilometers east of Dalanzadgad, the capital of Ömnögovi Province. The Mine developed as a joint venture between Turquoise Hill Resources (a subsidiary of Rio Tinto), which owns 66% and the Government of Mongolia which owns 34%. Construction began in 2010, with early copper shipments commencing on July 9, 2013. The mine represents the largest financial undertaking in Mongolia’s history. The mine contains a resource of including: 2.7 million tonnes of copper, 48 tonnes of gold, 1,900 tonnes of silver, and 205,000 tonnes of molybdenum. Production started in 2013, with full capacity expected by 2021. Over its anticipated 50-year lifespan, Oyu Tolgoi aims to produce 430,000 tonnes of copper annually or approximately 3% of global production.
The relationship between Rio Tinto and the Mongolian government regarding the Oyu Tolgoi mine has been complex, characterized by both cooperation and tension. Here are some insights into this relationship:
1. Cooperation for Development: Rio Tinto, as a global mining company, brought significant technical expertise and financial resources to the Oyu Tolgoi project. Its involvement was crucial for the development and operation of the mine, which is one of the largest copper-gold deposits in the world. The Mongolian government recognized Rio Tinto’s contribution and initially welcomed its involvement in the project.
2. Financial Concerns and Disagreements: Disagreements and tensions emerged over financial matters, particularly regarding cost overruns and tax disputes. The project’s escalating costs, from an initial estimate of US$4.6 billion to US$10 billion, raised concerns for the Mongolian government, which had borrowed a substantial portion of its investment from foreign sources. Additionally, disputes over tax issues further strained the relationship between Rio Tinto and the government.
3. Ownership and Control: Another point of contention was the ownership and control of the project. While Rio Tinto initially held a significant stake in the project through its ownership of Ivanhoe Mines (now Turquoise Hill Resources), the Mongolian government sought to assert more control over the project, as evidenced by its decision to purchase a 34% stake in 2010. This shift in ownership dynamics led to negotiations and disagreements over decision-making authority and profit-sharing arrangements.
4. Government Intervention: The Mongolian government’s intervention in the project, such as the dismissal of Tserenbat Sedvanchig and the passing of a resolution in 2019 to explore alternative development arrangements, reflects its efforts to assert its interests and rights in the exploitation of the Oyu Tolgoi deposit. These actions underscore the government’s desire to ensure the project benefits Mongolia’s economy and people, as opposed to corporate stakeholders.
5. Continued Engagement: Despite the challenges and disagreements, both Rio Tinto and the Mongolian government have demonstrated a commitment to finding solutions and moving the project forward. Efforts such as the recent partnership with UNESCO to promote sustainable development indicate a shared interest in the long-term success and responsible management of the Oyu Tolgoi mine.
Overall, the relationship between Rio Tinto and the Mongolian government can be characterized as a mutual agreement with slight flare ups as both parties navigate the complexities of developing and operating a major mining project in Mongolia.
Conclusion:
The case studies of the Ok Tedi Mine in Papua New Guinea, the Grasberg Mine in Indonesia, and the Oyu Tolgoi Mine in Mongolia provide valuable insights into the intricate relationship between multinational mining corporations and host governments. These examples underscore the delicate balance between economic interests, environmental concerns, and social responsibilities inherent in large-scale mining operations.
First Quantum’s experience with the closure of the Cobre Panama mine highlights the significant impact government decisions have on mining ventures. The Ok Tedi Mine exemplifies the challenges and opportunities of government involvement in mining, particularly in addressing environmental and social concerns while maximizing economic benefits. Similarly, the Grasberg Mine showcases the complex interplay between multinational corporations and governments in managing natural resources, emphasizing the importance of collaboration and adaptation to ensure sustainable development.
Despite the complexities and occasional tensions, these case studies demonstrate the potential for constructive engagement between mining companies and governments to achieve mutually beneficial outcomes. By fostering transparent communication, respecting local communities, and prioritizing environmental stewardship, mining ventures can contribute positively to national economies while minimizing adverse impacts. Moving forward, continued dialogue and cooperation between stakeholders will be essential for navigating the evolving landscape of mining governance and promoting responsible resource development.
Sources:
[1]https://www.theage.com.au/business/villagers-sue-bhp-billiton-for-5bn-20070120-ge4161.html