Ok Tedi is located on Mount Fubilan in western Papua New Guinea (PNG), 20 km from the Indonesian border. Ok Tedi is a porphyry-skarn copper-gold deposit situated in the Papuan Fold Belt. The site was discovered in 1968 by Kennecott geologists that noticed mineralized float during a helicopter reconnaissance mission and traced its source to Mount Fubilan. Exploration followed at a feverish pace but ceased in 1975, when negotiations between Kennecott and the PNG Government fell out. Note, during this period the PNG Government was also negotiating on the Panguna deposit, which was at a similar stage of development. In 1976, BHP formed a consortium to take on the project, consisting of BHP (37.5%), Standard Oil (37.5%), and Kupferexploration GmbH (25%) to develop the project, with provisions for the PNG Government to take up to a 20% stake. Additional exploration was carried out until mine construction commenced in 1981, followed by commercial production in 1984. BHP withdrew from Ok Tedi in 2002 and the mine has been operated by the PNG-owned Ok Tedi Mining (OTML) since.
Ok Tedi is currently mined as a conventional shovel and truck operation. At its prime, Ok Tedi produced at a rate of 400 M lbs copper and 500 koz gold per year, with typically double the ounces in silver. At the time of BHP’s divestment, Ok Tedi held 246 Mt in Reserve and an additional 402 Mt M+I Resource, and 15 Mt Inferred, containing 11,111 M lbs copper and 18.1 Moz gold. Analyzing data from annual reports published by OTML, Mining Momentum compiled an MRMR depletion and conversion profile since it commenced operation in 2003. 2003 to 2009 was a period of Reserve depletion with no replacement of Reserve and little Resource expansion. Data was noticeably missing for 2010. From 2011 onwards, Ok Tedi experienced a period of Resource and Reserve rejuvenation, breathing new life into a deposit slated for closure in 2014. 2015 was a year of poor performance perhaps due to the political situation of PNG’s expropriation of OTML. From 2020 onwards, there is little growth in M+I Resource, hence Mining Momentum believes that Ok Tedi intends to convert remaining Resources and deplete the deposit.
| Tonnes (Mt) | Cu (%) | Au (g/t) | AuEq (g/t) | Cu (M lbs) | Au (koz) | AuEq (koz) | |
|---|---|---|---|---|---|---|---|
| Reserve | 236 | 0.72 | 0.85 | 0.78 | 3,747 | 6,450 | 12,225 |
| M+I | 170 | 0.39 | 0.50 | 0.48 | 1,458 | 2,706 | 4,956 |
| Inferred | 139 | 0.52 | 0.70 | 0.53 | 149 | 284 | 515 |
Mining Momentum estimated a Life of Mine (LOM) using declared Reserves and applying a conversion ratio to the Resources. Observing the increasing stripping ratio over the past decade, Mining Momentum has reason to believe this will continue over the course of mine life. We accounted for this by applying a linear model to estimate waste movement for the Best Case and an exponential model for the Worst Case. Based on OTML’s publications, mining capacity should be capped at 100 Mtpa, hence ore throughput is expected to decline as a result. Mining Momentum’s throughput reduction is in line with Ok Tedi’s historical production, which has reduced linearly from 28 Mtpa in 2003 to 18 Mtpa in 2022. In Mining Momentum’s projected LOM, the Best Case scenario maintains annual production above 500 koz AuEq until 2033 and steadily reduces as strip ratio increases, with mine depletion in 2048. The Worst Case scenario maintains annual production of 500 koz AuEq until 2030 and concludes in 2051. The gold equivalency is estimated based on US$2,500/oz gold, US$30/oz silver, and US$3.75/lb copper.
| Mining Momentum LOM Estimate (EOY 2022) | Best Case | Worst Case |
|---|---|---|
| Resource Conversion | 75% (M+I)50% (Inferred) | 50% (M+I)25% (Inferred) |
| Tonnage Total (Mt) | 2,571 | 2,851 |
| Ore (Mt) | 370 | 324 |
| Waste (Mt) | 2,201 | 2,526 |
| Stripping Ratio (Waste/Ore) | 5.9 | 7.8 |
| LOM (Years) | 26 | 29 |
| Copper Grade (%) | 0.60% | 0.63% |
| Gold Grade (g/t) | 0.72 | 0.76 |
| Copper Recovery | 84% | 84% |
| Gold Recovery | 67% | 67% |
| NSR (US$/t) | $82.25 | $85.96 |
| Copper Contained (M lbs) | 4,915 | 4,513 |
| Gold Contained (Moz) | 8.6 | 7.9 |
| Est. Silver Contained (Moz) | 17.2 | 15.8 |
| Pre-Tax Cashflow (US$ ‘000,000) | $21,590 | $18,928 |
| Pre-Tax NPV12% (US$ ‘000,000) | $7,662 | $7,373 |
Mining Momentum constructed a high level financial model based on the LOM estimated for Ok Tedi. Using a mining cost of US$2/t-moved and processing and G&A costs of US$10/t-milled resulted in a pre-tax cashflow of US$21.6 B (Best Case) and US$18.9 B (Worst Case) and NPV of US$7.7 B (Best Case) and US$7.4 B (Worst Case) at a 12% discount rate. Without a detailed cost breakdown, Mining Momentum has elected not to increase unit processing cost as mill throughput reduces, although this is likely to occur. Also note, these estimates are highly optimistic since capital costs have not been included. With a two-decade LOM, equipment replacement is unavoidable. It is also difficult to ascertain the magnitude of closure costs. Mining in PNG has been notorious for causing environmental disasters and depending on the political climate, reclamation efforts may be minimal as a continuation of its track record or maximal as a knee-jerk reaction to its infamous legacy.
Ok Tedi is truly a phenomenal deposit. As of the end of 2022, Ok Tedi has 12.2 Moz AuEq in Reserve and 5.0 Moz AuEq in M+I. While it no longer produces at a rate of 400 M lbs copper and 500 koz gold at its prime, even at half that, Ok Tedi remains solidly Tier 1. Bear in mind, copper prices have increased over 4x and gold prices over 6x between 2003 and 2023 and Ok Tedi looks less like a mine in decline and more like a prime asset. While it has experienced its share of turmoil, its value to the local economy is apparent. In recent years, it appears that operations have stabilized and OTML’s increased exploration efforts have yielded positive results. Not only has mine life at Ok Tedi been extended well past its originally planned closure date of 2014, there are now a number of exploration targets to feed its project pipeline. We here at Mining Momentum are excited to see what this local entity can achieve on its own!
The information presented above does not constitute investment advice. This is a summary of Ok Tedi Mining’s Annual Reports with analysis and commentary from the author. Mining Momentum makes no guarantee regarding the accuracy of data presented as records may be lost and/or unverifiable due to the political climate. Statements above do not represent the views of Ok Tedi Mining or BHP. If any discrepancies arise, the information contained within publications by Ok Tedi Mining are official and final.