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Laos strikes gold in
copper
MELBOURNE
- The first major load of copper carthode came out
of the processing plant at the Khanong copper mine
in Laos at the end of last month, promising a
deepening of the country's infant mineral sector.
The Australian company Oxiana began mining copper
- the first copper mined in Laos - at the end of
last year.
By the end of 2005, the mine is
expected to yield some 30,000 tonnes of copper. In
full production, it will turn out double that.
The mineral will be snapped up by buyers
from neighboring Southeast Asian countries. Says
Owen Hegarty, founder and chief executive of mine
operator Oxiana, "They can't get enough of it. We
are already getting faxes and emails every day for
our copper. Buyers are virtually standing at the
front gate."
Hegarty says the copper will
be trucked to China, Malaysia, Thailand and
Vietnam. In Asia, copper is currently produced in
Indonesia, mostly from the Grasberg area of Irian
Jaya. The concentrates go to the Gresik Smelter in
Java.
"Normally, copper is sold either in
concentrate or metal," says Hegarty. "Most the
world's copper mines produce a copper concentrate
- which is transformed into metal by smelters in
Japan, Europe or Chile.
"Only about 20% of
these mines are able to produce metal on site. We
are blessed with a high-grade resource and an
abundance of energy. We will be able to go all the
way to finished product."
The Lao copper
mine will become the forerunner of other mines to
create a new stream of revenue for the
impoverished country.
Before significant
reserves of gold were discovered in Laos two years
ago, the most notable mineral export was tin. The
main exports for Laos are garments,
hydroelectricity, wood and wood products, coffee
and rattan.
"The copper production will
treble Oxiana's told export earnings," says
Hegarty, who is also mining gold in Laos.
"Depending on the global price of gold, we expect
to do US$80 million to $100 million in gold
exports this year. Combined with copper, our total
exports are expected to generate $250 million. Our
exports currently will make up between 20% and 30%
of Laos' total exports."
Oxiana is the
only gold producer of any size in Laos. It
recently expanded its gold processing plant at
Sepon, which has produced 300,000 ounces of gold
in two years and forecasts production this year at
between 210,000 and 230,000 ounces.
To
date, Oxiana has invested between $350 million and
$400 million developing its gold and copper mines
in Laos. The development cost of the copper mine
was $235 million. Hegarty says the mine has been
financed from cashflow generated by the gold
operations, as well as equity and debt.
Oxiana has also opened the door for other
foreign investors in Laos. The giant mining group
Anglo Gold late last year entered into an
agreement with Oxiana for new exploration in Laos.
"Anglo Gold is the second-largest gold producer in
the world and has specifically targeted Laos
because of its geology and metallurgical
potential," says Hegarty.
Indeed, if
Hegarty had not been convinced, Laos' copper and
gold reserves may well still remain untapped.
Copper was originally discovered by what was then
the Australian firm CRA in the early 1990s, but
little was done to recover the resource.
When CRA merged with RTZ Rio Tinto in 1997
- to become the present-day Rio Tinto - the
enlarged company reviewed all assets on its books.
"When Rio Tinto decided its Laos discovery would
not make the grade, I was very quick off the mark
to make an offer for the asset," Hegarty said.
"I saw this project as a company-maker for
Oxiana. It was quite clear from the geological
formation that there would be gold and copper."
Negotiations to buy the Sepon mines were
finalized in 2000. As the former Rio Tinto's
managing director for gold and copper, Hegarty was
aware of the discovery of gold at Sepon.
Hegarty left Rio Tinto in 1993 and did a
management buyout for its Cobar copper mine in
Australia. "We had very little capital but we were
successful with the Cobar mine, and, when we sold
it to Golden Shamrock [another Australian mining
company], we used the capital to grow Oxiana," he
says.
Looking back, Hegarty says that,
quite frankly, he did not know Laos as such,
although he knows Asia well, having worked in the
region for more than three decades for CRA and
later Rio Tinto. "I knew what it would take to get
a project off the ground in a developing country,"
he says. The negotiations were, perhaps, the
easier part. The hard work of fund-raising was yet
to come.
"I had to wear out shoe leather
in Melbourne and London trying to raise capital
for the project. People did not know where Laos
is. I would be asked if Laos was in Africa."
Hegarty says the mine has resources of around 4
million ounces of gold, but he thinks the field
contains much more. "We have only just started. We
have been operating for two years and we are
already doing feasibility studies to expand again.
It is going to be a very serious gold mine in
world terms.
"We think it will grow to the
equivalent of a large-size Australian gold mine.
If we build up production to 300,000-350,000
ounces per annum, we will become one of the top 50
gold mines in the world. We have sufficient
resources to go out 10-15 years."
Asked to
name the critical attributes to his success in
Laos, Hegarty points to consistency and
persistence. "You have to be there to understand
the people and the culture. You have to be
persistent and be available when needed."
The conventional perception of Laos is
that it is a difficult country, plagued with
bureaucratic red tape and corruption. But Oxiana
has, so far, been spared the type of problems
faced by small-time investors.
First,
Hegarty says, Rio Tinto had a very good watertight
agreement with the Lao government. "And secondly,
it has support from the top of the tree. Therefore
we weren't held up by anybody or approached for
anything."
In fact, the Laotian government
signed an agreement to take up a 10% stake in the
Sepon gold mine. The cost of the shareholding is
based on an agreed historical cost of $17 million
to $20 million. Hegarty says Vientiane will pay
for the equity stake out of dividends from the
mine. Oxiana's investment has brought benefits to
Laos at a number of levels, he says.
First, there is the macro-economic impact.
Exports have risen as a result of mine production.
And the mine has attracted foreign investment. The
direct benefit is from income tax and royalties.
The indirect benefits are in employment,
infrastructure and training and development.
For example, Oxiana has built a highway
that reduces travel time to the nearest regional
center, Savannahket, from eight to three hours.
"In my experience in putting together projects for
Rio Tinto, Sepon has gone as well as can be
expected," says Hegarty.
"We have been
within all our cost budgets. We have had no
trouble with import or export duties, or import or
export restrictions. Nor are there restrictions in
moving funds in and out of the country, because
the government is very much committed to the
project. We employ 4,000 now, mostly Lao, while we
are building the copper mine. The number will fall
away by 1,000 to 1,500 workers when we go into
production."
Laos has become the base for
Oxiana's expanding exploration and mining
activities in Indo-China and southern China, and
its plans to expand into Vietnam. Hegarty says
Yunnan in southern China has "terrific potential"
but is under-explored. "In our view, their
technology is not too good, although they actually
produce a lot of minerals," he says.
"Recently, the Chinese have opened up the
mining sector to foreign investment to attract
foreign technical expertise and financial
resources. We have operated an office in Kunming
for about 12 months after forming ventures with
the Yunnan Geology and Mines Corporation for gold
and the Yunnan Copper Company.
"The latter is
China's third-largest copper mining company. They
need us to help them look for copper reserves in
Hunan and they are also are looking at doing some
copper exploration in Laos. We are also exploring
in Thailand. We don't think there has been much
exploration for gold there in the last 10 or 20
years. An Australian company, Kingsgate
Consolidated, has done a good job opening a mine
in Thailand. We have entered into a venture with
Thai Goldfields, owned by private investors,
including Australians. We have farmed in for 75%
of the tenements the company holds."
But
Hegarty says the budgets for both China and
Thailand are modest (between $1 million and $2
million a year). "If we make a discovery, we will
step up our investment." Hegarty's aim is to build
up a critical mass for his mining operations in
Indo-China and southern China.
(Asia
Pulse) |
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