Newcrest Mining (ASX, TSX: NCM) and Harmony Gold (NYSE: HMY) said Thursday they have signed a framework agreement with the Papua New Guinea (PNG) government that sets key terms to jointly develop the Wafi-Golpu copper and gold project.
The memorandum of understanding (MoU) outlines the main aspects to be included in the mining development contract, a prerequisite for obtaining a special mining lease for the project, equally owned by both miners.
The granting of a licence for Wafi-Golpu has been stalled since 2019, first by the change of government in the Pacific island nation that year and shortly after by the global pandemic.
The MoU terms include the PNG government's stake in the project, royalty and tax rates, permitting "as quickly as practicable”, and commitments by the JV to invest in local infrastructure and social development.
It also contains a provision for stability to underpin the significant long-term investment required to develop and operate the project.
Newcrest interim chief executive officer Sherry Duhe described the agreement as a pivotal milestone.
“The commitment of Prime Minister Marape, his Government and the Morobe Provincial Governor to this MOU gives us the confidence that permitting will progress constructively and in a timely manner to the grant of a special mining licence,” she said. “We will then move swiftly to update the 2018 feasibility study and commence engineering towards development.”
Harmony Gold chief executive officer, Peter Steenkamp, noted that the MOU recognized that developing Wafi-Golfu is of major economic significance to the people of Papua New Guinea.
He added that after updating the feasibility study, the company will seek board approval for the needed financial investment decision to develop the project.
The 2018 report outlined capital costs of $2.82 billion for three block caves at Wafi-Golpu.
Average annual production over the 28-year mine life was estimated at 161,000 tonnes of copper and 266,000 ounces of gold.
It returned a net present value of $2.6 billion, an internal rate of return of 18.2%, and a payback period of 9.5 years. These figures were based on a gold price of $1200 per ounce and copper price of $3 per pound. Gold is now trading at above $2,000 an oz. with copper at $4.05 per lb.
Located near the port city of Lae, in the Morobe province, Wafi-Golpu is expected to take about five years from the grant of the mining lease to the time it generates its first ore.
The project already has an environment permit for deep-sea tailings placement as management method for mining waste, granted in 2020.
At peak production, Wifi-Golfu is forecast to churn out 320,000 ounces of gold and 150,000 tonnes of copper a year.
The announcement comes less than a week after Barrick Gold (TSX: ABX) (NYSE: GOLD) signed an agreement with PNG to speed up the resumption of operations at the Porgera gold mine, which have been suspended for three years.
Newcrest is currently the target of a takeover by Newmont Mining (NYSE: NEM)(TSX: NGT), the world’s largest gold producer.