PNG MINING & RESOURCE SECTOR

OVER VIEW

Updated 17 Sept 2013

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OUTLINE

Industry Background.

PNG Resource Sector(Oil & Gas)

LNG Project Overview (Exxon Mobil)

Gulf LNG Overview (InterOil)

Other Oil and Gas Projects

PNG Mining Sector

Current Operating Mines

Potential Future Mines

Summary

Opportunities

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BACKGROUND

Mining and Resource sector is the backbone of the PNG economy and currently contributes over one third of government tax revenue.

Mineral and petroleum resources in PNG are owned by the State, allowing for equitable national distribution of the resulting benefits.

The key resources issue in PNG today is the challenge facing landowners and government at all levels in converting the benefits generated by the industries

The largest proportion of the technical manpower being trained in PNG is generated from the mining and petroleum industry.

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PNG RESOURCE SECTOR (OIL & GAS)

PNG has long been considered a strong oil and gas region, with large amounts of exploration after the 1970’s oil embargo, when PNG was still a colony of Australia.

Although commercial quantities of oil have been encountered in the majority of PNG’s existing fields, large reserves of gas/condensate have also been discovered by Oil Search limited, InterOil and others.

The resource industry in Papua New Guinea is experiencing an unprecedented period of growth with exploration and development activities in both sectors at an all-time high.

Figure: Oil Search Angogo

Well pad

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PNG OIL & GAS INDUSTRY

These recent gas/condensate discoveries have increased global awareness of the PNG gas market and as such, have enticed investment in LNG infrastructure in PNG lead by Exxon Mobil.

As a result we have seen the commencement of construction of the approximate US$19 billion 6.6mmtpa PNG LNG plant project by the consortium lead by ExxonMobil and Oil Search with first deliveries of LNG scheduled to commence in 2014.

Other large companies such as InterOil and Talisman have also indicated they are considering developing gas infrastructure in PNG.

More recently we have seen announcements concerning other major oil and gas companies - Shell, BHP and Mitsubishi - showing interest again in PNG.

With its close proximity to Asia, and the PNG government’s strong commitment to the industry, the outlook for PNG’s oil and gas industry is positive.

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PNG LNG Project

PNG LNG is an integrated development that includes gas production and processing facilities in the Southern Highlands, Western Province and Central Provinces of Papua New Guinea with a capacity of 6.9 million tons per year.

There are over 700 kilometres (450 miles) of pipelines connecting the facilities.

The investment for the initial phase of the Project is estimated at US$19 billion (excluding Port Moresby administration facilities and shipping costs).

Figure: LNG Condensing Plant (under construction).

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PNG LNG Project

Over the life of the Project, it is expected that over nine trillion cubic feet of gas will be produced and sold.

PNG LNG will provide a long-term supply of Liquefied Natural Gas to four major LNG customers in the Asia region including: China Petroleum and Chemical Corporation (Sinopec), Osaka Gas Company Limited, The Tokyo Electric Power Company Inc., and Chinese Petroleum Corporation.

The Project has progressed in a series of development phases with the first LNG deliveries scheduled to begin in 2014.

Esso Highlands Limited (Company), a subsidiary of ExxonMobil Corporation, is constructing and will operate the Project on behalf of the co-ventures – Oil Search Limited, NPCP, Santos, JX Nippon Oil & Gas Exploration, Mineral Resources Development Company and Petromin PNG Holdings Limited.

The PNG LNG Project is a large and complex operation that involves two types of activities:

1. Construction, the first phase of which started in 2009 and will conclude in 2014,

2. Production, which is expected to begin in 2014 and run until around 2044.

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PNG LNG Project

The project is 90% completed and set to deliver by 2014 when it will start shipping LNG gas from PNG

The proposed 2 train liquidified gas is pre – sold to the Asian markets.

There is potential for 3rd, 4th and 5th train to be constructed.

The PNG LNG Project has used major Engineering, Procurement and Construction (EPC) contractors to build the PNG LNG facilities and pipelines. The major EPC contracts are:

1. Infrastructure contractors for Early Works component to prepare for logistics routes for the subsequent EPC contractors

2. Telecommunications systems

3. Offshore pipeline and pipeline landfalls

4. LNG facility in POM

5. Hides Gas Conditioning Plant and Hides well pads

6. Onshore pipeline

7. Komo airfield (Hides Area)

8. Drilling contractor to drill the gas wells.

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Gulf LNG Project

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InterOil’s proposed LNG project in the Gulf province using condensed gas from the Elk and Antelope fields.

In mid 2013 Exxon Mobil were in talks with InterOil for possible sale of 4.6mtpa condensed gas to Exxon Mobil for its proposed third train.

ROYAL Dutch Shell has announced that it also in discussions with Interoil regarding its possible involvement in the project.

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Other Oil & Gas projects

Talisman Energy

Most active explorers in PNG for the past three years having participated in 10

exploration and appraisal wells to date

The sanctioning of the Stanley development in 2012 was a significant

milestone, with first condensate production anticipated in 2014.

Currently partnered with Mitsubishi Corporation for the Stanley development

Eaglewood Energy

Most active junior in PNG

Over $150mm spent in PNG licenses to

date

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Figure: Kiunga Eaglewood

Energy drilling site

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Other Oil & Gas projects

Oil Search Limited

Apart from its participation in the PNG LNG Project, Oil Search has

other interest in P’nyang exploration and Highlands explorations

These further explorations have lead Oil Search to develop the “Gulf

Gas Strategy”

Potential independent gas project

Exploration and partnering

Technology applications

Preparation for drilling

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Figure: Kumul Export Terminal

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Other Oil & Gas projects

There are a number of other gas and oil players in PNG market including:

Horizon Energy,

Santos,

Nippon Oil,

Total Energy,

Petromin,

Eagle Wood Energy,

Mitsubishi Corp.,

LNG Energy Limited, New Guinea

Energy Limited,

Larus Energy and other smaller exploration companies.

Lately Shell and Total have also shown interest to re-enter the sector through

joint ventures or in their own right.

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PNG MINING SECTOR

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The mining industry in PNG is experiencing an unprecedented period of activity and growth and it is an exciting and challenging time for the industry players.

This success has been underwritten by high commodity prices coupled with efficient management of the mineral sector, stable Government, macroeconomic management, and the introduction in 2003 of an internationally competitive taxation regime for the mineral sector which retains the unique characteristics of the PNG tax system that evolved from the experiences of Porgera and Panguna.

This includes the Government equity backing which allows the State to elect to take up to 30% equity at the development stage, part of which is usually made available to landowners and host provincial governments.

At the end of the first quarter 2012, there were over 282 current Exploration Licenses and renewals and over 394 outstanding applications spread right across the country.

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Current Mining Projects in PNG

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Porgera Gold Mine

The Porgera Gold Mine is operated by the Porgera Joint Venture (PJV).

Barrick Gold 95%

Mineral Resource Enga 5%

Second largest mine in PNG, top ten producing gold mine in the world and employees 2,5000 and has 500 contractors.

The mine is using both open pit and under ground mining and has a mine life of 25 years if law and order and illegal mining activities are under control and minimized.

Figure: Ariel View of

Porgera Open Pit

Mine

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Lihir Gold Mine

Lihir Gold Mines is operated by Newcrest since 2010.

January 2013, Newcrest commissioned a major expansion of the Lihir process plant to lift annual gold production output to 1.2 million ounces.

In September 2013 Newcrest announced plans to cut 150 Job to reduce costs.

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Figure: Ore

processing plant

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Morobe Mining Joint Venture Limited (MMJV)

(MMJV) is a 50-50 joint venture between Harmony Gold Mining Company Limited and Newcrest Mining Limited

MMJV operates, Hidden Valley Mine, Wofi Golpu project, and Morobe Exploration Joint Venture.

Hidden Valley Mine

Expected mine life of 14 years based on current reserves and uses open pit method. Around 2,000 employees and contractors (95% Papua New Guinean’s with 50% from local communities).

Wafi Golpu Currently doing Pre – Feasibility Studies for a possible under ground mine.

Morobe Exploration Joint Venture

Comprises an extensive portfolio of exploration tenements centered on the Morobe Goldfields 13 exploration leases covering over 4,046 sq km with 6 new Exploration Lease applications.

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Ok Tedi Mine (OTML)

Ok Tedi Mine is operated by Ok Tedi Mining Limited (OTML), currently owned by PNGSDP(63.4%) and the State of PNG(36.6%).

The mine exports copper as the main product but it also extracts gold and silver and uses both open pit and under ground mining method.

The greatest challenge facing OTML is mitigating the impact of the mine on the environment.

Figure: Ariel View of Ok Tedi Open Pit Mine

Plans are under way waiting government approval to extend the mine life after 2013 for another 7 years.

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Sinivit Gold Mine

Sinivit Gold Mine is operated by New Guinea Gold (NGG). Having commenced mining in 2007, NGG is actively seeking to expand production through extension of known mineralisation and further discovery.

The mine is currently a series of shallow open pits from which gold oxide ore is extracted.

Although the initial project has a relatively short life, New Guinea Gold has an active exploration/development program with the objective of defining additional gold mineralization.

Figure: Crushing Stockpile Area.

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Ramu Nico

Ramu NiCo Ramu Nickel Mine is operated by Management (MCC) Limited (“Ramu NiCo”), a company based in Papua New Guinea, sponsored by China Metallurgical Group Corporation.

The Project employs integrated processes including mining, concentration and refining.

The main processes and facilities consist of open mining, slurry pipeline transportation, high-pressure acid-leaching refining, and deep sea tailing placement.

The US$1.4 billion Project will produce intermediate nickel and cobalt products weighing metallic equivalent to 31,000 tonnes of nickel and 3,200 tonnes of cobalt per annum for 40 years.

Figure: Kurumbukari Mine Figure: Basamuk Refinery

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Tolukuma Gold Mine

The Tolukuma Gold Mine is owned by the Government and operated through Petromin Holdings.

It is comprised of a small open pit, but largely an undergrounds mine, containing high grade, narrow epithermal veins.

It has been operating since 1995 with a history of successful reserve extensions.

Open pit production began in 1995 and underground mining in mid-1997. The mine is a low capacity, high-grade operation and employs 630 people, including 130 contractors.

All open pit and underground mining is conducted using mining plant and equipment owned by TGM.

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Simberi Mine

Allied Gold operates the Simberi mine since 2004 with mining activities restricted to the eastern half of the island covered by Mining Lease (ML136).

Ore at Simberi is sourced from seven currently defined open pits.

Figure: Ariel view of the mine.

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Potential Future Mining Projects

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Frieda

The Frieda River copper-gold project has just been acquired by Pan Aust Pty Ltd of Australia Highlands Pacific Limited holds18.18%.

The deposits are estimated to be 12 million tonnes of copper and 18.5 million ounces of gold and collectively forms one of the world’s largest undeveloped copper and gold deposits.

The Frieda River Project pre-feasibility study outlined that a potential multi-decade open pit mining.

Xstrata have delivered a bankable feasibility study report in 2012 after having spent over US$250m in the last five years.

Currently the Government of PNG is in talks with the operator for a possible takeover after issues with OTML are resolved.

Figure: Drilling Site at Frieda River

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Yandera Mine

Yandera Mine is owned by Marengo Mining Limited, based in Perth, Australia.

Open cut long life mining operation with minimum 20 year mine life.

MOU with China Nonferrous (“NFC”) for financing, construction and off-take.

Investment and Co-operation agreement with wholly-owned PNG Government company Petromin.

Value underpinned by world-scale resource base at Yandera Central:

Feasibility Study advancing Drilling commenced in 2012 Exploration program to be fully focused on target

generation PNG Government participation agreement signed NFC and Marengo progressing formal

construction agreement Discussions advancing with Chinese banks for

project financing. Figure: Mine Opening Day

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SUMMARY.

PNG Resource sector is experiencing substantial growth over the last 10 years. This is mainly driven by conducive government taxation scheme, steady government and resources ownership laws.

There are 3 LNG projects; Exxon Mobil lead PNG LNG Project, InterOil Gulf LNG Project and Talisman proposed LNG.

Key Players in the Gas & Oil sector are Exxon Mobil, InterOil, Oil Search, Santos, Talisman, Total, Mitsubishi Corp, Eagle Wood, Horigin, Nippon Oil and other smaller ones.

Exxon Mobil lead PNG LNG is 80% completed and will deliver first LNG gas in 2014.

There are 8 active mines in PNG and another more than 9 proposed mines.

The 4 big mines are Porgera, Lihir, Ok Tedi and Ramu NiCo.

There are a lot of opportunities for Australian companies to take up and be part of the boom in Mining and Resource sector.

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OPPORYUNITY

Australia currently supplies around 65% of total requirements to Papua New Guinea’s mining sector.

Mineral exploration expenditure has been in steady decline. In an attempt to revitalize the mineral sector, the Papua New Guinea Government reduced the income and dividend withholding txt levels from mining companies.

Investment incentives are available to legitimate investors. This includes duty free entry of plant and equipment (if not manufactured or available in Papua New Guinea).

Australian Banks, law firms, accountants are a ready source of investment advice and should be approached before any investment decision is taken.

A significant proportion of mining personnel in PNG are Australian and therefore use Australian products and services which they are familiar and standard is widely accepted by the global community. Regular air and shipping services, particularly from Queensland ports facilitate this supply.

PNG Department of Mining, with support from AusAID, promotes incentives designed to assist the development of small scale alluvial mining in Papua New Guinea, mostly gold mining. PNG’s only gold refinery (run by Metals Refining Operations Ltd) assist with trading, field trips, information videos and booklets, as well as the establishment of a supply outlet for tools and requirement to small scale miners.