PNG island prizes tempting again

On one island is the big but abandoned Panguna copper and gold mine closed prematurely by an arm of Rio Tinto in 1989. On another, 600km to the south, is the Misima gold mine which started production in the year Panguna closed.In both cases, Panguna on the island of Bougainville and the Misima mine on its namesake island, there is a fortune in residual metal which is why a mine re-development race is hotting up.Panguna, forced to close during a civil war, contains an estimated 45.3 million ounces of gold-equivalent, or to measure the resource another way, 9.3 million pounds of copper.Misima, when the Canadian miner Placer Dome ended production in 2004, held a remnant resource of 2.8 million ounces of gold with a low gold price at the turn of the century the cause of the early abandonment.A lot has changed in the decades since Panguna and Misima were mothballed, including a significant increase in the gold price from US$252/ounce when the Bank of England started selling its gold in 1999 and an outbreak of peace on Bougainville.In theory both old mines could be redeveloped as profitable projects though the critical question for investors is which will win the race.The early favourite is Misima because while it has a lower profile and is a lot smaller than Panguna there is ownership clarity, a more peaceful local setting, and with brisk progress being in the field with drilling crews back on the job and backroom mine planning and financing underway.Panguna, on the other hand, is showing every sign of slipping into the sort of chaos for which the region is famous with Bougainville islanders voting to have their own autonomous government under the umbrella of Papua New Guinea, with full independence a possibility.There are also arguments brewing over control of Panguna with two Australian companies, RTG Mining and Bougainville Copper, claiming rights to the mine and each appearing to have either the backing of Bougainville locals or the PNG Government.Misima, on the other hand, is clearly under the control of ASX-listed Kingston Mining after acquiring it from a small Canadian company which had, in turn, picked up where the original operator, Placer Dome, left off.On the way to Kingston getting clear title over Misima, which is a big advantage over Panguna, two Japanese companies took a close look in the hope of finding a deep copper orebody, without success, though the concept of copper under the near-surface gold is a future potential exploration target.The immediate aim of Kingston, which has paid a total of A$7.8 million for the abandoned mine, is to build on what Placer Dome left, first targeting high-grade locations as possible starter pits, and then stretch out the potential size of the operation which is already looking like a 12-year project yielding up to 180,000 ounces of gold a year.Canaccord Genuity, an investment bank, reckons Misima could hit those targets at an all-in sustaining cost of $A1,230/oz (US$824/oz) though it's also fair to say that Kingston has not been a stock-exchange star with a price stuck around A18c for the past 12-months, valuing the company at an untaxing A$32 million.Redevelopment of the Misima mine is expected to cost around A$200 million with the process of getting to that point following a conventional route with a two-rig drilling program underway to help choose a starting point while plans are made for acquiring a process plant because Placer Dome rehabilitated everything, leaving only roads and other important pieces of basic infrastructure.Kingston chief executive, Andrew Corbett, said a number of locations had been earmarked as having potential for early mining, including Umuna East which is 500m from Placer Dome's original pit, Misima North close to the northern end of the pit, and Quartz Mountain to the west.Results from all three sites have been encouraging and broadly in line with the gold grades worked by Placer Dome which generated handsome profits because the relatively low-grade ore was shallow and in soft host rock which significantly lowered energy costs.The latest reported result from Misima came last month from Umuna East and included 12m at 1.31g/t from a depth of 2m and 14.6m at 0.96g/t from 11.4mPlacer Dome's average grade was 1.8g/t, good enough to yield an average of 300,000oz a year for 15 years at a cash cost of A$294/oz (US$196/oz).History has played a big role at Misima, an island which yielded its first gold as far back as 1888. Only World War Two and the Bank of England with its gold sales stopped mining.Corbett said local support for a re-start at Misima was high. There was a skilled local workforce with deep mining knowledge that has continued to grow after the mine closed with Misima workers operating on a fly-in, fly-out, basis to other mines in PNG.Next step for Misima is to crunch the numbers from the ongoing drilling program, work out a plant location site, win government approvals and raise the capital to redevelop what was once a world-class gold mine.Meanwhile, across the Solomon Sea on Bougainville Island, it remains largely a game of name-calling at 10-paces, and hopefully nothing worse.

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