BHP Says PNG Removing Ok Tedi Protections Raises Sovereign Risk

BHP Billiton Ltd., the world’s biggest mining company, said Papua New Guinea’s decision to legislate to make the company liable for environmental damage caused by the Ok Tedi mine raised the nation’s sovereign risk.

“The removal of protections that were legislated for BHP Billiton at the time that it gifted its shareholding to PNG raises squarely the question of sovereign risk for PNG,” the Melbourne-based company said today in an e-mailed statement.

Mining waste, known as tailings, from the Ok Tedi copper-gold mine caused damage to the Fly River in the 1980s and 1990s. In 2002, BHP transferred its majority share in the mine to the PNG Sustainable Development Program Ltd., and in return was granted legal immunity. The mine has continued to operate.

Prime Minister Peter O’Neill yesterday said the decision to grant immunity was wrong, according to the Australian Broadcasting Corp. The parliament also passed legislation to take control of the mine from the PNG Sustainable Development Program.

“The arrangements around our exit from Ok Tedi were agreed with the PNG government in 2001 and unwinding them shows lack of good faith by the PNG government,” BHP said in the statement. The company is confident its shareholders aren’t exposed to potential claims, it said.

Investor’s Eyes

The mine produces about 170,000 metric tons of copper and 500,000 ounces of gold annually from its Mt. Fubilan open-cut mine, Ok Tedi Mining Ltd. previously said on its website.

The government’s decision to claim ownership of the PNG SDP and revoke previous agreements made the Pacific nation riskier in the eyes of investors, said Michael Elliott, sector leader for EY LLP’s global mining practice.

“While the PNG government and those promoting projects may see this as an isolated case, many others who are providing the investment will be factoring it in,” Elliott said. “It’s hard to see how this doesn’t increase mining risk.”

Companies with mining and energy assets in PNG include Newcrest Mining Ltd. (NCM), Barrick Gold Corp., Exxon Mobil Corp., Oil Search Ltd. and Santos Ltd.

“It does show how keen the PNG government is for income,” Peter Rudd, resources and mining manager at Altitude Private Wealth in Melbourne, said by phone. “BHP absolved itself from all the environmental concerns, or at least incorporated them into that trust and not part of BHP itself, so you’d think it would be sufficiently at arm’s length.”

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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