Panguna Landowners Proposal
PROPOSED ACTION PLAN
National Government Gives:
1. National Govt’s 76.4 million shares will be given in a trust for Bougainvilleans.
Trust to be supervised by UN, World Bank or some such eminent body.
2. The tax from mining will be shared equally between ABG and the National Govt
until such time as the autonomy referendum takes place in 2015. First three years
after signing of New BCA tax free.
ABG Gives and Forgives:
1. Peace, good law and order and favorable investment climate and tax regime that
includes exemption from dividend withholding tax and interest withholding tax
2. All Guns to be surrendered: Bougainville to be a Gun Free Zone. Combatants to
be paid two rates: one rate for each home made gun surrendered already (the
records of this exist already) another rate for automatic guns. Negotiations with
Me’ekamui; removal of road blocks.
3. Opening of Arawa port and Aropa airport
Landowners Give and Forgive:
1. Support for New BCA unanimously endorsed in a Mining forum meeting
2. Unrestricted and free access to BCL without any fear
New BCA signed
Jointly signed [ABG, National Govt, Landowners and BCL] New Bougainville Copper
Agreement [bCA] that includes lifting of moratorium on leases and permission to mine
New BCA to be signed as a Supplemental Agreement appended with the Old BCA
BCL Gives after signing of the New BCA:
1. K11 million plus interest to landowners at signing of New BCA
2. Agreement to give royalty of 3.5% of sales to landowners; cash flow to
commence when ore ready for milling is processed
3. Debt raising by RIO against future copper and gold production
4. Training facilities for Bougainville youth, support for Radio Bougainville
SUMMARY OF SALIENT POINTS FOR SUPPLEMENTAL BCA AGREEMENT
Gold USD 942.60 per troy ounce, Copper USD 1.58 per pound; K1=USD 0.3785
K1=AUD 0.5667 AUD1= 0.66 USD. Interest rate 7.5%
Three streams of ongoing sustainable cash flow from BCL and their proposed
1. Taxes: Approx K 458 million per annum split 50:50 between ABG and National
Govt about K 229 million per annum to each
2. Dividends on 76.4 Million shares: Beneficiaries to be split 50:50 between 50% for
all adult Bougainvilleans, and the remaining 50% for Landowners. Quarterly
dividend payments to them to be managed jointly by the National Govt and ABG.
The ownership of shares to be held in trust by the ABG and BCL. The dividend
stream is K 133 million per annum.
3. Royalties: 3.5% of revenue attributable to mining area to be mapped and paid out
to individual title holders on a monthly basis. Annual royalties of K100 million
per annum; this is about K 19,937 per annum per adult landowner or K 1,661 per
adult landowner per month. No dividend withholding tax will be applicable on
dividends paid on BCL shares.
Non Recurring one-off payment: At the time of signing of the New BCA BCL will pay
Landowners payable to them since 1990 of K1.4 million per annum plus interest plus
THE OPPORTUNITY PRESENTED BY BCL AS A GOING CONCERN
I. Root Cause of the Problem
The root cause of the problem was the unfair distribution of income amongst the three
main interest groups viz Landowners, North Solomon Provincial Government and the
National Government. During its 17 years of life from 1972 to 1989, 58.4% of benefits
received from the mine went to the National Government, and only 4.8% to the
Provincial Government with merely 0.2% going to Landowners. The remaining 36.6%
went to Non Government shareholders for their risk capital, technology and management;
that was quite fair.
II. 1987 Production and Prices
In 1987 when there was no Additional Profits Tax, when average copper price was US
81 cents per pound and gold price was USD 446.7 per troy ounce, the Earnings per
share were 24.83 USc (Earnings of USD 99.55 Million). Total concentrate produced was
585,500 Tons grading 30.4% Copper, and 25.1 grams per ton of gold. This corresponds
to 177,992 Tons of copper or 392 Million pounds worth USD 318 Million at US 81 c per
pound plus 585,500 x 25.8/31.1 = 485,720 troy ounces worth USD 217 Million. Total
sales of USD535 million per annum and net profit of about USD100 million per annum.
III. Valuation of Shares, Taxation & Royalty as a going concern
If we assume the same level of production as in 1987 and the current price of copper at
USD 1.58 per pound and gold at USD 942.60 per troy ounce the extra sales will be
392 Million pounds x [1.58 -0.81] = USD 302 Million
485,720 x [942.60 – 446.7] = USD 241 Million
Incremental Sales = USD 302 + 241 = USD 543Million
Total Sales per annum = 535 + 543= USD 1078 Million
It is proposed to pay a royalty of 3.5% of sales to landowners
This will be USD 37.73 Million or K 99.7 Million per annum
If we assume there are 5000 adult descendents of the original 510 titleholders, this
corresponds to K 19,937 per annum or K 1,661 gross per adult landowner per month.
Royalties must be 3.5% Special Mining Lease Title landowners only; no sharing with
ABG who are separately getting generous revenue from taxation (not available to
Landowners). These shall be split 70% to individual title holders and 30% to a Future
Generation Fund or Non Renewable Resources Fund. Should this split occur monthly
payment to individual landowners will be 0.7 x 1,661 = K 1,163 net per month.
Income Tax in 1987 = USD 55.7 Million
Interest Cost in Year 1 = USD 113 Million 7.5% interest rate on US$1.5 Billion
Incremental Tax = 0.3 x [543 – 113- 38 ] = USD 118 Million
Tax per annum = 55.7 + 118 = USD 173 Million = K 458 Million
Earnings per share
Incremental Profit After Tax = 0.7 x [543-113-38] = USD 274.4 Million
Total Profit After Tax = 100 +274.4 = USD 374.4 Million
Incremental Eps = USD 0.68
Total Earnings per share = USD0.93 per share
Dividends per share
The loan of US$1.5 Billion will be fully repaid in 7 years. Let us assume a dividend
payout ratio of 70%.
Dividends per share in first 6 years while loan is being repaid = USD 0.651 or $A 0.99 or
Dividends on 76.43 Million shares = K 133 Million per annum
Valuation of shares Copper prices have increased from 81 US cents a pound in 1988 to
about US 1.58 cents a pound and if the mine were running at the pre-89 capacity,
earnings per share would be about 3.7 times the then eps of 25 US cents a share. In the
late eighties the shares hit a high of $A7.20; on a similar valuation basis the shares could
hit a high of $7.20 times 9.6 or $A 26.78 .
On a more conservative P/E multiple of 12, the shares should be valued at USD 11.16 or
AUD 16.90 provided no new shares are issued. This corresponds to K 29.84 per share
The 76.43 Million shares would be valued at K 2,280 Million. Hard facts requiring
negotiation and distribution predominantly for Bougainvilleans:
Shares with an intrinsic value K2.3 billion plus Annual Income available to
Bougainvilleans/PNG of K 458+133+100= 691 Million per annum or about K 2.7 million
per working day comprising:
- Annual Tax of some K 458 Million; shared equally between ABG and PNG Govt
- Annual Dividends worth K 133 Million to Bougainvilleans
- Annual Royalty to landowners worth K 100 Million
If we assume there are 70,000 adult Bougainvilleans and the dividends are distributed
equally amongst them, each adult Bougainvillean will receive about K 1,428 per year
Kina Values 1988 figures are actual, NEW BCA 2008
If taxes are shared 50:50 between National Govt and ABG/Bougainvilleans
And if dividends from shares are paid equally among all distributed in the ratio of 1/2:1/2
for Bougainvilleans: Landowners
The mine life based on proven reserves is 14 years. But if the moratorium on exploration
is lifted, the mine life will extend to about 30 years. Also, that will provide greater
benefits of royalty to the new landowners in whose leases those areas exist.
There is a big quantum leap in benefits for Bougainville:
· New BCA provides ABG/Bougainville income from dividends and taxation of
about K229 Million p. a., from 2012; this is a whopping increase from merely
K5.5 Million received per annum in the pre 1988 era.
· New BCA provides for Landowners to receive about K 100 million per annum
from Royalty and half of K 133 Million per annum from dividends or total of K
166.5 Million from about 2011 compared with about K0.2 Million p.a. in the pre
· New BCA provides equity ownership by Bougainvilleans and Landowners each
of some K1.15 Billion worth of shares in BCL compared with zero shares earlier.
It is obvious that this will be the biggest step forward for Bougainville in their history and
all Bougainvilleans need to be united in the pursuit of this goal. The Supplemental
Bougainville Copper Agreement (2008) needs to be agreed by the initiators viz
Landowners together with the ABG, the National Govt and BCL. This bottom up
approach will help in fast tracking development which will deliver K5 million per day of
benefits from the mine.
IV. Stock of Ore & Waste Removed
If we add the 18-year data of the two rows from the Table in the last two pages of the
Annual Report we find that:
- Ore and Waste Removed in the 18 years was 1248 M Tons
- Ore Milled was 675 M Tons
- On average the company mined about 69.3 Million tons per year [or 1248/18] and
milled about 37.5 Million tons per year [or 675/18]. The difference between these two
figures is 573 M Tons. The company has not stated what percent of the mined ore was
waste. But it is believed the ore stockpile is enough for 2 to 3 years of milling. So the
mining equipment can come after 2 years of start-up. The mining equipment costs more.
It is also believed a phased expansion is possible. This means maybe a few hundred
million dollars of investment at start will be enough; later a billion dollar worth of
investment would be required. That will be easier to raise once a profitable operation has
commenced at Panguna. That is a big plus for speedy cash flows: tax revenue for ABG,
royalties and dividends for landowners and Bougainvilleans.
V Mine life
Panguna has a mine life left of more than twenty years based on known proven reserves,
on top of the 17 years in the period 1972-89. If the moratorium on exploration is lifted
over the 7 other leases held by BCL there is a high probability that another Panguna sized
deposit will be found with a further mine life of 37 years. That is twenty years proven
reserves plus 37 years likely reserves.
VI. Why should Bougainvilleans sell the copper and gold for developing their
economy and human resources?
In the book “Stocks for the Long-Term” Jeremy Siegel has compared the relative
performance of US stocks vs gold, inflation and bank deposits. The Wharton research he
headed revealed that a dollar invested 200 years ago was worth $7.2 million if invested in
U.S. stocks, about $11,500 if invested in bank deposits but merely $13 if invested in gold.
Given that copper price has risen only six fold in the last 100 years it is best that
Bougainvilleans sell this and use the proceeds for development of their most precious
resources viz their human resources; also tourism, cocoa and fisheries. Sell mining
resources to build human resources over the three next generations. America sold their
copper and gold in the nineteenth century so they could invest the profits from
underground deposits to what was above ground including its people.
1) Current price of copper at USD 1.58 per pound and gold at USD 942.60 per troy
2) A capital investment of USD 1,500 Million which will be made wholly via nonrecourse
loans or non-voting preference shares by BCL at an interest rate of 7.5%
per annum, with loan repayment in about 7 years of USD 273 Million per annum.
In Year 1 the interest cost would be USD150 Million. The loan of USD 1500
Million would be fully repaid in seven years from profits.
3) No new ordinary voting shares will be issued by BCL. (This will help in
maximizing the value of shares as well as Dividends received by the National
Government, ABG and Landowners).
4) To allow for carried forward tax losses to be used fully and to encourage BCL to
speedily invest a larger amount of capital (which will help Landowners to earn
more royalty and the ABG/National Government to earn more from dividends and
taxes) offer BCL a tax free status for first two years of full production viz 2010
2011. There shall be no dividend withholding tax.
5) A tax rate of 30% will apply from 2012. (It will take BCL at least 2 years to get
into production so this tax concession will be available for only 3 years during
which time they would anyway utilize their carried forward tax losses). This tax
will be split equally and paid directly by BCL to the ABG and the National
6) Current exchange rate of K1 equals US 37.85 c and Aus 56.67 cents.
7) Landowners will get royalty at 3.5% of sales per annum. This is higher than the
rate of 2% provided in the Mining Act. As a quid pro quo there shall be no
dividend withholding tax paid on shares of Bougainville Copper, which will
also be beneficial to landowners as shareholders of BOC. The dividend
withholding tax rate is currently 10%
8) No credits are assumed for Molybdenu