Ok Tedi Mining Ltd. Operations

Ok Tedi Mining Ltd (OTML) is the single largest business contributor to the economy of both the Western Province and Papua New guinea. In 2004, OTML's export sales were US$673.7 million (K2.1 billion), which represented 25.7 percent of PNG's export earnings.

Today, the PNG Sustainable Development Program Limited owns 52 percent of OTML, the National and Provincial governments and the landowners own 30 percent, and Inmet of Canada 18 percent.

A major responsibility of PNG Sustainable Development Program Ltd therefore is to ensure and support the continuing sound, responsible and profitable operation of the Ok Tedi Copper and Gold mine in the Western Province of Papua New Guinea. This support includes providing indemnity cover for OTML's independent directors and subsidising OTML's Loan Facility. Support also includes the exercise of joint control of the business, including through appointment of a Director to the OTML Board. Both OTML and the Company maintain close consultations at the Board and Development management levels.

OTML continued its improved performance during 2004, including a review of its mine plan. This has resulted in extension of the mine life a further two years to 2012.

Buoyed by favourable market conditions, OTML turned in a strong financial result for 2004, despite some operational difficulties related to the dry spell and technical failure in its milling process. OTML decalred a profit after tax of US$134.7 million (K506.1 million), resulting in gross dividend paid of US$123.4 million (K395.1 million) for the year ended 31 December 2004. PNGSDP received US$67.2 million (K216.8 million) as its share of gross dividend.

PNGSDP paid US$391,575 (approximately K1.3 million) to OTML as a non-refundable subsidy towards the costs of borrowing (interest, and commitment fees and charges) relating to the credit facility of US$75 million provided by WestLB.

In addition to dividends paid to the three shareholders, a total of US$85 million (K279.9 million) was paid to the PNG and Western Province governments in taxes, mining levies and royalties. That means that a total cost of US$191 million (K616 million) generated by OTML went to the benefit of the people of Papua New Guinea. In addition, almost 2000 people were employed directly by OTML, with around 1500 contractor employees. OTML spent a further US$51 million (K164 million) in Papua New Guinea on other goods and services.

OTML's relationship with mine landowner communities strengthened in 2004. The Special Mine Lease Landowners renewed theor commitment to the project, signing a Memorandum of Agreement (MOA) with the Western Province and PNG governments to continue supporting mine operations. Mine landowner communities also benefitied from an increase in their share of mine royalties from 30 to 50 percent, and continued preferential treatment from OTML business activities and training.

In 2004, OTML paid about US$8.8 million (K28.5 million) into the Ok Tedi Financial Assurance Fund. The Fund, which has an independent Tustee, is to be applied in assisting both OTML and the State to comply with their respective obligations in settlement of mine rehabilitation and restoration after closure of mining operations.

OTML continued to give significant attention to environmental investigations, monitoring and reporting including submission to the State of its Annual Environment Report, recent investigations focused on the Fly River system to develop a better understanding of the sedimentation and geochemical processes occuring in the levee bank and floodpain environments; bi-annual surveys at Umuda at the mouth of the Fly River and Port Moresby Harbour to determine any potential effects of trans-shipping activities on the marine environment, predominantly with regard to spillage of copper concentrate whilst transferring product between vessels; and a Community Health Study, to examin the potential for human health impacts from the OTML operation.

PNG Sustainable Development Program Ltd continues to benefit from the experience and support of OTML in seeking out and delivering support to Western Province communities. The Lake Murray Village Rubber Project , Western Province and PNG Microfinance Project, Parama Village Barramundi Farming, as well as South Fly Capacity Building projects supported in 2004 by the Company are examples of projects founded on prior or current OTML community relations programs. Both OTML and the Company continue to consult and find ways of working together, including with the Western Provincial Government and other Western province based development partners.