SYDNEY, October 6 (Reuters) - Plans to reopen one of the world's biggest copper mines, shut by a civil war on the Pacific Island of Bougainville in 1989, have run into trouble.
The quarter of a million people of Bougainville are tentatively scheduled to vote on independence from Papua New Guinea in June 2019, and revenue from the reopening of the Panguna mine is essential for the otherwise impoverished island to have any chance of flourishing if it becomes the world's newest nation.
But there is now a struggle over who will run the mine between Bougainville Copper Ltd - the previous operator now backed by the Autonomous Bougainville Government and the Papua New Guinea government - and a consortium of Australian investors supported by the head of the landowners who own the mineral rights.
The dispute is opening old wounds – and is almost certainly going to delay any reopening. That could help to drive copper prices higher as many forecasters expect that demand for the base metal will exceed supply in the next few years.
The battle lines have been hardening on several fronts, Reuters has learned.
Papua New Guinea has told airlines that Sydney businessman Ian de Renzie Duncan, who set up the consortium, is banned from entering the country until 2024, according to a Papua New Guinea government document reviewed by Reuters.
The request for the ban was made by the Bougainville government, three sources with knowledge of the document said.
The consortium has also acknowledged for the first time that it is paying some landowners a monthly stipend and has pulled in some big backers that have not previously been disclosed.
They include Richard Hains, part of a billionaire Australian race-horse owning family which runs hedge fund Portland House Group.
In a sign of how ugly the row is getting on the ground, local opponents of BCL becoming the operator – and some who are opposed to the mine reopening altogether – blocked Bougainville government officials from entering Panguna in June.
They had hoped to get key landowners to sign a memorandum of agreement that would have endorsed BCL as preferred developer, according to a copy of the document reviewed by Reuters. The proposed agreement also stipulated the mine would be re-opened by June 2019, ahead of BCL's own timeframe of 2025-26.
The Papua New Guinea government didn't respond to requests for comment for this story.
Bougainville's main political leaders say getting the mine reopened is critical. "If the independence of the people is to be sustained then we need Panguna to run," Bougainville Vice President and Mining Minister Raymond Masono told Reuters in a phone interview.
He said he believes BCL has first right of refusal to operate the mine under laws passed three years ago, and only if BCL declined to take up that right should an open tender take place.
For a graphic on Panguna mine on Bougainville island, click tmsnrt.rs/2yYCkTt
The abandoned copper and gold mine contains one of the world's largest copper deposits. During its 17-year life until the closure in 1989, Panguna was credited for generating almost one-half of Papua New Guinea's gross domestic product.
The civil war was largely about how the profits from the mine should be shared, and about the environmental damage it had caused.
There was deep resentment among the indigenous Bougainville people about the amount of the wealth that was going to Papua New Guinea and to the mine's then operator, Conzinc Riotinto of Australia Ltd, a forerunner of Rio Tinto.
The mine was forced to shut after a campaign of sabotage by the rebel Bougainville Revolutionary Army.
The conflict between Bougainville's rebel guerrilla army and Papua New Guinea forces left as many as 20,000 dead over the following decade, making it the biggest in the region known as Oceania since the Second World War.
Rio Tinto divested its stake in BCL in 2016, and the listed company is now just over one-third owned by the Bougainville government and one-third owned by Papua New Guinea.
Papua New Guinea Prime Minister Peter O'Neill said last year his government would gift the shares received from Rio, or 17.4 percent, to the people of Bougainville, although that is yet to take place.
The challenge from the Australian consortium that now includes listed gold and copper explorer RTG Mining was made public in June. Duncan and his fellow investors have joined forces with a group of Panguna landowners, the Special Mining Lease Osikaiyang Landowner Association (SMLOLA) led by Philip Miriori.
Miriori was in the Bougainville Revolutionary Army as the private secretary to the late Francis Ona, the former BCL mine surveyor who became leader of the resistance.
Ona had declared that BCL should "never again" be allowed to run the mine and Miriori, Ona's brother-in-law, still supports that stance.
"They have caused a lot of damage, they don't have the money and they are not telling the truth and so I wouldn't accept them," Miriori said in a telephone interview from the Bougainville town of Arawa.
The consortium’s challenge is based on new mining laws introduced in 2014 that downgraded BCL's mining rights to an exploration license and gave landowners powerful rights over the minerals on their land to acknowledge the losses suffered by those in Panguna during the conflict.
Miriori told Reuters that the government did not have authority over mine negotiations.
PAYOUTS TO LANDOWNERS
Duncan, a former barrister with a background in mining law, heads an entity called Central Exploration that has a half share of the consortium.
Duncan’s consortium has been paying money, described as a stipend, to some of the landowners, but denies this amounts to bribery.
"We are really talking about people receiving a couple of thousand kina ($608) a month," said Duncan, who added that the money helps the landowners to travel and find accommodation in towns where Panguna negotiations take place. "It's not bribery, it's business," he said.
BCL claims to have the support of eight other landowner groups in Bougainville with an interest in the project. They have land rights covering access roads and the port site, among other areas, though crucially not the mine site itself.
BCL chairman Robert Burns, who formerly worked for Rio Tinto, said Bougainvilleans were the ones being impacted by Duncan's attempt to gain control of the mine. "Everyone is being frustrated and impeded by this issue," Burns told Reuters in a phone interview from the PNG capital, Port Morseby.
The uncertainty is going to make it difficult for either group to raise the capital that will be needed to get the mine restarted.
In 2012, BCL estimated the cost of re-opening at $5 billion. With few of its own assets, the company would need to secure the mining rights before tapping capital markets.
The Australian consortium may be in a stronger position, according to Hains, who is a 15 percent owner of RTG. He said the consortium has strong access to the North American capital markets and could re-develop Panguna in a "highly timely fashion".
As it stands, BCL has no mine without the support of the owners of the minerals, and Duncan's group has no project without road and port rights as well as government support.
Anthony Regan, a constitutional lawyer at the Australian National University and an adviser to the Bougainville government, said the immediate outlook for the mine is bleak. "The need of Bougainville to have a significant source of revenue if it's to be really autonomous or independent has become hopelessly enmeshed with the future of Panguna."
(Reporting by Jonathan Barrett in SYDNEY; Editing by Martin Howell)