Withdraws from OK Tedi
BHP Billiton Limited
8 February 2002
BHP Billiton Limited is issuing this announcement to fulfil disclosure
obligations arising from its secondary listing on the London Stock Exchange.
The text of this release is identical to that issued by BHP Billiton Plc
earlier.
8th February 2002
Number: 06/02
BHP BILLITON WITHDRAWS FROM OK TEDI COPPER MINE AND ESTABLISHES DEVELOPMENT FUND
FOR BENEFIT OF PAPUA NEW GUINEA PEOPLE
BHP Billiton today completed its withdrawal from the Ok Tedi copper mine in
Papua New Guinea with the transfer of its 52 per cent equity stake to PNG
Sustainable Development Program Limited (Program Company), a development fund
that will operate for the benefit of the Papua New Guinean people.
The Program Company will operate independently and will utilise future dividend
payments arising from BHP Billiton's transferred shareholding in Ok Tedi Mining
Limited (OTML) to fund current and long-term sustainable development projects in
Papua New Guinea, particularly the Western Province.
BHP Billiton had sought a responsible withdrawal from the project after being
unable to secure the agreement of other OTML shareholders for early closure of
the mine's operations. Associated with its decision to withdraw, the Group has
not reported any production from the project since 30 June 2001 and previously
recorded a US $148 million charge to profit for the write-off of its share of
the net assets in the Ok Tedi project.
Following the transfer of BHP Billiton's shareholding, the equity participants
in OTML are: PNG Sustainable Development Program Limited (52%); the State of
Papua New Guinea (30%) and Inmet Mining Corporation (18%). OTML will continue to
operate the mine on behalf of the shareholders.
BHP Billiton CEO and Managing Director Paul Anderson said the Group's formal
exit ended a long and difficult involvement with the Ok Tedi project.
'Importantly, we have delivered upon our goal to manage our withdrawal in a way
that minimises future environmental impacts; maximises the social and economic
benefits for the people of PNG; and protects BHP Billiton shareholders from
liabilities arising from the operation of the mine subsequent to our exit.
'The Program Company will utilise significant projected future dividends to fund
sustainable development programs throughout the remaining 10-year economic life
of the mine and for up to 40 years following the mine's closure. These
sustainable development programs and projects will provide a foundation for
skills and capabilities development and infrastructure support that will benefit
the people of PNG for generations into the future,' Mr Anderson said.
The benefits flowing to the people of PNG from the Program Company are separate
from, and in addition to, the compensation arrangements negotiated directly with
affected Western Province village communities by OTML.
OTML funds the compensation arrangements from earnings prior to dividend
distributions to its shareholders and, following the BHP Billiton shareholding
transfer, the Program Company will effectively continue to contribute to
compensation arrangements in proportion to its OTML equity holding.
Mr Anderson said: 'Recognising the mine will continue to operate, we have put in
place a number of measures as part of our withdrawal to minimise future
environmental impacts.' The agreement provides for permanent dredging of
sediments from the Lower Ok Tedi (at a current cost of US$35 million per year),
or implementation of an approved superior alternative mitigation measure, for
the life of the mine.
Additionally, the withdrawal agreement requires cash provisioning by OTML for
mine closure and provides a scheme for retention of a responsible and skilled
mine management team including the transfer of existing BHP Billiton Ok Tedi
staff to OTML.
BHP Billiton will also provide financial support to the Program Company in the
form of an interest-free funding facility for a period of three-years to enable
the Program Company to fulfil its shareholder obligations from the outset, if
required. As any allocations from the funding facility are fully repayable,
these arrangements do not require provisioning in BHP Billiton's accounts (refer
Appendix A).
In the event of a drought during the next three years, BHP Billiton will also
purchase copper concentrate delivered to the Kiunga Port to an agreed level, if
requested by OTML.
The financial support provided by BHP Billiton will ensure the Program Company
has immediate access to finance for environmental remediation or other capital
requirements, in accordance with its shareholder obligations, prior to the
accumulation of sufficient funds in the Program Company from future dividend
flows.
Following the equity transfer, BHP Billiton will no longer benefit financially
from the Ok Tedi mine operations and, as a result, the Group negotiated the
agreement for its withdrawal to provide protection from any future liabilities
including legal claims. The legal arrangements encompass a series of legal
releases, indemnities and warranties that safeguard BHP Billiton's interests
following its formal exit from the project. (Refer appendix A)
Mr Anderson said: 'We sought to close the mine early because of its
environmental impact however any significant operational change requires the
approval of all shareholders including the PNG Government. At the same time, we
also made it clear we were not prepared to simply continue operating the mine to
the end of its 10-year economic life.'
Through an extensive consultation process it became clear that the optimum
outcome from BHP Billiton's perspective was not the same as the outcomes sought
by other OTML shareholders.
Mr Anderson said: 'Early closure of the mine was unacceptable to the PNG
Government and affected landowner communities because of the significant social
and economic benefits derived from the mine's operations by the people of PNG.
We recognise and respect the importance of those benefits and the wishes of the
PNG people.'
The PNG National Government commenced a consultation program two years ago with
affected communities to determine if the mine should continue to operate after
scientific studies commissioned by OTML revealed that mine environmental impacts
would be greater than previously expected.
The Government-sponsored process, Community Mine Continuation Agreements,
provides for the informed consent of affected village communities and
negotiation of an integrated benefits package that reflects predicted future
environmental impacts. To date, more than 95 per cent of affected communities
have signed Community Mine Continuation Agreements.
The shareholders' agreement for BHP Billiton's withdrawal and the Community Mine
Continuation Agreements have been legislated by the PNG National Parliament
through the Ok Tedi Mine Ninth Supplemental Agreement Act.
Further information on Community Mine Continuation Agreements is available from
the OTML web-site at www.oktedi.com. Background information on BHP Billiton's
involvement in the Ok Tedi mine is available from our website at the following
address: http://basemetals.bhpbilliton.com/okTedi/index.asp
* * * *
Australia
Dr. Robert Porter, Investor Relations
Tel:+61 3 9609 3540
Mobile: +61 419 587 456
Email: Robert.Porter@bhpbilliton.com
Mandy Frostick, Media Relations
Tel:+61 3 9609 4157
Mobile: +61 419 546 245
Email: Mandy.J.Frostick@bhpbilliton.com
United States
Francis McAllister, Investor Relations
Tel: +1 713 961 8625
Mobile: +1 713 480 3699
Email: Francis.R.McAllister@bhpbilliton.com
United Kingdom/ South Africa
Ariane Gentil, Manager Communications
Tel:+44 20 7747 3977
Mobile: +44 7881 518 715
Email: Ariane.Gentil@bhpbilliton.com
Michael Campbell, Investor & Media Relations
Tel:+27 11 376 3360
Mobile: +27 82 458 2587
Email: Michael.J.Campbell@bhpbilliton.com
Appendix A
Governance and Operation of PNG Sustainable Development Program Company
The Program Company will be managed independently of BHP Billiton and OTML. A
total of seven directors will be appointed: three by BHP Billiton in
consultation with the Group's Forum on Corporate Responsibility; three by
community support agencies designated by the PNG Government and an additional
director based in Singapore.
One-third of future dividend flows arising from the equity transfer to the
Program Company are to be allocated to current sustainable development projects
through until mine closure. The remaining two-thirds of funds are to be set
aside in the Program Company's long term fund for expenditure on programs and
projects for up to 40 years following the end of mine life. Funding allocations
from the long term fund are limited to interest earned and 2.5 per cent of
capital in any 12 month period.
Funding allocations must be approved by a majority of the Directors appointed by
the PNG Agencies and BHP Billiton. The Program Company will operate through an
Executive Officer, Program Manager and Advisory Council and with clearly defined
operating rules including criteria for selecting programs and projects,
consultation and public reporting.
In accordance with its OTML shareholder responsibilities, the Program Company's
funding may be drawn upon for OTML capital calls (to the extent that the Program
Company Directors decide to participate), contractual obligations including
indemnities, and operating expenses.
BHP Billiton Interim Financial Support to PNG Sustainable Development Program
Company
BHP Billiton will provide financial support in the form of a fully repayable,
interest-free funding facility for a period of three-years until the Program
Company has built up its own funds.
The funding facility commitment is a maximum of $US100 million - Year 1; $US85
million - Year 2; $US 70 million - Year 3. The amounts are not cumulative and
advances drawn in any year reduce the amount available in the following years.
For example, if US$20 million is drawn down in Year 1; the funding facility
available in subsequent years is $US65 million in Year 2 or $US50 million in
Year 3.
The Program Company can only access funding advances to: participate in any OTML
capital calls in accordance with its shareholder responsibilities; pay an
indemnity claim; or pay operating expenses to the extent that any dividend
distributions received by the Program Company are inadequate to cover such
expenses.
The Program Company is obligated to repay all such advances until the amount
outstanding is reduced to zero. Indemnity funding advances are repayable
immediately without conditions; capital call advances are repayable when the
Program Company's long term fund reaches a balance of $US50 million and all
indemnity advances have been repaid.
In addition, in the event of a drought during the next three years BHP Billiton
has agreed to purchase copper concentrate delivered to the Kiunga Port to an
agreed level, if requested by OTML.
The financial support arrangements do not require provisioning and are separate
from the loss incurred by BHP Billiton in writing off its share of Ok Tedi's net
assets. The agreements provide additional financial protection for OTML
shareholders including the Program Company.
Legal Arrangements
The Shareholders' Agreement governing BHP Billiton's withdrawal provides for a
series of legal releases, indemnities and warranties that protect the Group from
legal liability for the period following its formal withdrawal from the Ok Tedi
project.
Principally these include:
• BHP Billiton released both by OTML's shareholders and OTML from its
obligations under the mine Management Agreement;
• BHP Billiton released from any legal action relating to regulatory
compliance by the PNG Government;
• BHP Billiton to warrant OTML's other shareholders and OTML that it has
disclosed all material facts and that it has provided shareholders with
copies of all reports on the environmental effects of the Ok Tedi mine
during the past five years;
• As part of the future compensation arrangements paid by OTML to the local
communities in the six areas affected by the mine release, OTML shareholders
past and future to be released from all demands and claims associate with
future environmental impacts;
• Program Company to indemnify BHP Billiton and the PNG Government against
any claims for damages relating to loss from pollution or damage to the
environment arising from the operation of the Ok Tedi mine (in the case of
BHP Billiton) following the exit date and (in the case of the Government)
prior to the exit date.
BHP Billiton investment write-offs
The shareholders in OTML invested a total of US$1.9 billion in the project,
about double initial expectations.
In 1985, BHP Billiton wrote-off its entire investment in the Ok Tedi project to
that date (A $97 million after tax). In June 2001, BHP Billiton recorded a
further A $286 million (after tax) charge to profit for the write-off of its
share of the net assets in the project.
BHP Billiton Limited ABN 49 004 028 077
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