A New Dawn Securing Our Future

A NEW DAWN SECURING OUR FUTURE

OK TEDI MINING LIMITED ANNUAL REVIEW 2013 REGIONAL MAP

LEGEND CMCA TRUST AREAS Mine Area Nupmo Tutuwe Wai-Tri and Alice River Middle Fry Suki Fly Gogo Dudi - South Bank Manawete - North Bank Kiwaba LLG BOUNDARY AND LAND FEATURES LLG Boundary River Proposed Road Provincial Road Main Highway (Tabubil to Mill) Major OTML Environmental Monitoring Stations Mine Project Site Sub-District

TABUBIL

KIUNGA PORT MORESBY OK TEDI MINING LIMITED ANNUAL REVIEW 2013

Highlights 2 Company Profile 4 Vision and Mission 6 Managing Director/Chief Executive Officer’s Report 8 Chairman’s Report 12 Governance 16 Performance for 2013 and Targets for 2014 22 Business 26 Materiality 28 Mine Continuation Studies 30 Geology 32 Future Improvement Projects 42 People 44 Occupational Health, Safety and Wellness 50 Environment 56 Social Responsibility 68 Finance 86 Financial Statements 90 Audited Financial Statements 94 Global Reporting Initiative 125 Abbreviations 130 Contact 132

TO LEARN MORE ABOUT OTML AND THIS ANNUAL REVIEW, GO TO: WWW.OKTEDI.COM OR CONTACT: [email protected]

SECURING OUR FUTURE 1 HIGHLIGHTS 2013 CO UR MMU MPANY O N CO IT R Y U O 394,622 TONNES COPPER CONCENTRATE SHIPPED.

24% INCREASE PGK 2,670 M in material mined from 50.6Mt (USD 1,176m) gross revenue. in 2012 to 62.8Mt in 2013.

47% DECREASE PGK 181 M in the Total Recordable Injury (USD 17m) after tax profit. Frequency Rate compared to 2012. No dividend declared in 2013.

68% INCREASE in expenditure on training to PGK 23.3 million (USD 10.3 million) compared to 2012.

OK TEDI MINING LIMITED BECAME A STATE OWNED SINCE THE START ENTERPRISE. OF OPERATIONS IN 1981 OTML HAS PRODUCED MILLION 4.4 TONNES COPPER MILLION 13.6 OUNCES GOLD MILLION 28.3 OUNCES SILVER

2 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 CO UR MMU MPANY O N CO IT R Y U (USD 13.1 million) provided for O community development through the PGK 29.8 M Ok Tedi Development Foundation.

MEN, WOMEN >10,000 AND CHILDREN against infection in clinics provided IMMUNISED by OTML and health partners.

(USD 664 million) total contribution to local PGK 1,540 M community and PNG economy. PA PU A N E W of the workforce are % Papua New Guinean citizens. 95 G

of contracts for goods and services U used were issued to PNG businesses % representing PGK 735 MILLION I

84 N

(USD 324 million) total value.

E (USD 364 million) cumulative net A royalties paid since 1982. PGK 890 M (PGK 49 million (USD 22 million).

of PNG’s GDP is attributable 7% to OTML’s contribution.

SECURING OUR FUTURE 3 COMPANY PROFILE

OK TEDI MINING LIMITED The Company’s senior management team (OTML OR THE COMPANY) is located at Tabubil. This team provides IS A PRIVATELY HELD day-to-day management of the Mt Fubilan mining, processing and associated COMPANY THAT OPERATES infrastructure and support operations. AN OPEN-PIT COPPER, GOLD In September 2013, The State of Papua AND SILVER MINE LOCATED New Guinea (the State) increased its direct IN THE STAR MOUNTAINS ownership in the Company to 87.8% and all OF THE WESTERN PROVINCE, of the financial benefits from the mine are PAPUA NEW GUINEA (PNG). directed (as dividend streams) to Western THE COMPANY HOLDS Province, Community Mine Continuation A LARGE PORTFOLIO OF Agreement (CMCA) communities, Mine Area EXPLORATION LEASES IN THE Villages, the Fly River Provincial Government (FRPG) and the State. VICINITY OF ITS MT FUBILAN MINING OPERATIONS AND Mineral exploitation has environmental and social impacts. As OTML has been IS ACTIVELY UNDERTAKING operating in the region for 32 years it is NEAR MINE EXPLORATION. acknowledged that its operations have THE COMPANY’S REGISTERED contributed to sediment aggradation in the OFFICE IS LOCATED Ok Tedi and Fly River systems. This impact IN TABUBIL, WESTERN has been well documented and is part of PROVINCE, PNG. IT ALSO ongoing monitoring, research and reporting programmes mandated in OTML’s Licence HAS A REPRESENTATIVE to Operate. In fact, the Mine’s continued OFFICE IN PORT MORESBY, operation is dependent upon consent by This 2013 Annual Review presents the PNG AND A MARKETING the CMCA communities and the State. In integrated financial and non-financial AND LOGISTICS FACILITY IN summary, OTML’s success is measured results of the OTML mining operation at BRISBANE, AUSTRALIA. on its economic performance, human Mt Fubilan. This report, the Company’s first resources development, social development in adopting the Global Reporting Initiative programmes, zero harm safety performance, (GRI) G4 reporting guidelines for disclosure and the management and mitigation of its of non-financial material information, follows, environmental impacts. the Mining and Metals Sector Supplement and specific standard disclosures based on the material aspects of the Company. Although the non-financial GRI reporting has not been externally verified, the financial statements were prepared in accordance with the Papua New Guinea Companies Act of 1997 and comply with International Financial Reporting Standards (IFRS) and other generally accepted accounting practises in PNG. The Company’s financial statements were externally verified by PricewaterhouseCoopers PNG, whose verification statements are included in this Annual Review.

4 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 AMENDMENTS FROM 2012 ANNUAL REVIEW In the 2012 Annual Review, some data presented in the table: “OTML’s CONTRIBUTIONS TO LOCAL COMMUNITIES AND THE PNG ECONOMY IN 2012” (page 59) were incorrect. The revised numbers are below:

• Total contribution in 2009 PGK 2,800.3 million (USD 1,022.4 million);

• Total contribution in 2010 PGK 3,800.1 million (USD 1,390.2 million);

• Goods purchased in PNG in 2011 PGK 286.8 million (USD 121.1 million);

• Total contribution in 2011 PGK 3,078.9 million Mr Teatutai Sione, Senior Geologist field mapping mineralisation in the Mt Fubilan pit. (USD 1,324.4 million);

• Goods purchased in PNG REPORT PARAMETERS This Annual Review is for the 2013 in 2012 PGK 313.3 million calendar year. Where available, comparable This Annual Review relates to the material (USD 150.9 million); and five-year data, covering the periods 2009 to activities of the Ok Tedi Mining operations • Total contribution in 2012 2013 is included. The Annual Review also comprising the mining and processing PGK 2,251.2 million includes commentary and forward looking of ore from the Mt Fubilan deposit, the (USD 1,086.5 million). information for 2014. transportation of slurry concentrate to Kiunga and shipment to the silo/transfer vessel in OTML remits an Annual Environmental Port Moresby. Included within the boundaries Report (AER) to the PNG Department of of this report are the transportation of Environment and Conservation (DEC) and the sulphide concentrate slurry from the Mineral Resources Authority (MRA). The AER processing plant to Bige for placement presents the results of compliance monitoring in engineered containment cells and the and research from the period 1 July 2012 to dredging of sands and sediment at Bige 30 June 2013. To maintain consistency with from the Ok Tedi River. These materials are data presented to the State in the AER and in contained in engineered landforms that are this Annual Review, environmental monitoring currently in the process of being rehabilitated. data reported covers the one-year period This report does not cover the concentrate ending 30 June 2013. after transfer from the Company’s silo vessel OTML’s performance data is presented in the onto export vessels, nor does it cover the metric system. Unless otherwise stated, all activities of the Company’s representative monetary amounts are in PGK (Papua New office in Port Moresby or its marketing and Guinea Kina) and USD (United States Dollar). logistics facility in Brisbane.

SECURING OUR FUTURE 5 VISION AND MISSION

THE COMPANY’S VISION IS In 2012, the Company submitted to the The new Mission is: TO OPERATE THE BUSINESS State an application to continue operations “WE MINE GOLD, SILVER, AND until 2025 rather than closing in 2015. After IN A SAFE AND SUSTAINABLE COPPER FROM PNG RESERVES”. 2016 production is planned to reduce from MANNER WHILST 23Mtpa to 15Mtpa in order to achieve The five major strategic goals to deliver MAXIMISING THE BENEFITS an acceptable environmental outcome. against the Vision are: TO THE STAKEHOLDERS Associated with this lower processing AND SHAREHOLDERS. production, mining and removal of waste ZERO HARM; DURING 2013, OTML WENT rock will be increased, averaging 50Mtpa, ZERO WASTE; THROUGH SIGNIFICANT which will increase costs. In order to maintain profitability under these conditions, ONE BUSINESS; CHANGE TO PREPARE FOR base costs need to decrease by 30%. FUTURE OPERATIONS, WITH FOCUS ON CORE OPERATIONAL In 2013, work commenced on reducing ACTIVITIES; AND RESTRUCTURING OF ITS these costs, through restructuring, BE A PNG MODEL MINING AND WORKFORCE AND CHANGE reviewing of all contracts and contractors EXPLORATION COMPANY (MIMEX). IN COMPANY OWNERSHIP TO and adopting the productivity initiatives THE STATE AS THE MAJOR recommended in the mine continuation Against each strategic goal, the business has SHAREHOLDER. BY APPLYING studies. Looking to the future, OTML will be mapped the people and business processes THE COMPANY CORE a leaner business. The Company will need that must be implemented to achieve each VALUES AND PRINCIPLES, to adopt modern technology and systems goal. This important planning will enable through a replacement programme to the Company to focus on core business, OTML WORKED THROUGH improve productivity. productivity, and costs. THESE CHALLENGES AND Planning for the future has included the To support the business processes, OTML POSITIONED THE COMPANY management team redefining what the new will invest in new integrated enterprise FOR THE FUTURE. business should strive to be through a series business software from SAP. Current software of workshops. Output from the workshops applications are at the end of their useable has defined a new Vision and Mission for life, with limited external support and OTML and also five strategic goals to meet generally operating independently. SAP will the Vision and Mission objectives. provide a seamless integrated solution that will cover all of the major business processes The new OTML Vision is: that OTML will require into the future. The “WE ARE A SUSTAINABLE, EFFICIENT, philosophy is to change OTML business AND WELL REGARDED OPERATING processes to fit the SAP proven operating COMPANY THAT DELIVERS VALUE environment, ensuring a fast transition to the TO ALL OUR STAKEHOLDERS”. new system. First phase implementation is due for completion by Q1-2015.

6 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 MISSION WE MINE AND EXTRACT GOLD, SILVER AND COPPER FROM PNG RESERVES

ZERO HARM Embedded in everything we do and how we think

Efficient and transparent operations, accuracy in meeting specifications, conformance ZERO WASTE No ‘work-arounds’, own the outcome, ‘engineering to purpose’

Integrated thinking, planning, communication and management end-to-end, ONE BUSINESS Keep it Simple, no silos, ‘do your own job’ Sustainable use of SAP and key systems

FOCUS ON CORE OPERATIONAL Outsource non-core but report and have governance on selected business critical data, seed future service providers ACTIVITIES Best Practice Reporting

PNG MODEL MINING AND Mining and exploration in a box, take systems to new businesses, business flexibility, EXPLORATION COMPANY operator of choice

WE ARE A SUSTAINABLE, EFFICIENT AND WELL REGARDED OPERATING VISION COMPANY THAT DELIVERS VALUE TO ALL OUR STAKEHOLDERS

SECURING OUR FUTURE 7 MANAGING DIRECTOR/ CHIEF EXECUTIVE OFFICER’S REPORT

OTML’S PURPOSE IS TO In this Annual Review transparent and In 2013 the Company achieved a Total FULLY EXPLORE THE thorough information about the safety, Recordable Injury Frequency Rate (TRIFR) MINERAL RESOURCE economic, environmental and social of 1.49, which is a 47% improvement performance of the Company is presented. on the 2012 performance. This result POTENTIAL OF MT FUBILAN It has been a challenging year, with confronting is commendable given the variety and AND NEARBY EXPLORATION operational issues, shareholder re-alignment complexity of the associated risks in 2013. TARGETS; TO MANAGE ITS and world market dynamics that have OTML maintains its position as a premier BUSINESS, COMMUNITY negatively impacted financial performance. safety leader, not only in PNG, but also within the global mining industry. AND ENVIRONMENTAL The health, safety and wellness of the RESPONSIBILITIES AND TO workforce, their families, CMCA communities 2013 was a year of operational challenges BE THE BEST EMPLOYER IN and the general community at large, have through a combination of environmental and PNG BY ENHANCING THE remained core to the business. Strong aging plant and equipment factors. In May, SKILLS AND DEVELOPMENT health, safety and wellness policies and a failure of the SAG Mill No. 2 shell occurred procedures implemented across the after 30 years of continuous operation. OF ITS EMPLOYEE’S operations with daily safety talks and on- During the months of June and July the CAREERS WHILST going training programmes, have contributed mine pit was flooded following a series PROVIDING HIGH QUALITY to improved outcomes toward the Company’s of extreme rain events. The in-pit primary WORKING CONDITIONS, commitment to achieve Zero Harm. crusher failed and required a major rebuild during November and power services were FACILITIES AND SERVICES This commitment is communicated to also impacted by the failure of aging power TO ITS STAKEHOLDERS. all operational stakeholders, through the generating and distribution infrastructure. following documents: The Company’s logistical operations were • OTML’s Health & Safety Policy; also impacted by landslides, which blocked • the Leaders’ Vision Statement; and main arterial roads, caused bridge instability and produced variability in the navigable • the Employee and Contractors’ water levels of the Fly River. Vision Statement. Financial performance was impacted by These documents articulate the organisation’s volatility in world metals prices, instability in commitment to legislative compliance and the major international economies, production pursuit of continuous improvement in injury issues, and variability in exchange rates. prevention, a healthy work environment and Notwithstanding these issues, OTML employee wellness. remained profitable and generated positive operating cash flows. Specifically, sales revenue amounted to PGK 2,670 million (USD 1,176 million), and while no dividends were declared, total taxes paid to the PNG Government were in the order of PGK 261.5 million (USD 114.6 million).

8 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Copper concentrate sales were 394,622 tonnes (t), which was 14% lower than 2012. Metal contained in concentrates totalled 100,212t copper, 352,050 ounces (oz) of gold and 929,380oz of silver. Despite the challenges the Company reported a net profit after tax of PGK 180.7 million (USD 16.8 million), which was down 80% on the result reported in 2012. OTML’s cash operating costs in 2013 were PGK 1,526 million (USD 772 million) an increase of 4% or PGK 58 million (USD 25.4) over 2012. A major contributor to increased cost included the impact of a strong Australian Dollar to the PNG Kina for most of the year. When normalised to take such external factors into account costs decreased by PGK 15 million (USD 7 million).

World market dynamics have not only impacted OTML but also global mining operations in general. Although the year ending 2013 did not present the same level of impact experienced in 2012, it reinforced the need for sustainable cost reduction initiatives. A significant challenge to emerge was that costs remained high despite fluctuating metal prices that seemingly had no traditional empirical basis. As could be expected, this led to further uncertainty around commodity pricing driving fear, increasing perceived risk and making forecasting and planning difficult. Given the situation, OTML focussed on cash management and sustainable cost reduction initiatives which were also driven by the move to continue mining to 2025 with a reduced copper concentrate output.

SECURING OUR FUTURE 9 MANAGING DIRECTOR/CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED

The Company’s balance sheet with no debt One of OTML’s major continuing concerns is or leasing liabilities was well positioned to the environmental effects of our operations. weather the downturn in the mining sector. The waste and tailings deposition into the However, as a mature business there were riverine system has had a major impact still opportunities to re-dress cost structures. on the Ok Tedi and Fly River systems and Two years ago, the decision was made to associated eco-systems, which in turn has purchase and run an OTML shipping fleet impacted the livelihood of the communities and mining equipment that have and will who live along the river corridor. The generate operational cost improvements that Company continues to employ a team of will be fully realised in 2014 and beyond. scientists to monitor and manage the effects of our mining activity, past and present, over In 2013, major cost initiatives revolved the total mining footprint. During the year, around optimising “Project Ok Tedi – 2025” management approved a detailed review to ensure the Company’s cost structures of the possibility of constructing a tailings adapted to lower projected metal output storage facility and the OTML Board has to both preserve operating margins and agreed that a formal study be undertaken to provide resilience to further fluctuations assess the technical feasibility of the options in metal prices. These initiatives included identified in the review. In addition, work in a restructuring of the workforce and relation to controlling waste rock discharges engagement with contractor partners and to the river system has been advanced as CMCA communities. part of the mine continuation activities. The global mining industry is very competitive During 2013 saw the Company transition into and in previous years there has been a skills a fully owned State Owned Enterprise (SOE) shortage due to growth in existing mines with the departure of the PNG Sustainable and the development of new ventures. Development Program Limited (PNGSDP) a Whilst 2013 saw a change to this situation 63.4% shareholder from the share register the business continued to lose some key via a government legislative process. The professional and trades employees to other resulting shareholder structure is now such mining companies with operations in PNG, that the Company is a 100% SOE, with the Australia, Asia and Africa. The training of the State directly holding 87.8% and the people workforce driven by the Company’s social of the Western Province holding a beneficial responsibility and the necessity to attract 12.2% interest. The wealth generated by and retain a competent, highly skilled work the Company therefore benefits the people force remains a priority. Training programmes of PNG, especially those from the Western are an ongoing strategic initiative to develop Province. The State has also commenced the technical skills among all employees to discussions with the CMCA communities ensure that they are qualified to international for an equitable redistribution of the 100% standards. In 2013, the business invested shareholding targeted to be effected by PGK 23.3 million (USD 10.3 million) towards 30 June 2014. employee training programmes.

10 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 The principal emerging enabler for mobilising Moving forward, faced with community funds is the OTDF, where the volatility of metal prices, OTML currently retains 75% of the equity international economic instability, and the PNGSDP, the remaining 25%. The and the challenge of operating OTDF was established in 2001 as part of an ageing plant there will be the BHP Billiton Limited (BHP Billiton) exit, an ongoing need to focus to manage the trust funds set-up for the on maximising productivity, 156 CMCA villages under the CMCA. The minimising costs, realigning our OTDF mobilised PGK680 million (USD 308 procurement strategy and strict The Company recognises its social million) of community trust funds for projects management of contracts against responsibility as a core requirement to during 2013. Of particular importance was terms and deliverables, to ensure success in contemporary mining practice. the securing of a passenger vessel for the that OTML can continue to deliver It has also recognised that a marker of Fly River, a cargo and a research vessel benefits for the North Fly region, success is how the benefits generated from and two Twin Otter aeroplanes that came the Western Province, and PNG. into operation in 2013. OTDF’s enabling mining activities are used for the benefit of 2014 will test and challenge legislation requires OTML to relinquish its the mine associated communities and the OTML’s management, employees, OTDF shares before or at mine closure to rest of the Western Province, both directly business partners and our four reputable development organisations. by the Company through the Ok Tedi communities through the transition Development Foundation Limited (OTDF) The role of women in the partnership to a smaller operation. However and the backflow of benefits from the State between the Company and the CMCA with the available resources and through the transparent use of taxation and communities has been a unique and a stable, creative and well trained other revenues. pioneering experience, particularly in workforce, we stand ready to In regards to the State benefits, the Company negotiating benefit streams for their deliver on our commitments. recognises its importance to PNG and has communities. This draws lessons for actively engaged with the State for many development policy making, planning and years in delivering projects worth up to programme implementation that have PGK 287.7 million (USD 126.6 million) to become an important component of the the Western Province and the Telefomin Company’s method of operation. These District in the Sandaun Province, through the lessons are relevant, both for PNG and government funded Tax Credit Scheme (TCS). for other countries attempting to make This contribution has largely gone unnoticed policy decisions about translating mineral NIGEL PARKER and recognising this, the Company is for the wealth into inclusive and sustainable Managing Director and first time, reporting on its TCS activities. development for local communities. Over Chief Executive Officer the past twelve years there have been OTML has continued to work with our world-leading developments in the inter- communities to effectively mobilise their relationships between OTML, the male compensation benefits in the form of cash dominated communities, and the women payments and funding for sustainable leaders from those communities. This inter- development projects. In 2013, the relationship was the subject of an intense communities received compensation World Bank study held during the 2006/2007 payments of PGK 72.8 million (USD 32.0 CMCA review and the 2009/2012 mine million) directly from OTML, with a further continuation consultations providing a better PGK 54.8 million (USD 24.1 million) as CMCA understanding of the need to engage women trust fund payments. Project delivery to when negotiating benefits and what they remote parts of the Western Province remains consider important for themselves and their an ongoing logistical challenge, however children. The World Bank report’s during 2013, many Trust and TCS projects overall conclusion stated that significant were completed including the PGK 36 million strides have been made in securing (USD 16 million) Balimo Hospital project. women’s access to voice, representation and rights of participation.

SECURING OUR FUTURE 11 CHAIRMAN’S REPORT

THE COMPANY WAS Despite the huge challenges presented by 2013 has presented further significant FORMED 32 YEARS AGO BY its remoteness and environmental legacies, challenges; not only with the change in THREE FOREIGN MINING the Mine is well managed and has been a shareholding, the decrease in world metal very profitable operation since BHP Billiton’s prices and operational issues, but also in COMPANIES AS FOUNDATION exit. Profitability is the foundation for its the transition towards mine continuation SHAREHOLDERS, WITH THE significant contributions to the development as a smaller company. Most notable in the AIM TO BUILD A COPPER of the Western Province and PNG, as well as transition was the notional closure of the AND GOLD MINE, ALBEIT for management of the mine’s environmental Mine (as BHP Billiton left it), on 31 December IN ONE OF THE WORLD’S legacy. Ok Tedi’s unique history and 2013 and the resulting re-alignment of the MOST CHALLENGING AND ownership structure requires it to focus on its workforce. This included the termination of wider Corporate Social Responsibility (CSR), all employment contracts on that date and REMOTE LOCATIONS. IN its contributions to development and the the issue of new employment contracts with FEBRUARY 2014 IT WILL usual issues a large mining company has to revised terms and conditions to a reduced BE 12 YEARS SINCE THE manage in a broader society. workforce, commencing 1 January 2014. To those employees who left the Company, FORMER OPERATOR AND OTML became 100% PNG owned for the heartfelt thanks are extended to them for their MAJORITY SHAREHOLDER, benefit of PNG in 2011, from a share buyback contributions. To the continuing employees, BHP BILLITON, VESTED ITS of the then Canadian shareholder Inmet the challenges are extended to them to take SHARES IN THE MINE TO THE Mining Incorporated (18% equity holder). the Company to new levels of success. SPECIAL PURPOSE COMPANY, The buyback increased proportionately the PNGSDP. THE OVERRIDING ownership by PNGSDP, the State and the In 2011, the Company made a conscious beneficial interests of the Western Province. decision to commence reporting its annual CONDITION OF THAT VESTING activities in line with the principles of During September 2013 the PNG Government WAS THAT ALL DIVIDENDS Corporate Social Responsibility (CSR), with took the additional step of legislating FROM THE BHP BILLITON a plan to be auditable within the terms of to directly assume the shareholding of the International Finance Corporation (IFC) VESTED EQUITY WERE TO PNGSDP. Full equity of OTML as a SOE guidelines for the 2014 year of review. BE APPLIED TO THE BENEFIT now allows OTML to concentrate its efforts OF PNG. THE MAJORITY OF unambiguously on increasing its contribution The Company elected to join the Extractive THE DIVIDENDS WERE TO BE to the development of the Country and Industries Transparency Initiative (EITI) as a PLACED INTO A LONG-TERM particularly the Western Province. The new supporting company in 2012, however, with FUND TO BE ACCESSED Company focus is to adopt a long-term the Company now being a SOE, the OTML development strategy to keep the mine Board of Directors (the Board) has decided it FOLLOWING MINE CLOSURE operating for as long as possible to ensure is inappropriate to be an independent mining TO SUPPORT THE CMCA the communities of the Western Province company member and the Company has not COMMUNITIES, THE REST have a sustainable future. renewed its Company membership.

OF WESTERN PROVINCE The EITI mining industry representatives AND PNG. made significant contributions to the development of the EITI Standard, launched at EITI’s Global Conference held in May 2013 in Sydney. The Company will continue to support this Initiative as a demonstration of its corporate leadership in disclosure practices in a contemporary global context.

12 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 The format of this Annual Review continues to be prepared in accordance with the International Finance Corporation principles and the Company has used the Global Reporting Initiative G4 format that, in this form is believed, to be a first for a PNG Company.

The operations of the Company and the Mine, the management of its environmental impact, its contributions to National, Provincial and North Fly District development and work that is underway to maintain the Company’s contributions to development, while responsibly managing its environmental legacy, are reported on in this Annual Review.

The Company and the structure of the Board changed with the departure of PNGSDP from the share register in September 2013. Following this change, the National Executive Council made the following appointments:

• Mr. Dairi Vele was appointed as ex-officio Director representing Treasury and as interim Chairman;

• Mr. Nigel Parker was appointed as ex-officio Managing Director (MD) and Chief Executive Officer (CEO);

• Dr. Modowa Gumoi was appointed as ex-officio Director representing the Western Province; and

• Dr. Jakob Weiss was appointed representing Financial and Risk Management.

It is anticipated there will be three other independent directors, one to be an Independent Chairman and the remaining two having operational experience specific to mining and processing. These positions will be progressively filled with appropriately qualified professionals.

SECURING OUR FUTURE 13 CHAIRMAN’S REPORT CONTINUED

The Safety and Technical Advisory Committee In 1998, under BHP Billiton management, (STAC) continues to report regularly to the dredging from the Ok Tedi River at Bige Board on issues with an array of technical commenced. The dredging has removed a dimensions. Members of the Committee bring high proportion of sand and sediment, which a wide range of technical experience and has been stored in engineered stockpiles expertise. The MD and CEO chairs the STAC adjacent to the river. This activity has been with the committee consisting of Mr. Robert effective in some areas by easing the risk of Burns, Mr. Martin Whitham and Ms. Pamela flooding and forest dieback and stopping the Ruppin. The STAC has contributed towards situation from getting worse in other areas. presenting valuable perspectives to senior However, these activities will not remove management and Board deliberations. the historical legacy of the flooding that will gradually extend into the lower reaches of The management team has continued to the Middle Fly River system. perform well under the MD and CEO’s leadership throughout 2013. Complex The second significant environmental issue issues related to shareholding, engineering, is the acid rock drainage risk, which has environmental and community decisions on been addressed in several ways. Acid- the future of the mine have been managed neutralising limestone continues to be with skill and sensitivity while the Mine’s added to the materials going into the river. profitability has remained positive throughout More importantly, a secondary flotation plant a difficult year. PGK 1,220 million (USD 466 million) has been installed to remove acid-forming pyrite The Board continues to place high priority on materials from the tailing, with the pyrite the implementation of safety standards and material then being transported by pipeline despite an improved overall performance, to Bige where it is stored in engineered the Company remains focused on structures safely under water and a non-acid strengthening its safety management and forming sediment cover system. associated programmes. The reduction in the quantity of pyrite Ok Tedi retains an environmental legacy. materials flowing down the river has reduced The Mine disposes of waste and tailings into the environmental risk related to previous nearby creeks, eventually flowing into the mining activities. Ok Tedi and then the Fly River. The result is The environmental impacts of the Mine a rising Fly River bed, causing flooding over are monitored by an exemplary team of the river’s levee banks and dieback to trees environmental scientists who provide adjacent to parts of the river. Even when dedicated commitment to their professional mining ceases, the legacy of accumulated roles in the scientific and environmental material will continue to cause flooding and management work undertaken to secure the dieback in the Middle Fly region for many objective of minimising damage from the decades into the future. In addition, the iron mining legacy whilst continuing mining and sulphide (pyrite) in the tailings introduces processing operations. a risk of acid formation that could, if not managed, lead to the formation of increased The Company makes significant contributions levels of chemical pollutants. to services and infrastructure development in areas affected by the Mine through its social Over the past decade, important initiatives, responsibility programme. at a total cost in excess of PGK 3,000 million (USD 1,000 million) have been taken to mitigate these effects.

14 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 management control of the Tabubil Hospital Every year brings its challenges from 1 January 2014. In addition to managing at OTML and 2013 was no hospital services to a high standard, DWU exception. The Company has will be establishing a Rural Health Science managed the challenges of 2013 Programme in Tabubil, using the hospital effectively and has emerged as a teaching facility. This will be only the from a year of transition as a second programme for educating doctors sustainable, productive and in PNG, but the first with a primary focus focused company. The Board on rural health. The necessary teaching thank the professional and The Tabubil Hospital is the major referral facilities and staff/student accommodation committed management team for hospital in the North Fly District with the are currently under construction within the their continued high performance majority of patients coming from the hospital precinct supported by the PNG under great pressure throughout surrounding communities. During the year, the Government through the TCS. a difficult year. It looks forward to working with the management Company provided a number of community OTML continues to support OTDF as a stand- team through the year ahead, and employee medical evacuations and alone entity directed by the mine-associated in which large transitioning assisted with 41 patient referrals by the communities as a vehicle for delivering programmes affecting the Company’s charter flights for specialist projects and services funded by contributions future of the Company and its medical care in Port Moresby, Lae, Cairns, made to the CMCA Trusts by OTML and other stakeholders will come to fruition. Townsville, Singapore, and the Philippines. sources. It has become increasingly effective The Company’s Public Health team has in service delivery in recent times. Transport contributed to a marked reduction in malaria infrastructure, income-generating village cases since 2006 and together with the activities, housing, and community services treatment of life-style related diseases, is now were delivered in 2013. a central focus of the Company’s health and The OTML Board of Directors tasked wellness programmes. management to define a mine continuation OTML introduced the North Fly Health Service opportunity that would yield economic DAIRI VELE Development Programme (NFHSDP) in 2009 value for the shareholders, maintain and Chairman under the management of health consultants, extend the Company’s contribution to Abt JTA. The programme has improved levels local, provincial and national development, of immunisation, delivery of medical supplies while having a socially and environmentally and skills of health workers. The Tabubil acceptable risk profile. Assessing the Urban Clinic was opened in 2010 to provide options from the feasibility study has been clinical services to North Fly communities a major focus of the Board of Directors and the NFHSDP continues to assist the through 2012 and 2013. A promising mine Provincial Government to improve the Kiunga continuation opportunity emerged that District Hospital’s standards by upgrading the identified a cutback on one wall of the facilities, engaging specialist Medical Officers existing pit and it has been proposed that and providing essential equipment. A similar waste generated by the opportunity can five year project was approved for the Middle be safely stored in a geotechnically stable and South Fly districts and the initial baseline waste dump near the Mine. The Company is review of 65 villages is complete. This engaged in additional scientific testing and initiative will see improved medical service in the process facilitated an independent delivery to these communities. expert review of the environmental impact of the preferred mine continuation proposal An important step towards an independent for the Department of Environment and future for the town of Tabubil was taken Conservation. The resulting information during 2011 with the execution of an will form the basis for a final government agreement with the Madang based, approval expected in 2014. Divine Word University (DWU), to assume

SECURING OUR FUTURE 15 GOVERNANCE

OTML IS A LEGAL ENTITY OK TEDI BOARD OF DIRECTORS It is anticipated the profile of the Board will be as follows: INCORPORATED UNDER OTML is a legal entity incorporated under the THE PNG COMPANIES ACT PNG Companies Act 1997 and is committed • Chairman: to be independent; to maintaining robust corporate governance 1997 AND IS COMMITTED • Director ex-officio epresentingr the State practises. This includes monitoring and TO MAINTAINING ROBUST – Secretary of Treasury; adopting as appropriate, contemporary CORPORATE GOVERNANCE international practices such as the guidance • Director ex-officio epresentingr the PRACTISES. principles of the Australian Stock Exchange Fly River Provincial Government – Corporate Governance Council as follows: Provincial Administrator;

• majority of the Directors are independent; • Managing Director ex-officio being the CEO; • the Chairman is independent; • Director representing Audit and Risk: • the positions of Chairman and MD are to be independent; held by different persons; • Director representing Mining: to be • the Board has a number of standing independent; and committees, for example, Nomination and Remuneration Committee and a Safety • Director representing Processing: and Technical Advisory Committee; and to be independent.

• Non-executive Directors do not receive Three independent Board positions were any short or long-term incentives, equity vacant as at 31 December 2013, with based remuneration or retirement/ discussions currently in progress for suitable termination benefits. candidates. Finalisation of these positions will bring the Board to full operating capacity The OTML Board holds the highest level of in 2014 with the Chairman and six Directors. responsibility for the Company. However, as a SOE, certain other governance provisions The Board regularly reviews its composition come into effect by application of provisions to ensure Directors provide the relevant of the Independent Public Business expertise required by the Company. OTML Corporation Act (IPBC Act) and the powers has recently updated the Board Charter and of the National Executive Council (NEC), an introduction package which is used to particularly in the appointment of members familiarise new Directors with their expected of the Board. With the effected change in roles and responsibilities. In accordance ownership of OTML, whereby the State with good governance and the requirements now holds, directly to its own account, a of the PNG Companies Act 1997, Directors shareholding of 87.8%, there has been a are required to declare any interests that restructuring of the Board, Chairman and may result in a conflict of interest. Should a Director’s positions in the latter part of 2013, conflict of interest arise at a Board meeting, as sanctioned by the NEC and duly gazetted. the relevant Director must be absent from the discussion of interest and abstain from voting.

16 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 THE SAFETY AND TECHNICAL ADVISORY COMMITTEE The Safety and Technical Advisory Committee comprises three Non- Executive Independent members, a Chairperson, and an Executive Board member. This Committee Ok Tedi Board of Directors, from left to right: Dr Jakob Weiss, comprises members who have Dr Modowa Gumoi, Mr Nigel Parker, Mr Dairi Vele. extensive mining industry experience across operations During 2013, the OTML Board met three THE NOMINATION AND in risk, safety and health. The times (February, October and November) in Committee is responsible for Tabubil and held three phone conference REMUNERATION COMMITTEE reviewing major projects and calls. In addition there were three circulating The Nomination and Remuneration commitments and making resolutions. As is contemporary corporate Committee comprises two Non-Executive recommendations for OTML practice, the Directors receive board Directors and is responsible for evaluating management to submit to the papers, standing committee papers and and reviewing remuneration packages Board. The Committee receives meeting minutes, with sufficient time before and bonuses and nomination of Executive regular briefings on OTML major Board meetings to allow the information and Non-Executive positions. OTML’s risks, material operational issues to be properly reviewed and appropriate remuneration for Directors and senior and safety initiatives that may have interrogation of management to occur. executive personnel reflect the complexity strategic implications for OTML or Profiles of each Director, the Charter of the of the business and this structure is in its shareholders. The Committee Board and standing committees are available line with similar global mining operations. played a major role in guiding on the Company’s website: www.oktedi.com. OTML continues to attract, motivate and retain highly experienced professionals as the Company through the mine Directors or senior executives. continuation feasibility project over the past three years. The current Safety and Technical Advisory Ok Tedi Board of Directors as at 31 December 2013 Committee members are: BOARD MEMBER POSITION STATUS DATE APPOINTED COMMITTEE FUNCTION • Mr Nigel Parker – Chairman; Mr Dairi Vele Chairman Ex-Officio 23 September 2013 Chairman - Remuneration • Mr Martin Whitham – Member; Chairman Safety Mr Nigel Parker CEO and MD Ex-Officio 1 January 2011 • Mr Robert Burns – Member; and and Technical • Ms Pamela Ruppin – Member. Dr Modowa Gumoi Director Ex-Officio 23 September 2013 Dr Jakob Weiss Director Independent 23 September 2013 Remuneration

Supporting the Board are two standing committees, the Nomination and Remuneration Committee and the Safety and Technical Advisory Committee.

SECURING OUR FUTURE 17 GOVERNANCE CONTINUED

BOARD MAIN ISSUES COMPANY CHANGES During 2013, the Board and The Mine has been operating for 32 years and in late 2012, applied to the State for a mine Standing Committees addressed a continuation from 2015 to 2025. As a SOE, 100% of the benefits from its operations are number of major issues including: distributed to the people of Western Province and to the State. OTML operates within its own statutory framework and is governed by the Mining (Ok Tedi Agreement) Act 1976 (as 1. Occupational Health, amended and supplemented from time to time). In September 2013, with the passing of the Safety and Wellness; Mining (Ok Tedi Tenth Supplemental Agreement) Act 2013 by Parliament, the PNGSDP’s 2. Tailing Storage Facility shares were cancelled and new shares issued to the State. pre-feasibility study;

3. Mine continuation capital equipment expenditures; OK TEDI MINING LIMITED 4. Mine Information System (TOTAL SHARES = 192,700,000) upgrade to SAP business software;

5. Tolukuma Mine, peer review;

6. Staff redundancy and restructuring; MROT NO.2 LTD 12.2% STATE OF PNG 87.8% (23,500,000 SHARES) (169,200,000 SHARES) 7. Changes in Directors;

8. Changes in Nomination and Remuneration Standing Committee members; and Dividends by Direction Dividends by Direction NEC decision 29/11/06 MOA - 9/01/91 State of PNG 9. Composition of the Safety and Memo - MD of MRA 2/08/07 & Fly River Prov Government Technical Advisory Standing Committee members.

6.1% Western Province 3.05% MROT No.2 Ltd CMCA Region Peoples (Fly River Provincial Government) Dividend Account (WPPDTA-CMCA)

6.1% Western Province Non CMCA 3.05% MRSM Ltd Region Peoples Dividends Trust Account (Mine Village Landowners) (WPPDTA-Non CMCA)

On 19 Sept 2013, PNGSDP shares were cancelled and new 122,200,000 shares were issued to The State

18 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 INTERNAL POLICY The Code clearly provides information on Australian Standard (AS) 8001 personal accountabilities and outlines the – 2008 Fraud and Corruption AND STANDARDS process for dealing with employee concerns. Control and AS 8004 – 2003 In 2013, the Occupational Health & Safety The Code covers use of company resources Whistle Blower Protection provide (OHS) and Environment Policies were and information, fraud, confidentiality and comprehensive and relevant reviewed, updated and endorsed by the proprietary information, conflict of interest, guidelines for the construction executive leadership team. Other supporting privacy, diversity, health, safety and the of policy and procedures which documents updated included the Ok Tedi environment, human resources, financial are assisting OTML in identifying Charter, the Ok Tedi Standards of Business inducements, gifts and entertainment and the risks described above and Conduct and the Ok Tedi Management political contributions. achieving positive outcomes to Standards of Conduct. its commitment. OTML is committed to preventing incidences CODE OF CONDUCT of corrupt and illegal practices and all behaviour that is contrary to the Code, by In October 2013, OTML revised the Code people at all levels within the organisation. of Corporate Conduct and Business Ethics (the Code). The Code provides guidance for In order to fulfil this commitment the MD and Directors, employees and stakeholders on CEO has directed management to address adhering to the highest standards of business the following potential risks: conduct and compliance with the law and • identify all areas in the business most best practise. It recognises that as a leading prone to potential bribery and to PNG company, OTML must apply the highest implement systems or plans to address ethical standards to its operations, the bribery risks; business community at large, its employees • implement systematic procedures to and their families. In so doing OTML will: ensure business relationships are being • ensure the Company maintains its entered into only with reputable and reputation for fair and responsible qualified third parties and to monitor dealings with all stakeholders; third-party relationships;

• clearly define the high standards • establish education programmes to of behaviour expected throughout ensure people are fully aware of bribery the organisation; risks, how to address them and how such • transparently provide all employees with a programmes are being tailored to the clear idea of what the Company goals are specific risks faced and the obligations of and how it will achieve them; different employees;

• hold all persons covered by the Code to • implement systematic procedures for full account for the performance of their the human resources team and line duties; and departments to take bribery risks into account when hiring and monitoring • take all steps to ensure staff can employees in high risk roles; be proud of their association with the Company. • establish communication channels for employees or others to report concerns and to formulate methods for protecting whistle-blowers; and

• implement robust, fair and reasonable disciplinary procedures to address violations or suspected violations.

SECURING OUR FUTURE 19 GOVERNANCE CONTINUED

EXTERNAL STANDARDS, BUSINESS COALITION UNITED NATIONS MILLENNIUM INITIATIVES AND AGAINST HIV/AIDS (BAHA) DEVELOPMENT GOALS GUIDELINES OTML is a proud foundation platinum The PNG Government is a signatory to the OTML measures its performance member of the PNG BAHA, which was setup United Nations Millennium Development against national and international to spearhead the awareness of HIV/AIDS Goals (MDGs). The MDGs range from halving standards, initiatives and in the business community. The Company extreme poverty rates to halting the spread guidelines. In 2013, independent contributes PGK 100,000 (USD 43,900) per of HIV/AIDS and providing universal primary audits were completed against annum and since 2007, total contributions education by the target date of 2015, from a OTML’s progress towards have exceeded PGK 1.3 million (USD 570,000). blueprint agreed to by all member countries ISO14001 and OHSAS 18001 OTML is proactively promoting the awareness and leading development institutions. The systems development. OTML of HIV/AIDS through employee and MDGs have galvanised unprecedented uses the following standards and contractor Health and Safety and Wellness efforts to meet the needs of the world’s guidelines in continual improvement programmes. OTML’s partners in the poorest. The MDGs eight key goals are to: Hospital and Rural Health programmes also of its operating systems: 1. Eradicate extreme poverty and hunger; provide education and support throughout • ISO14001:2004, the the North Fly District and Western Province. 2. Achieve universal primary education; International Standard The programme meets one of the Millennium 3. Promote gender equality and for Environmental Development Goals’ requirements. empowerment of women; Management Systems; 4. Reduce child mortality; • OHSAS 18001:2007, THE EXTRACTIVE the International Safety INDUSTRIES TRANSPARENCY 5. Improve maternal health; Management Standard; INITIATIVE (EITI) 6. Combat HIV/AIDS, malaria and other diseases; • AS/NZS ISO31000:2009, In 2012, OTML became a supporter of the Risk Management, Principles EITI, which aims to strengthen governance 7. Ensure environmental sustainability; and and Guidelines; by improving private sector transparency 8. Promote global partnerships and accountability in the extractive sector. • The International Finance for development. Corporation Performance In late 2013, OTML was invited to renew its Standards on Social and annual membership with EITI, however due Through private sector and public institution Environmental Sustainability for to changes in the Company’s structure with partnerships, improvement against each goal operating projects. www.ifc.org; 87.8% being majority owned by the State, can be measured and reported. In the Western the Board felt it was a potential conflict Province, OTML is a significant contributor • The Global Reporting Initiative of interest and withdrew its membership. to programmes that have made an impact sustainability reporting However, OTML will continue to publish its against each of the MDGs. Progress on the framework and guidelines. payments to all stakeholders in line with EITI MDGs is reported in this Annual Review. www.globalreporting.org; and GRI reporting requirements, through the • Papua New Guinea Annual Review process. PRECAUTIONARY PRINCIPLE Companies Act, 1997; and OTML uses a risk-based approach to guide • International Financial the Company through its decision-making Reporting Standards (IFRS). processes. Enterprise Risk Management is used when evaluating economic, The Company was in compliance environmental, or social aspects of mining with its various licences and projects and major changes to the business. permits during 2013 and no fines The potential impacts and proposed or sanctions were issued to OTML management plans to mitigate any major by the regulatory authorities. risk are presented to the OTML Board for approval. The precautionary principle

20 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 is applied where there may be a lack of RISK MANAGEMENT Financial evidence to assist in the development of the The Company is focused on identification The financial statements management plans. For major expansions of major hazards and risks in the workplace of the Company for the such as the mine continuation project, and any external sources that could impact year ending 31 December the Company has undertaken extensive the business. OTML’s risk management 2013 have been audited by environmental studies and applied sound system is based on AS/NZS 31000:2009. PricewaterhouseCoopers PNG risk based methodology using PNG and OTML continues to focus on integrating and the Independent Auditor’s international consultants and advisers. risk management into each operating Report is included in this Annual OTML has also taken a precautionary department’s processes and projects. Each Review. The auditors found the approach to future management of health department has a comprehensive risk register Company financial statements: services in the region. As a non-core and control action plan. Significant or material 1. comply with International business, but an essential community business risks are regularly reviewed by the Financial Reporting Standards service, OTML has outsourced the operation Safety and Technical Advisory Committee, and other generally accepted of the Tabubil Hospital to health care and the top 10 risks are reviewed by the accounting practices in Papua specialists, Diwai Pharmaceuticals Limited Board. Major risk areas are addressed New Guinea; and (DPhL), a subsidiary of the Divine World by management through the annual 2. give a true and fair view of University. Likewise, the regional health care strategic and tactical planning process at a the financial position of the programmes in the North, Middle, and South departmental level. Each General Manager Company and the Group as at Fly districts have been outsourced to Abt JTA has responsibility for departmental or project 31 December 2013 and their specialist health consultants. risk registers and action plans. financial performance and In 2014 the process of consolidating cash flows for the period. REPORTING departmental risk registers into a single This Annual Review provides a system using the SAP Enterprise Software Health, Safety and Environment comprehensive overview of the Company’s risk module will commence. Integrated Environmental activities and financial outcomes. The Systems Pty Ltd externally financial statutory accounts of the report AUDITING audited the Company’s are audited by PricewaterhouseCoopers Occupational Health & Safety PNG against the IFRS and other generally Insurance Audit and Environmental management International Mining Industry Underwriters accepted accounting practices in PNG. systems in June 2013. The audit (IMIU) conducted OTML’s operational was undertaken against the This Annual Review has been developed risk audit during February 2013. The requirements of all elements using the GRI G4 guidelines and includes audit identified that OTML risk exposure of the international OHSAS the Mining and Metals Supplement continued to be rated in the low range and is 18001:2007 Standard and requirements so that it follows GRI reporting considered to be better than the average for ISO14001:2004 Standard. requirements. The specific Disclosure on the mining industry globally. Management Approach (DMA) and indicator This audit was the third annual summary is listed in the appendices of this IMIU has determined a Risk Exposure rating Occupational Health and Safety Review. Note, however, the Annual Review of 32 for OTML, which is better than the IMIU (OHS) and fourth Environmental has not been externally audited against the global average of 49. Therefore OTML has Management System (EMS) GRI G4 requirements. a better than average level of attractiveness annual audit. The findings for insurers. The report recommended a indicate an 8.0% improvement number of areas for improvement which were in OHS, a 4.4% improvement in completed in 2013. EMS and a 16.5 % improvement in geology and exploration in Health, Safety and Environment (HSE) management systems compared to 2012.

SECURING OUR FUTURE 21 PERFORMANCE FOR 2013 AND TARGETS FOR 2014

CSR AREAS KEY FOCUS AREAS WHAT WE SAID WE WILL DO OUR PROGRESS IN 2013 OBJECTIVES FOR 2014

Appoint remaining Board members, finalise Board committees and implement revised Update Business Code of Conduct. Completed in October. Board Charter. Revitalise Board and Board Committee Charters. Final Board Charter drafts to be approved. Finalise the Mission, Values and the 2014 to 2018 strategic and implementation plan. Demonstrating strong and transparent Governance Implement auditing and continue seeking Auditing of financial, OHS, environment and insurance Complete external financial and insurance audits. year-on-year improvements in performance outcomes completed in 2013. and transparency reporting. External audited GRI G4 Annual Review.

OHS and EMS audits completed. Improvement of Continued implementation of risk assessments 8% in OHS, 4.4% EMS and 16.5% for geology and and audits. Move to align with ISO14001:2004; Specific targets were established in 2011 for exploration HSE systems. the International Standard for Environmental ISO14001 and OHSAS 180001 Audits. 2015, providing the Company with time to adjust (Note OHS and EMS to move to SAP structure in Management Systems, OHSAS 18001:2007; the Complete Safety, Health and Environmental Action Plan (SHEAP) activity implementation GOVERNANCE and improve practices and behaviours. In 2013, 2014, which will assist with the integration and International Safety Management Standard, and external reviews. a third external audit will be completed to review compliance with ISO). ISO31000:2009; the International Risk environmental and OHS systems. Implement SAP risk module as company ERM tool. Management Standard through development Risk registers held at each department and reviewed of an Enterprise Risk Management System. quarterly and annually. SAP module will enable a true ERM system to be implemented in 2014

Integrate OTML CSR Principles into planning processes to further support safe work Yes to all the criteria, as OTML maintained social practices and healthy communities; continue licence to operate. Progressed mine continuation with Vision and Mission implementation planning as lead in to SAP implementation. Embed CSR into operating practises. managing environmental effects; continue community consent. Best year ever OHS performance contributing to sustainable social and economic based on lag indicators. Ok Tedi Development Continue to deliver social development programmes in region. development. Measure and report progress in Foundation (OTDF) project delivery. OTML Annual Review

Meet or exceed 2014 budgeted production and cost metrics. Complete mine continuation transition. Implement SAP, as the standardised data management operating system by Q1 – 2015. Prudent management of business transition Complete business transition plan to carry Planning sessions initiated for new Mission/Vision Commission the final haul truck and mining shovel fleet and assume 100% owner operator of pit programme to mitigate the effects of a projected the Company forward into 2014 in preparation strategic planning. operations by June 2014. decline in tonnes mined and milled during for execution of the proposed mine continuation Move to new Integrated Business operating transition to the mine continuation. to 2025. system with SAP. Renegotiate a revised Eleventh Supplementary Agreement with the State and other stakeholders BUSINESS and include mine continuation conditions and any further environmental monitoring requirements. Complete the pre-feasibility studies on a potential second cutback on the East Wall of the open pit. Complete pre-feasibility studies on Tailings Storage Facility options.

Positioning OTML to realise growth opportunities In-pit and near-mine exploration and drilling Exploration at Mt Fubilan completed and Drill 35,000m at Mt Fubilan Pit extension and nearby zones and convert 50% of Inferred Resources beyond the Mt. Fubilan Mine thereby generating programme to progress. commencement of mine continuation-2 (East wall to Indicated or Measured status according to JORC Code guidelines. continued value for OTML shareholders and Delineate two new resources in the coming three and Gold Coast resource pre-feasibility studies). Drill 7,500m at Townsville prospect and delineate and define a new Mineral Resource to Inferred CMCA communities. calendar months. Townsville deposit in-fill drilling success. and Indicated level according to JORC Code guidelines.

22 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 CSR AREAS KEY FOCUS AREAS WHAT WE SAID WE WILL DO OUR PROGRESS IN 2013 OBJECTIVES FOR 2014

SECURING OUR FUTURE 23 PERFORMANCE FOR 2013 AND TARGETS FOR 2014 CONTINUED

CSR AREAS KEY FOCUS AREAS WHAT WE SAID WE WILL DO OUR PROGRESS IN 2013 OBJECTIVES FOR 2014

Road test the OTML Grievance Mechanism and reorganise the Community Relations Conduct open, timely and transparent department such that systems and processes Implemented and migration of data underway. Complete annual CMCA village consultation tours. discussions with stakeholders. are aligned with best practices for stakeholder New grievances being put into the database. Continue to use the Grievance System, follow-up and resolve grievances in a timely manner. consultation, social management planning, and community development.

Review skill-sets required and possible roster changes to meet human resources needs for the mine’s continued operations. Restructuring of OTML workforce. Release of 745 PNG and international recruitment programme to attract experienced PNG staff to OTML. Recruit and train Papua New Guineans. Support employees through voluntary redundancy. Implement a new roster and employment agreements for all employees and fill vacant positions Engage and develop OTML’s employees. development of current employees to take on Recruitment of new employees with required skills with high quality candidates. PEOPLE more responsibilities and ever-challenging roles. for continued mine operations commenced. Identify training needs for employees in new positions with new position descriptions and Launch PNG nationwide and global recruitment Specialised roles recruitment underway. develop training programmes to meet the “right person, right job” vision. campaign to fill specialised roles required for the mine’s continued operation.

OTML will mature and implement a development Complete the MOU with DWU for the Tabubil International School operational transfer to DWU. strategy that transitions services currently DWU engaged to run Tabubil hospital. Support community development provided by the Company to local agencies and Health – North Fly, Middle Fly and South Fly Regions with Abt JTA deployment. DWU draft MOU to operate International School. projects that foster economic empowerment service providers. Accelerate the Ok Tedi Development Foundation programme delivery. and sustainability. Engagement with multi-sectoral stakeholders to roll Abt JTA to manage North/Middle/South FLY districts rural health programmes. Advance the public private partnership business model to divest OTML of town infrastructure to out health programmes similar to those undertaken Government or private infrastructure providers as part of the Tabubil Futures programme. by the NFHSDP, in the Middle and South Fly.

Visible leadership programme rolled out including JSO, task observation and layered audits. Work on plan continued. Focus on “felt leadership” 80% of the actions from investigations, audits and inspections are closed out by target date. through the 2013 employee transitions. 90% of workplace inspections and JSO’s completed as planned. Task observations and layered Completed with a focus on dust, noise and, Implement a comprehensive OHS plan audits on high risk tasks and projects. concentrating on training, supervision, behaviour fatigue in 2013. Maintaining a safe workplace High and Significant risks reviewed by HSELT at least quarterly. – Zero Harm is the goal and competencies. Lagging indicator performance outstanding: Complete 6 monthly contractor audits against contractor’s 12 top risks and their OHS systems. Implement an occupational health programme. TRIFR – 45% improvement Improve lag indicators by 10% compared to 2013 results. LTIFR – 69% improvement OCCUPATIONAL 10% reduction in light vehicle incidents compared to 2013. SIFR- 45% improvement HEALTH, SAFETY Fatigue management programme implemented. & WELLNESS OHS information management system migrated across to phase 1 SAP project in 2014. Progress OTML has set a site-wide improvement of 10% 8% improvement in the OHS system development of OHS systems towards meeting certification requirements of OHSAS 18001 by 2016. per annum, year-on-year to achieve compliance compared to 2012. with OHSAS 18001:2007 by 2015. Findings from annual external OHSAS 18001 audits to be compiled into SHEAP and 80% of actions Align OHS practices and systems with OHSAS closed out in 2014. 18001:2007 by 2015. Continue to hold quarterly assessment meetings to adjust plans and ensure safeguards are in place Completed. OHS management review meetings conducted quarterly. and 100% effective.

Progress development of environmental systems towards meeting certification requirements Align Environmental Management Systems Continue to improve the SHEAP audited score to On track. Actions closed out 81% of ISO 14001 by 2016. with ISO14001:2004 by 2015. reach the established target of 80%. Complete 80% of actions identified in SHEAP. ENVIRONMENT Achieve compliance for all nine compliance Continue to remain in compliance with environmental conditions as per license conditions “Regime”. Continuously improve environmental In compliance for 2013, average ANC/MPA ratio monitoring stations. Continue to reduce waste and ANC/MPA target of Bige cover material to exceed 1.5:1. performance at OTML. was 1.98:1. meet or exceed ANC/MPA target of 1.5:1 at Bige. Commence waste rock management plan through development of stable waste dump.

24 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 CSR AREAS KEY FOCUS AREAS WHAT WE SAID WE WILL DO OUR PROGRESS IN 2013 OBJECTIVES FOR 2014

SECURING OUR FUTURE 25 BUSINESS

OTML OPERATES THE LONGEST RUNNING OPEN- PIT COPPER, GOLD AND SILVER MINE IN PNG. THE OPERATIONS INCLUDE THE MT FUBILAN DEPOSIT AND PROCESSING PLANT, THE BIGE RIVERINE DREDGING AND PYRITE CONCENTRATE STORAGE FACILITY (125 KILOMETRES FROM THE MINE ALONG THE PYRITE CONCENTRATE (PCON) PIPELINE), RIVER PORT, CONCENTRATE DRYING AND STORAGE FACILITIES AT KIUNGA (156 KILOMETRES BY ROAD SOUTH OF THE MINE) AND THE TABUBIL TOWNSHIP, APPROXIMATELY 20 KILOMETRES SOUTHEAST OF THE MINE. THE In 2013, the OTML workforce comprised CONCENTRATE SILO AND MINING 2,310 employees and 5,147 contractors. Mining of the Mt Fubilan deposit is carried TRANSFER VESSEL (MV Over 95% of OTML’s employees are PNG out with the majority of the ore sourced from KUMUL ARROW) IS LOCATED nationals. In 2013, the Company mined the base of a large conical shaped pit. The 62.8Mt of ore and waste rock. Over 19.6Mt IN PORT MORESBY HARBOUR deeper ore reserves are contained within of ore was processed resulting in 415,713t of AND REPRESENTATIVE areas of significant sulphide mineralisation. concentrate containing 105,523t of copper, CORPORATE AND LOGISTIC Other smaller sections containing ore 364,782oz of gold and 960,502oz of silver. OFFICES ARE ALSO LOCATED reserves are located within the pit resource The total sales of copper, gold and silver boundary and the ore is blended upon IN PORT MORESBY AND concentrate totalled PGK 2.7 billion (USD delivery to the primary crusher. In 2013, BRISBANE RESPECTIVELY. 1.2 billion) and the Company contributed the mining focus was on developing the PGK 1.9 billion (USD 0.9 billion) to the PNG West Wall pit cutback to expose future economy. The concentrate is shipped to ore reserves. This upper pit wall material customers in Germany, India, Philippines, contains large quantities of limestone and Japan and South Korea where it is refined oxidised rock collectively classified as waste into copper, gold and silver. material, which will be removed before exposing the ore. In 2013, mine production was 65.7Mt of combined ore and waste material, with a total of 69.1Mt moved, which included material rehandling. The overall strip ratio of waste to ore was approximately 2:4.

26 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 in PNG. Supplies are generally shipped to Kiunga and then transported by road to the mine or Tabubil, with some items transported by air. Major changes to the supply chain included the following:

• a 75mm grinding steel ball contract was awarded to Vega, replacing Maggoteaux;

• the large tyre contract for the Caterpillar 793F trucks was awarded to Coba tyres in China;

• two new Series 400 Twin Otter aeroplanes were leased, the existing two Bombardier Dash 8 aircraft were upgraded and an additional Dash 8 was added to the fleet;

• two new replacement ships Ok Tedi processing plant grinding circuit. were added to the marine fleet (“MV Fly Alliance” and “MV ”); and Mining uses conventional drill and blast piped as slurry to Kiunga where it is dried Kumul Arrow techniques with excavator and shovels and the final product shipped to export • seven new Volvo Prime loading a mixed fleet of Caterpillar haul markets. The residue material following Mover trucks were added trucks. In 2013, mining fleet replacement metal product removal is retreated in a to the transport fleet as commenced and by mid-2014, it is expected separate floatation plant to extract pyrite part of a planned that 36 Caterpillar 793F trucks will be (iron disulphide). The pyrite slurry is piped replacement programme. operational. Six new Caterpillar 6030 loading to Bige for burial in subaqueous storage The Contracts and Procurement units were also commissioned, replacing facilities and the residual sand is disposed department completes commercial older contractor operated O&K RH200 of as tailings to the river system. reference checks for potential shovels and excavators. The Mine uses the suppliers for financial solvency, Modular PTX Dispatch fleet management SUPPLY CHAIN reliability of supply, and health system to optimise fleet movements. OTML has an established, reliable supply and safety performance. The chain for the purchase of goods and services. department is yet to implement PROCESSING The Contracts and Procurement department environmental and human rights The ore from the mine is crushed in a manages contracts for the supply of major checks against suppliers. primary crusher at a nominal 8,000tph consumables like fuel, tyres, grinding media, and conveyed to a primary ore stockpile. explosives, mining spare parts and short The primary ore is ground in two SAG mill term contracts or purchase orders for smaller circuits each with two associated five-metre orders. In 2013, a total of 25,370 contracts diameter ball mills. The final product is less and purchase orders were raised with 1,128 than 180 micron. The finely ground material suppliers or contractors. Wherever possible, is treated in two mineral floatation circuits goods are sourced from within Western to extract the copper, gold and silver as Province or PNG. In 2013 goods worth PGK a copper concentrate. The concentrate is 294 million (USD 130 million) were purchased

SECURING OUR FUTURE 27 MATERIALITY

OTML HAS BEEN GUIDED BY Identification of key stakeholders was To identify the Company’s material issues, THE GRI G4 PROCESS FOR completed through a review of who the information was ranked on its level of DETERMINING MATERIAL is impacted or could be impacted by importance and influence on stakeholders the Company’s activities. OTML has a and impact on OTML’s ability to meet its ISSUES WHICH ARE THOSE comprehensive stakeholder database goals. Issues considered to be material were ASPECTS OF THE BUSINESS OR that includes all levels of government, ranked both high to external stakeholders and ITS OPERATING ENVIRONMENT CMCA communities, various institutions to OTML. These issues were then discussed THAT CAN SIGNIFICANTLY representing broader societal interests, in an internal forum to fully understand their IMPACT THE COMPANY AND supply and customer partners, employees, impacts and boundaries. This process has ITS STAKEHOLDERS IN A community groups and individuals. enabled OTML to collate a list of primary Consultation with key stakeholders is an material issues and secondary issues. POSITIVE OR NEGATIVE ongoing process. Each stakeholder was This Annual Review focuses on the material WAY AND THUS AFFECT THE ranked depending on the type of impact issues and others that are of importance BUSINESS PERFORMANCE, they have on OTML using: responsibility, to OTML and its stakeholders. The GRI influence, proximity, dependency and REPUTATION AND INFLUENCE Mining and Metals Supplement also require representation as criteria. STAKEHOLDER DECISIONS. reporting against issues of importance to MATERIAL ASPECTS OFTEN Key issues of significance were collated the mining industry and OTML has reported HAVE A FINANCIAL IMPACT from discussions with key stakeholders, against these. More information on the OR CREATE VALUE IN THE the community grievance database, progress towards dealing with these issues LONG OR SHORT TERM. OTML risk register and strategic business is presented in the following report sections. plans. The extensive Mine continuation THE COMPANY’S MATERIALITY OTML’s primary material issues for 2013 and community consultation process with the beyond are in the materiality table. PROCESS IS INCLUDED IN A 156 CMCA villages assisted in confirming SET OF STEPS AS OUTLINED. key community issues. The process was monitored by independent observers and the World Bank to ensure Free Prior Informed Consent (FPIC) processes were followed. The issues were analysed to identify the extent of the impact or opportunity within the OTML boundary of influence or if the impact extended beyond OTML’s boundary.

28 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 KEY REPORT GRI MATERIAL ISSUE DESCRIPTION STAKEHOLDERS SECTION ASPECT The long-term profitability of the Company impacts on all stakeholders. OTML employees, Delivery of the Mine With the consent of the community to continue mining to 2025, focus government, CMCA Business, Economic continuation project on controlling costs through the initial high cost years of overburden communities, Financial Performance as planned stripping and meeting or exceeding the mine plan will be critical to meet suppliers forecast revenue streams for direct and indirect economic returns. Previous mine waste has impacted the riverine environment causing bed Management of aggradation, elevated sediment loads, decreased water quality, overbank Downstream CMCA Effluents and mining waste rock flooding in the Middle Fly River region and reduced aquatic biomass. communities, Environmental waste, water, and tailings Continued mining is dependent on OTML maintaining the existing suite of government, OTML biodiversity waste mitigation programmes implemented over the last 16 years. Due to the remoteness, all goods and product has to be shipped and road transported to the mine and town. Use of diesel as a primary energy Economic; Energy, Energy efficiency OTML, NGO’s source is a significant operating cost. Mine continuation identified energy Environmental emissions efficiency opportunities. Improving High quality community health care is sought after by the community. The Community, Social Local community health focus has been on delivery of improved regional infrastructure and recent employees and responsibility communities service delivery partnerships are now targeting rural health delivery in the CMCA regions. families, government The community see education as way for future generations to engage Community, Improving in broader development of PNG and provide for their elders. There is a Social Local employees and education services need for improved universal primary and secondary education facilities responsibility communities families, government and resourcing. The community have seen OTML, PNGSDP, OTDF and the TCS as the Community, Community financial providers for improved community development projects. employees Social Local development project Project planning, governance and timely project delivery is a material and families, responsibility communities delivery and funding issue raised by all CMCA’s. governments, OTML Recognition of women’s’ involvement in CMCA village committees has Women and assisted in balancing gender representation. The commitment to create Community, Social Local children’s’ the Women and Children’s’ Trust Fund has generated opportunities for institutions, responsibility communities participation women to participate and manage start-up projects. This initiative has government broad community support and interest from the World Bank. The community value the high level of consultation where OTML complete bi-annual patrols to all 156 villages. The process enables Transparent honest two-way exchange of information where communities can raise Communities, consultation and Social Local issues of concern and OTML can respond or facilitate action to address institutions, information sharing responsibility communities the issues. The dialogue around mine continuation commenced in June government with communities 2009 and finished after the fourth meeting in 2013, with the result that nine CMCA regions consented to the mine continuing operations. Achieving zero injury to employees and contractors is the key focus for Zero harm to Occupational OTML management. Whilst there was improvement in 2013 through the Employees, employees and OHS&W Health and reduction of incidents by applying OHS systems, other contributing casual MRA, OTML contractors Safety factors like fatigue have been identified. During 2013 major restructuring of the OTML workforce was completed Restructuring and with long-term employee retirements, voluntary redundancies, and a new employment payout of all accrued benefits and selected re-employment under new Employees and Employment, People contractual workplace contracts, including rosters, point of hire and other benefits. community, OTML Labour arrangements The restructuring was required for mining to continue with reduced costs as production will decrease up to 30%.

SECURING OUR FUTURE 29 MINE CONTINUATION STUDIES

THE ORIGINAL OK TEDI Studies commenced in 2009 and culminated Approval for mine continuation is dependent MINE PLAN WAS TO in November 2012 with a mine continuation upon the State’s review of the feasibility study, COMPLETE MINING IN 2014 feasibility study submitted to the State for the environmental study, independent review approval. The study findings showed that findings and community consent. The final AND CLOSE OPERATIONS mining could continue to 2025 whilst still step in 2014 will require the PNG Parliament DURING 2015 LEAVING meeting the economic criteria set by the to pass the enabling legislation (Mining (Ok A REMNANT MINERAL Board with an acceptable environmental Tedi Eleventh Supplemental Agreement) Act RESOURCE OF 704MT impact comparable with closure of the 2014)) that will give the force of law to the GRADING AT 0.55% current operation in 2015, validated using a CMCA Extension Agreements. CU AND 0.65G/T AU. series of complex models to predict future environmental impacts. CONSULTATION WITH BENEFITS OF CONTINUED MINING VARIOUS STAKEHOLDERS Mine continuation will see OTML processing OTML is currently valued in terms of Net Present Value (NPV) at a 7.5% discount rate. INCLUDING THE STATE, 18Mt of ore averaging 0.63% Cu and 0.77g/t Au to produce 1Mt Cu and 3.3Moz Au in The incremental NPV is PGK 1,012 million THE FLY RIVER PROVINCE concentrate over a 10 year period from 2015. (USD 425 million) with an Internal Rate of GOVERNMENT AND THE The ore will be predominately sourced from Return (IRR) of 13.2%, based on after tax CMCA COMMUNITIES, the resources along the western wall of the incremental cash flows. REQUESTED THAT OTML Mt Fubilan pit. The project requires waste Whilst continuing mining operations requires SHOULD UNDERTAKE rock stripping of approximately 50Mtpa significant capital expenditure of PGK 1,938 AN INVESTIGATION INTO between the years 2014 to 2021. million (USD 814 million) in 2013 to 2015 VARIOUS OPTIONS TO In order to achieve an acceptable for new mining equipment the social and economic benefits to PNG are significant CONTINUE THE MINE’S environmental risk profile based on existing mitigation processes the ore milling rate will compared to the closure option 2015. OPERATING LIFE. continue at 23Mtpa till 2016 and then reduce Summary of continuing total social and to an average throughput of 15Mtpa. economic benefits to PNG with continuing Existing infrastructure, services and logistics mining operations (road, river and air) will be adequate for STAKEHOLDER PGK MILLION USD MILLION continued mining with ongoing maintenance PNG State* 5,795 2,434 and sustaining capital expenditure. PNG Communities 2,302 967 During the mine continuation studies Fly River Provincial 690 290 extensive community consultation was Government conducted over a three year period. The 156 Total 8,787 3,691 CMCA villages gave consent to the mine continuing operations which will result in * Total taxes (Dividends, Company and Payroll) new compensation packages from OTML payable to PNG includes PGK 5,438 million (USD 2,284 million), which is an incremental PGK and the State. 2,229 million (USD 936 million) compared to a 2015 closure.

30 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 CASE STUDY

MINE CONTINUATION COPPER AND GOLD PRODUCTION OWNER OPERATOR MINING

500 OTML mining operations currently use the services of Starwest Constructions Limited (Starwest) to carry out excavation activities, whilst the haul trucks are owned and operated by OTML. Mine continuation studies conducted by OTML identified an opportunity for OTML to take on all mining excavation and haul 400 services as an owner operator. The studies identified potential NPV savings of PGK 98.9 million (USD 44.5 million). Additional benefits include OTML maintaining control of core operations, common Occupational Health, Safety

300 and Wellness (OHS&W) systems across mining operations, improved operational controls and equipment productivity reducing the cost per unit tonne mined.

Following the Board’s approval, OTML has commenced the process of moving to an owner/operator model and has purchased 36 Caterpillar 793F haul trucks 200 and six excavator/shovels to replace an aging fleet. This new equipment will increase availability and productivity whilst reducing maintenance costs.

A six month transition period has been negotiated with Starwest till June 2014. 100 The transition will enable OTML to acquire support for maintenance and recruit competent supervisors, trainers, equipment simulators and operators. It is expected that a number of Starwest operators will transfer across as OTML employees.

0 Image: New Caterpillar 793F truck hauling ore from Mt Fubilan pit. Annual Mining Rates & Truck Fleet 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Current Pit MtpaRecovered 27 Au24 in Conc. 8.3 (kozpa) 8.1 Recovered4.9 6.2 Cu in Conc.2.7 (ktpa) Mine Cont Ore Mtpa 0.8 1.8 12 18 14 9 12 13 12 13 14 14 15 Mine Cont Waste Mtpa 50 52 52 46 45 45 57 56 50 18 8 4.9 1.2 Total Truck Fleet No 17 30 40 40 40 37 40 37 33 13 9 9 9

ANNUAL MINING RATES & TRUCK FLEET

Material Mined (Mtpa) Cat 793F Truck Fleet 80 40

70 35

60 30

50 25

40 20

30 15

20 10

10 5

0 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Current Pit (Mtpa) Mine Cont. Ore (Mtpa)

Mine Cont Waste (Mtpa) Total Truck Fleet (No)

SECURING OUR FUTURE 31 GEOLOGY

IN 2013, OTML CONTINUED OK TEDI EXPLORATION TENEMENTS 500000 520000 540000 560000 580000 600000 OTML Exploration PURSUING ITS FOCUS ON Near Mine Tenements

INCREASING THE MINE’S Locality Map: Papua New Guinea

POTENTIAL OPERATING FRIEDA INDONESIA COPPER LIFE BY INVESTING PGK PROJECT 9480000 9480000 38 MILLION (USD 17 HPort Moresby PAPUA NEW GUINEA PAPUA EL 2276 Key to Map Features: MILLION) IN EXPLORATION Mianmin Prospects/Project Sites IN THE FORM OF MINERAL OTML TSF Sites OTML Special Mining Licence RESOURCE DEVELOPMENT OTML Mining Leases/LMP's 9460000 9460000 OTML EL DRILLING PROGRAMMES AND Competitor Licences IDENTIFYING ADDITIONAL Highlands Pacific Res. Ltd Lava Resources DRILLING TARGETS FROM Frieda Leases Petroleum Licence WITHIN THE COMPANY’S È) Oil and Gas Discovery

9440000 Tifalmin 9440000 (% Oil and Gas shows EL 1677 SUITE OF “GREENFIELD” Lead TELEFOMIN Gas/Condensate Field Petroleum Retention Licence PROSPECTS ACROSS THE Licence Boundary

EXPLORATION LICENCES. MINE EL2156 SML OTML WILL CONTINUE WITH W E S T S E P I K P R O V I N C E 9420000 W E S T E R N P R O V I N C E 9420000 Tabubil NEAR MINE EXPLORATION EL 2256 LMP-18 F LMP-87 SPL (Portion 3) GCS_Australian_1966 ELDatum: 1595 D_Australian_1966 ACTIVITIES OVER THE NEXT LMP-24 OK MENGA Lukwi Scale: Bulago km 0 # 5 10 15 20

FEW YEARS COMMENCING EL 2289 LMP-88 Dorongo

WITH THE MT FUBILAN OK TEDI MINING LIMITED 9400000 9400000 Ok Tedi Mining Near Mine Exploration Licenses Near Mine Tenements & Prospects OK LAN DRILLING PROGRAMME, TO Owner/Title: D.Hastings - Geology Manager Drawn by: Nigel Andy P’NYANG Checked by: D.Hastings FURTHER DEFINE THE EXTENT Revision Date: 24 - April - 2014 revised by NDA

Map doc. name: Near Mine Projects_DH 20140409.mxd OF MINERALISATION AT OK P'nyang 2/ST1 TEDI. THE OBJECTIVE IS LOCALITY MAP COMPETITOR LICENCES TO INCREASE THE LIFE OF Highlands Pacific Res. Ltd MINING AND PRODUCTION Lava Resources CAPACITY INTO THE FUTURE. Frieda Leases Port Moresby PETROLEUM LICENCE KEY TO MAP FEATURES Oil and Gas Discovery Prospects/Project Sites Oil and Gas shows OTML TSF Sites Lead OTML Special Mining Licence Gas/Condensate Field OTML Mining Leases/LMP’s Petroleum Retention Licence OTML EL Licence Boundary

32 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OK TEDI CORRIDOR • defining a new Mineral Resource for the In terms of regional exploration Townsville prospect; and the main focus for the Geology team in 2014 will be the drilling • continuing with exploration activities to of currently identified targets. identify new targets and develop long term The Townsville project is the prospects towards future new ore bodies. most advanced where the The current OTML exploration programme expectation is to estimate an is centred on five exploration licences indicated mineral resource. 2 covering 3,450km . In 2013, the exploration The Geology team will also tenement portfolio increased due to the embark on a review of historical granting of three additional tenements exploration data, an exercise with (EL 2256, EL 2289 and EL 2276). the catch phrase “mining our In line with a re-invigorated exploration data”, which will provide a better strategy that is focussed on the near-mine understanding of the controls environment where the mineralisation potential on regional and prospect scale is highest and easily accessible, the majority of mineralisation and enhance the the exploration licences are located along the length of the mine life at Ok Tedi. prospective “Ok Tedi Corridor”. This corridor is a deep-seated geologic feature that trends MINERAL RESOURCE north-northeast through the Ok Tedi deposit AND ORE RESERVE into the West Sepik province where currently, STATEMENT all known copper and gold mineralisation in the NEAR MINE CORRIDOR PROGRAMME The focus for the Geology team region is located. Project/Target and Ranking on the primary Mt Fubilan pit is to The Mt Fubilan open-pit deposit is one increase the mineral resources and 1 Townsville of the key future expansion opportunities hence ore reserves by undertaking 2 New York East for OTML and is the main focus for the pit wall cutbacks and even Mineral Resource development team. exploring the potential to convert 3 Moscow East, Marakesh During 2013, an extensive drilling campaign to an underground operation. 4 Gilor/Geochem Team continued in and around the Mt Fubilan pit During 2013 over 17,000m of to upgrade the mineral resources according Mineral Resource development 5 Mount Ian to the guidelines of the 2012 Joint Ore and delineation drilling was Reserves Committee (JORC) Code. As at completed and this effort has 31 December 2013, the Mt. Fubilan Mineral contributed to the revised and Resource estimate was 871Mt at 0.44% Cu current Mineral Resource and and 0.54 g/t Au using a cut-off based on OTML’s Geology team focusses on four Ore Reserve Statement as at ‘net smelter return’ which is a composite areas of investigation:- 31 December 2013. During 2013, parameter, simulating the return after Ok Tedi’s Mineral Resource • mine geology support, providing a day processing. The cut-off used was USD 10 estimate decreased from to day service to the mine production Net Smelter Return (NSR) per tonne. department and improving ore recovery 881.7Mt to 871.4Mt, largely due through improved knowledge of The OTML Geology team started focussing to mining depletion (17.7Mt), deposit metallurgy; on geometallurgy in 2013, led by specialist resource block model and shell consultants JK Tech Consultants, based in changes increasing by 45.8Mt • Mineral Resource development, to Brisbane. This strategy relates to combining and a reduction of 38.3Mt due to increase the near-term and future life of geology and geostatistics with extractive changes in assumptions. The net the mine with particular emphasis placed metallurgy, to create a geologically based effect was the Mineral Resource on defining and expanding the Mt Fubilan predictive model for the processing plant. reduction of 10.3Mt. open pit deposit;

SECURING OUR FUTURE 33 GEOLOGY CONTINUED

In addition, during 2013, the Ok Tedi Ore Reserve also decreased from 219Mt to 215Mt, again due to mining depletion (19.0Mt), an increase of 21.1Mt from Ore Reserve model and mine design changes, but a decrease of 6.4Mt due to assumption changes. Examples of the assumption changes were density calculations, different pit measuring methods and adjustments in ore/waste allocation from smaller grade control blocks. The net effect was an Ore Reserve decrease of 4.4Mt.

Because of these changes the recoverable copper metal tonnes decreased from 1.19Mt to 1.16Mt (2.3%) and gold fell from 3.9Moz to 3.87Moz (0.8%).

The change reflected in the Mineral Resource Statements of 2012 and 2013 are shown below.

MINERAL RESOURCE AND ORE RESERVE STATEMENT AS AT 31 DECEMBER 2012, USING A USD 10 NSR CUT-OFF PER TONNE RESERVE/ TONNAGE CU AU TONNAGE CU AU RESOURCE CLASSIFICATION (Mt) (%) (g/t) CLASSIFICATION (Mt) (%) (g/t) RATIO Measured 390 0.51 0.57 Proven 171 0.57 0.68 44% Indicated 351 0.43 0.54 Probable 48 0.80 0.98 14% Inferred 141 0.41 0.56 Total 882 0.46 0.55 Total 219 0.62 0.75 25%

MINERAL RESOURCE AND ORE RESERVE STATEMENT AS AT 31 DECEMBER 2013, USING A USD 10 NSR CUT-OFF PER TONNE RESERVE/ TONNAGE CU AU TONNAGE CU AU RESOURCE CLASSIFICATION (Mt) (%) (g/t) CLASSIFICATION (Mt) (%) (g/t) RATIO Measured 344 0.52 0.58 Proven 156 0.59 0.69 45% Indicated 417 0.39 0.51 Probable 58 0.71 0.93 14% Inferred 110 0.41 0.57 Total 871 0.44 0.54 Total 215 0.62 0.76 25%

34 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Mt Fubilan open cut pit and processing plant.

The information in the tables above relates to Isaka Bisansaba and Stephen Kable Mineral Resources and Ore Reserves based consent to the inclusion of the above tables, on information compiled by Isaka Bisansaba which have been based on their information (Mineral Resource) and Stephen Kable (Ore in the OTML Mineral Resource and Ore Reserve) who are members of the South Reserve Statement, in the form and context African Institute of Mining and Metallurgy in which it appears. and Australasian Institute of Mining and Signed on 21 March, 2014 Metallurgy respectively.

Mr Bisansaba and Mr Kable are full-time employees of OTML and have sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being ISAKA BISANSABA undertaken to qualify as “Competent SAIMM 703638 Persons” as defined in the 2012 Edition Superintendent, of the Australasian Code for Reporting of Resource Geology Exploration Results, Mineral Resources and Ore Reserves.

STEPHEN KABLE AusIMM 211690 Senior Engineer Long Term Planning

SECURING OUR FUTURE 35 GEOLOGY CONTINUED

NEAR MINE – MT FUBILAN MINE AREA

MT FUBILAN VANCOUVER DDH1275 MINERAL RESOURCE DDH1276 DEVELOPMENT AND SILTSTONE DDH1289 EXPLORATION Section A DDH1267 DDH1261 RIDGE DDH1282 DDH1272 Mt Fubilan is a rich copper-gold- DDH1268 DDH1257 DDH1260 DDH1271 DDH1259A silver deposit with several phases DDH1278 DDH1279 DDH1288 EDINBURGH DDH1269 of mineralisation centred on two TARANAKI DDH1266 intrusions, a monzonite porphyry and monzodiorite stock works with DDH1273 subsequent alteration. The majority NEW YORK DDH1277 of the contained copper and gold DDH1251 is found within sulphide skarns, DDH1262 DDH1263 located adjacent to the intrusions DDH1255 DDH1265 GDH1057 DDH1247 DDH1264 along a contact with limestone and GDH1059 siltstone units. These skarns have BERLIN been formed by the introduction UDH0018 UDH0017 of mineralised fluids that have CENTRE PIT DDH1248 reacted with the host rocks.

Over 21,900m were drilled from WESTWALL a completed 59 drill holes. The DDH1236 locations of the holes completed DDH1237 DDH1274 in 2013 are shown on the geology GDH1055A map of the Mt Fubilan mine area. GOLD COAST DDH1241 DDH1270 DDH1284 UDH0012 The drilling programme improved DDH1234 UDH0014 PARIS UDH0013 the understanding of the deposit and highlighted the extension of significant mineralisation to the North East of the current DDH1232 SECTION B pit (Siltstone ridge area) and DDH1230 MOSCOW to the South-southeast of the

Pit (southern monzodiorite DDH1250 DDH1250A extension). These findings generated significant intercepts DDH1249 DDH1243 DDH1244 improving the potential for DDH1243A additional cutbacks for the current Mt Fubilan pit. The MONZODIORITE SOUTH location of the section lines are shown in the geology map. HARVEY CREEK DUMP

LEGEND LITHOLOGY 2013 Completed Pnyang Siltstone Skarn Drillholes Limestone Endoskarn Ieru Siltstone Taranaki Skarn Monzodiorite Parrot’s Beak Thrust Monzonite Porphyry

36 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Information obtained from these SECTION A SECTION B Dec 2013 Pit Asbuilt drill holes was used to update

Dec 2013 the geological model, which is Pit Asbuilt then used to update the annual Mineral Resource Statement. The Pit design Pit design design and development of the geological model and Mineral

Resource Resource estimates were carried

Shell DDWPR443 out according to the guidelines Resource Shell of the JORC Code (2012). This DDHWPR459 estimate was completed, validated and signed off internally by OTML’s Competent Person.

DDH1225 DDH1267 DDH1230 As at 31 December 2013, the Mt. Fubilan Mineral Resource Estimate is 871Mt at 0.44% Cu and 0.54 g/t Au.

DDH1232

DDH1283 The orientation of certain drill DDH1281 holes and significant grade intercepts are shown alongside Cu(%) <0.1 5.001.000.750.500.250.1 Cu(%) <0.1 5.001.000.750.500.250.1 for Section A and Section B. The locations of both Sections are shown on the geology map of the SILTSTONE RIDGE -SECTION A - LOOKING NORTH GOLD- MOLY TARGET SECTION B - LOOKING NORTH Mt Fubilan mine area.

DDH1267 Significant Intercepts DDH1225 Significant Intercepts Section A - Looking North; 63 metres @ 0.24%Cu, 0.19g/t Au and 2.54% S 427.2m @ 0.51% Cu: 0.56g/t Au: 2.84% Deeper Mineralisation in From 0 - 63metres. S: From 22.8m - 450m including Siltstone Ridge is hosted 124 metres @ 0.33%Cu, 0.18g/t Au and 1.96% S 47.2m @ 1.73% Cu: 1.69g/t Au: 2.72% within Monzonite porphyry sills From 103 -228metres. S: From 22.8m - 70m and dykes characterised by 87.0m @ 0.40% Cu: 0.78g/t Au: 2.48% DDH1281 Significant Intercepts S: From 291m - 378m disseminated chalcopyrite in a 102 metres @ 0.37%Cu, 0.19g/t Au and 2.32% S phyllic alteration halo. From 220 - 322metres. DDH1230 Significant Intercepts 181 metres @ 0.39%Cu, 0.09g/t Au and 1.55%S 409.9m @ 0.78% Cu: 0.69g/t Au: 3.57% Section B – From 398 -579metres; Including 13 metres S: From 0m - 409.9m including Gold-molybdenum target. @0.65%cu, 0.09g/t Au and 2.45% S 121m @ 1.96% Cu: 1.47g/t Au: 4.89% High grade gold Mineralisation S: From 0m - 121m DDH1283 Significant Intercepts is hosted within a Monzodiorite 174m @ 0.12% Cu: 0.27g/t Au: 2.79% intrusive; elevated grade zones 81 metres @ 0.22%Cu, 0.20g/t Au and 2.31% S S: From 145m - 319m From 0- 81metres. are characterised by vuggy quartz, 22.8m @ 2.31% Cu: 1.93g/t Au: 7.42% chalcopyrite, molybdenite veins. 102 metres @ 0.47%Cu, 0.32g/t Au and 1.22%S S: From 387.1m - 409.9m From159 -261metres; Including 45metres @0.75%cu, 0.47g/t Au and 1.36% S DDH1232 Significant Intercepts 623.1m @ 0.43% Cu: 0.71g/t Au: 2.72% S: From 14m - 638m including 66.5m @ 1.98% Cu: 1.85g/t Au: 4.21% S: From 14m - 80.5m 84.1m @ 0.34% Cu: 0.79g/t Au: 3.18% S: From 189m - 274m 234m @ 0.31% Cu: 0.88g/t Au: 2.45% S: From 344m - 578m

SECURING OUR FUTURE 37 GEOLOGY CONTINUED

GEOMETALLURGY NEAR MINE EXPLORATION – The main objective of the 2014 drilling at Townsville is to have an Indicated Mineral In line with company strategy and TOWNSVILLE PROSPECT Resource estimated according to the JORC a smaller and more efficient mine, The exploration focus in 2014 will be on Code guidelines and obtain additional Mineral Resource development is targets within a five to ten kilometre radius samples for metallurgical studies. The drilling focussed on geometallurgy, with of the mine and this includes the Townsville in late 2013, resulted in one particular hole the objective of optimising and project. This prospect is hosted within the (TVLDDH81), returning the highest copper improving metallurgical recoveries Pnyang Formation (Miocene age, 5 to 23 grade down-hole intercept (up to 12.1% through effective blending Ma), comprising of near-surface high-grade copper) for skarn mineralisation since strategies. This involves state gold hydrothermal mineralisation and fault drilling commenced at Townsville in 1992. of art core scanning techniques breccia’s grading up to 60g/t Au and deeper This result was 200m west from the main to create detailed mapping of copper-gold calcium-silicate skarns. resource area at “Zone 3” and will be the alterations and mineralogy. In subject of follow-up drilling in 2014. addition, detailed testing will be performed on various lithological/ alteration units to investigate optimum feed scenarios for different blends. It is expected therefore that the project will display effective ore classification for optimum recoveries and 12.1% CU 10.6 G/T AU 161 G/T AG feed rates. These technological developments are led by Brisbane based, JK Tech Consultants and managed by the Mineral Resource development team. An outcome from this work is expected to be 8.93%CU 5.97 G/T AU 125 G/T AG completed in 2015.

The main focus for the Geology team in 2014 will be the drilling Townsville Project drill hole (TVLDDH81) core through copper-gold skarn of the currently identified targets. showing high-grade intercept. Additional geo-metallurgical studies will also be continued to TOWNSVILLE PROSPECT SELECTED DEPTH INTERCEPTS better understand the current ore characteristics from a chemical, AND ASSOCIATED GRADES COMPOSITES, TVLDDH081 rheology and impurities aspect, DOWN HOLE DEPTH INTERVAL (M) CU (%) AU (g/t) AG (g/t) with the intention on filtering down to providing more insight From 68m 46m 0.06 6.33 3.23 into the general impact on the Including from 79m 20.5m 0.07 10.51 4.12 flotation/leaching circuit and how From 184m 80.7m 1.67 1.27 20.32 efficiencies can be improved. Including from 195m 40m 2.63 1.96 25.95 Including from 200m 11m 5.05 4.09 31.77

38 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SECURING OUR FUTURE 39 GEOLOGY CONTINUED

REGIONAL EXPLORATION This analysis will review data received from the 2009 aerial (helicopter) geophysical In addition to drilling and associated survey that was conducted over key fieldwork, the Geology team has planned portions of the Ok Tedi corridor. The aim of other key work for 2014, commonly phrased the “mining our data” project, is to obtain as “mining our data”. A wealth of geoscientific a better understanding of the controls on exploration data has been generated over the mineralisation from a regional scale level last two decades by OTML. This important down to an individual prospect scale. It data will be subject to an internal review and is expected that the outcomes from this analysis and incorporate the Geographic programme will greatly enhance the length Information System (GIS) technology, together of mining operations at Ok Tedi through the with the latest geological research findings on provision of a host of new targets to feed porphyry copper gold systems in the Indo- into the exploration project pipeline. Pacific rim region.

RESOURCE DEFINITION DRILLING

RESOURCE DEVELOPMENT DRILLING

DRILL DATA APPRAISAL

TARGET EXPLORATION DRILLING

FIELD WORK

CONCEPTUAL TARGET GENERATION DATA COMPILATION AND REVIEW

40 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 GEOPHYSICS REPROCESSING KAOWOL EL1677 AND INTERPRETATION: NEW TARGETS • 2009 OTML Heli-magnetic Survey yet to be fully MOUNT IAN INTRUSIVE interpreted and evaluated – currently underway in COMPLEX conjunction with SRK.

TOWNSVILLE • Key OTML dataset that will help define additional exploration targets, including skarns and blind deposits. OK TEDI INTRUSIVE COMPLEX • Revised interpretation will also help provide geological framework and improve understanding of mineral OK TEDI MINE systems within OTML ELs for improved targeting.

5KM

OK TEDI EXPLORATION PROJECT PIPELINE FOR 2014 AND BEYOND

MEASURED RESOURCE 2016 INDICATED RESOURCE

2015 INDICATED RESOURCE TOWNSVILLE PROJECT INFERRED RESOURCE 2016 2016

PROJECT DEVELOPMENT CRITERIA ASSESSMENT 2016 2015 2016

NEAR MINE/SML/ 2015 SULPHIDE CREEK 2015

MT. ANJU EL MIANMIN EL NEAR MINE/SML/ SULPHIDE CREEK DORONGO EL TOWNSVILLE REGIONAL

NEAR-MINE GIS AND OK TEDI 2009 MAGNETIC TARGET GENERATION SURVEY RE-INTERPRETATION

SECURING OUR FUTURE 41 FUTURE IMPROVEMENT PROJECTS

OTML MANAGEMENT FUTURE ORE FROM ALTERNATIVE POWER SUPPLY CONTINUES TO INVESTIGATE MT FUBILAN EAST WALL OTML uses both hydroelectric and diesel FUTURE OPPORTUNITIES Mine continuation studies investigated the thermal power generation. Thermal power TO IMPROVE OPERATING opportunity to access additional resources costs are significantly higher than hydroelectric EFFICIENCIES AND dipping under the east wall of Mt Fubilan Pit power. When river levels are high, hydroelectric power is maximised to reduce the demand CONTINUE THE MINE’S through underground mining. Results showed from high cost diesel generation. A study OPERATING LIFE THROUGH that recovery of the ore was feasible however the tonnages would be far lower than required into the development of extra hydroelectric DEVELOPMENT OF EXISTING by the processing plant on a daily basis and capacity is planned to offset some thermal KNOWN RESOURCES the cost per tonne of recovered ore was generation. Another option under review is to OR DISCOVERY OF NEW far higher, compared to open cut mining partner with the emerging gas sector searching RESOURCES. MINE methods. As a consequence the underground for natural gas resources in the Bige/Kiunga CONTINUATION STUDIES mining option was put on hold and a basin. Development of a regional gas fired power station to supply the major Western IDENTIFIED A NUMBER recommendation was made to undertake a feasibility study on an East Wall cutback. This Provincial centres is a long term option. OTML OF OPPORTUNITIES work will continue through 2014. could install a high voltage power line from a THAT REQUIRED WORK gas fired power station to the mine to replace LEADING TO FURTHER NEAR MINE onsite thermal generation. This project is FEASIBILITY AND ECONOMIC EXPLORATION PROGRAMME still at a conceptual planning phase and STUDIES. THESE INCLUDE will require lengthy engineering studies and The exploration Geology department has stakeholder engagement. THE FOLLOWING: identified a number of potential targets in the near mine region and through sampling TAILINGS STORAGE FACILITY and drilling programmes, will investigate the A preliminary study was completed during the opportunity to increase the Mineral Resources mine continuation work to identify suitable through development of these targets. locations for a close to mine engineered Tailings Storage Facility (TSF) to hold future PROCESSING PLANT CRUSHING processing waste. A TSF could potentially AND GRINDING REVIEW store all or a portion of the tailings and also In 2013 the Sag Mill No 2 outer shell failed be designed to contain future requirements. requiring major repairs and ordering of a A preliminary option study is complete which replacement shell. The crushing and grinding identified three general locations. These circuit has operated for over 30 years and include two traditional sub aerial “valley fill” requires continuous repairs. With the mining impoundments at Ok Lan and Lukwi and scheduled continuing until 2025, there is engineered “turkeys nest” structure in the a risk of future failures with the current old Ningerum area. The projects pose technical plant and equipment. Since the installation risks, have high capital costs and require of the existing plant there have been extensive work including survey, geotechnical, technological advances in the crushing and geochemical, engineering, social consultation grinding of ores. Modern equipment is more and environmental impact assessments. energy efficient per tonne of ore processed. The OTML Board approved a further staged The Processing department will lead a review engineering study to evaluate the TSF of current available technology and develop feasibility in 2014. This work will include economic justification of preferred options to engineering and environmental studies to meet OTML’s future needs. identify the preferred location and complete preliminary designs to definitive feasibility level. This will include further risk assessments and the estimate of the capital and operational costs to construct and operate a facility.

42 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SECURING OUR FUTURE 43 PEOPLE

OTML CONTINUES TO BE THE SINGLE LARGEST EMPLOYER IN THE WESTERN PROVINCE OVER THE PAST 32 YEARS OF OPERATION. THE COMPANY IS PROUD OF THE HIGH SKILL LEVELS ATTAINED BY ITS EMPLOYEES THROUGH ON THE JOB AND FORMAL TRAINING PROGRAMMES. THE COMPANY’S PREFERENCE IS TO EMPLOY PEOPLE FROM THE “PREFERRED AREA’” WHICH ENCOMPASSES THREE DISTRICTS IN THE WESTERN PROVINCE AND THE TELEFOMIN DISTRICT IN THE SANDAUN PROVINCE. In early 2013, the mine continuation project The review also recommended a change to identified that the Company would require the organisational structure and this resulted a restructuring of the workforce to meet in the removal of 288 permanent positions production targets at lower costs. The and also a call for voluntary redundancies. Company decided to take a holistic review of Many of OTML’s long-term employees all labour positions including the permanent have worked in excess of 20 years and workforce, contractors, casual labour and this was deemed to be an opportunity for overtime worked. The review identified that them to retire with respect and dignity. The over the years, there had been a lack of Company developed a Voluntary Departure consistency with rosters and employment Offer (VDO). The VDO conditions exceeded packages. The aim was to simplify the all previously offered redundancy packages complex roster systems and offer a series by other companies in PNG. This included of new rosters and employment packages as a minimum; all of the normal termination in line with industry standards that would benefits, statutory redundancy requirements meet OTML’s needs into the future. The under the Company’s Industrial Agreement review also identified the need to maintain or (2010) and enhanced separation benefits. improve certain conditions of employment The enhanced separation benefits included: whilst reducing overall employment costs. balance of wages paid out till 31 December 2013, pro-rata sick leave entitlement for all years of service, full housing employee assistance package forgiveness of unamortised amounts, a once off PGK 15,000 payment at the end of 2013, an annual bonus (if eligible) and resettlement of employee family and household effects to point of hire. The Company also provided counselling and professional support for financial planning, life skills and money management free of charge.

44 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 In order to support the new FIFO rosters, OTML leased new aircraft to mobilise employees to their field break locations. The planes include three Dash 8s and through a lease with OTDF, two Series 400 Twin Otters. The Company has also completed the construction of three new single persons’ accommodation blocks, with two more to be completed by June 2014. Each three level block can house 108 persons and have been designed to provide modern lodgings which are quiet, safe and comfortable. These facilities will replace some of the older facilities still in use. Mine operators commencing pre-start vehicle checks prior to work. NEW SKILLS With the commencement of the The VDO attracted a further 457 employees employment packages and roster mine continuation, OTML has who took the opportunity to either retire or arrangements. This has proven to be a increased the mining rate to relocate back to their point of hire or other windfall for employees who have accumulated remove the West Wall overburden preferred location. This process was highly generous entitlements. This process has and waste rock in the Mt Fubilan successful partially due to the generous removed the liability from the balance sheet mine. This requires an increase in benefits on offer but also through an and as of 1 January 2014, there were no the mining operations, with new extensive internal communication and change outstanding back entitlements. trucks and shovels or excavators process lead by each departmental head, The new fixed roster system was adopted and ancillary equipment. OTML supervisor and human resource staff member. after consulting with roster and productivity has also decided to move to full In September 2013, with the State acquiring experts, reviewing the industry standard owner operator status for the full ownership of OTML, the Board and also advice from fatigue management mining operations. This requires recommended that as of 31 December 2013, consultants. The new roster system recruitment of mine operators all remaining employees should be fully paid implementation commenced in February including experienced shovel and out with entitlements and sign onto new 2014 and includes the following: excavator operators (as this was previously contracted out) and maintenance staff to maintain Shift workers Work 14 days on and have a scheduled 14 days off; the new equipment. Similar Day staff Work 6 days on and 1 day off for 4 weeks and then have 2 weeks off; and arrangements have been made Residential staff Work 5 days on and 2 days off and have 7 weeks of annual leave to take during the year. for the supporting shipping fleet, with four new ships purchased These rosters are not only simpler and easier to understand, but they align the hours outright by the Company in place worked and general conditions of employment suited towards each type of employee and of existing lease arrangements across all pay grades to provide a more equitable workplace. The rosters also align shift crew and a further two purchased 100%, so they are working with the same crews all the time, also intended to reduce fatigue by the CMCA communities and by minimising body clock changes and allow for more time off site with families for shift leased to OTML through OTDF. workers and day staff.

SECURING OUR FUTURE 45 PEOPLE CONTINUED

One group of staff specifically EMPLOYMENT AND OTML supports the following International targeted for recruitment are Labour Organisation Conventions as experienced PNG nationals. LABOUR RELATIONS ratified in PNG: Over the years, OTML’s training In 2013, OTML employed 2,310 employees • Discrimination (Employment and and development and study and 5,147 contractors. Ninety five Occupation, No. 11); assistance support has produced percent of all staff employees were PNG a range of high calibre PNG nationals and of these, 37.3% were from • Freedom of Association (No. 87); the Western Province. Women made up professionals in the fields • Abolition of Forced Labour (No. 105); of engineering, chemistry, 11% of the workforce. These percentages • Worst Forms of Child Labour (No. 182); metallurgy and finance. During have remained constant through the the mining boom in Australasia organisational structure and VDO process. • Maternity Protection (No. 103); and (2000 – 2012), experienced There is no seasonal variation in employment • Equality of Treatment Accident PNG professionals left PNG and numbers. All OTML employees in all areas Compensation (No. 19). gained employment overseas of the operations are paid in excess of in often senior mining roles. At any minimum wage requirement in PNG. In 2013, 78% of the OTML workforce OTML this resulted in a 40% This applies to all employment categories was covered by a registered industrial loss of senior national staff that including operators, supervisors, apprentices agreement. All OTML employees are had been targeted for leadership and graduates. Both women and male supervised by Company supervisors and roles. Many of these staff gained employees are renumerated with the none are supervised by contractors. All OTML Australian residency and in same pay grades for similar positions. employees are free to form Union collective late 2012, OTML commenced The number of “local” senior managers in agreements. The Company does not stipulate communications with the expat OTML’s operations is 19 from 43 positions. if there are or are not collective agreements PNG community and networked “Local” refers to employees who identify in place. OTML holds regular meetings with to bring them “back home”. the mine associated communities as their registered Union officials. All meetings are A remuneration policy was area of birth. Senior Management refers minuted and actions followed through. In the developed for these staff to to employees on fixed-term three year reporting period there were 12 labour related match their expectations and renewable contracts. All employees have issues raised between employees, the union acknowledge their broader global annual performance reviews. and management. These were all addressed experience. To date three have and successfully resolved and did not result in been attracted back to Ok Tedi work stoppages. with a further eight professionals During 2013 there were four illegal work showing interest in returning. stoppages over various issues that required These highly experienced mediation and intervention or advice from professionals are respected PNG Department of Labour and Industrial by their work colleagues and Relations. Three of the issues were resolved are strong role models for the through the internal resolution process and workforce and are potential one issue required external intervention. future senior managers.

46 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 TRAINING AND DEVELOPMENT OTML has implemented a comprehensive training and development programme across all levels of the Company. This is underpinned by promoting on the job training and ongoing skills development for employees. A succession plan is in place for key roles and employees are encouraged to improve their skills and competencies through internal and external learning and Augustine Wama and Iso Ealedoria discussing planned work in Mt Fubilan Pit. development programmes.

OTML supports opportunities for Employee breakdown by category and location is as follows: employees to up-skill and seek promotion into more senior roles EMPLOYEE CATEGORIES 2009 2010 2011 2012 2013 within the Company. Looking National Staff 1,640 1,653 1,636 1,674 1,737 ahead, many of the higher level Senior National Staff 169 175 181 189 198 training programmes which Expatriates 101 110 108 106 115 were provided for by external Trainees - PNG Nationals in agencies will be managed in- 201 224 204 204 260 OTML training programmes house, allowing for more flexible Total 2,111 2,162 2,129 2,173 2,310 delivery and the development of employees in training roles.

2012 2013 EMPLOYEES NO % NO % Expatriates 106 4.9 115 5.0 Western Province 801 36.9 863 37.3 Non-Western Province 1,266 58.2 1,332 57.7 Total 2,173 100.0 2,310 100.0

GENDER NO % NO % Male 1,933 89.0 2,057 89.0 Female 240 11.0 253 11.0 Total 2,173 100.0 2,310 100.0

DEMOGRAPHICS NO % NO % Under 30 343 15.8 363 15.7 30-39 708 32.6 764 33.1 40-49 679 31.2 710 30.7 Over 50 443 20.4 473 20.5 Total 2,173 100.0 2,310 100

SECURING OUR FUTURE 47 PEOPLE CONTINUED

SCHOLARSHIPS An additional 154 employees commenced sponsored courses at the Centre of Distance Education (CODE). These courses range from year seven to ten high school certificates, AND GRADUATE year 11 to12 matriculation studies and year 12 upgrading. Thirty employees enrolled PROGRAMME in International courses. In 2013, total training and education costs (excluding salaries) OTML’s commitment to providing amounted to PGK 14.5 million (USD 6.4 million). A total PGK 23.3 million (USD 10.3 million) a pipeline of future employees was spent on local trainee, apprentices, graduates and other sponsorship and financial continued in 2013 by providing assistance as part of the training and education programme. 363 scholarships and school fee assistance. The scholarships CORPORATE TRAINING COURSES enable children to move through The OTML Training Department offers the following corporate development courses and the the high school education system breakdown of employees and total hours training completed in 2013 were: to year 10. If their grades meet entry requirements, then students NO. OF TRAINING COURSE NAME EMPLOYEES MALE (%) FEMALE (%) HOURS go to National High School for Diploma of Management (LDP) 14 93 7 1,568 years 11 and 12. OTML also Diploma of Vocational Education reviewed its funding policy in 6 100 0 4,80 and Training (VET) 2013 and an effort was made to continue funding students who Certificate IV in Frontline Management 22 82 18 2,640 met University entry requirements. Certificate IV in Training 19 79 21 3,040 This resulted in 46 graduates and Assessment attracting two year funding Seven Habits of 28 70 30 1,120 scholarships commencing in Highly Effective People 2013, a 70% increase on the 2012 First Aid Training 468 90 10 5,616 graduate intake. The aim is to Computer Training 599 80 20 9,584 facilitate permanent job offers to Professional Development and 31 100 0 744 those graduates with appropriate Leadership Development qualifications. OTML has always Certificate III in Instrumentation 13 92 8 1,560 had a strong commitment to developing trades people through Diploma IV in Instrumentation 10 80 20 1,200 the apprenticeship programme. Total 1,210 26,352 Since 1982, 1,065 sponsored apprentices completed their PERSONAL VIABILITY COURSE courses and in 2013 a further As part of the personal development programme, OTML offers a Personal Viability Training 59 young men and women course. In 2013, 340 staff completed the course which coaches individuals on how to better were given the opportunity to understand their own makeup and how they operate. From this understanding employees commence an apprenticeship. learn how to become more confident, self-reliant, prosperous and sustainable. The course A further 42 sponsored trainees introduces the concepts of moral and spiritual growth which teaches individuals to better commenced enabling courses understand and organise themselves to achieve their goals in life. as a precursor to full time employment with OTML. Training and development is targeted to the “preferred area” employees.

48 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SECURING OUR FUTURE 49 OCCUPATIONAL HEALTH, SAFETY AND WELLNESS

OTML IS COMMITTED TO OHS is a critical requirement of OTML’s SAFETY PERFORMANCE business and the requirements are set- ACHIEVING THE HIGHEST The safety performance in 2013 was out in the OHS Policy and the Code of PERFORMANCE IN outstanding with the best results recorded Corporate Conduct and Business Ethics. It is OCCUPATIONAL HEALTH in the past five years with a significant a requirement that all OTML employees and reduction in serious injuries compared to AND SAFETY (OHS) WITH contractors follow the OHS Policy, standards 2012. OTML reports against the industry THE AIM OF CREATING and procedures; attend daily safety talks and standard lagging indicators of; Total on-going training programmes. AND MAINTAINING AN Recordable Injury Frequency Rate (TRIFR), ORGANISATIONAL CULTURE OTML requires all employees, contractors Lost Time Injury Frequency Rate (LTIFR) and THAT ACTIVELY SEEKS TO and visitors to be inducted prior to entering Significant Incident Frequency Rate (SIFR). IMPROVE WORK PRACTICES OTML controlled work areas. The inductions There was a 47% improvement in TRIFR, WHICH SUSTAIN A SAFE are specific to the area of work and provide a 69% improvement in LTIFR and a 45% AND HEALTHY WORKING information on area hazards, emergency improvement in SIFR in 2013 compared to contacts and Personal Protective Equipment 2012. This result was achieved even through ENVIRONMENT THROUGHOUT (PPE) requirements. there was considerable uncertainty during ITS BUSINESSES. the workforce restructuring in the latter part OHS training is important to ensure that people THIS COMMITMENT IS of the year and the complexity of the risks at have the necessary understanding of the Ok Tedi. A total of 15.5 million person hours UNDERPINNED BY THE hazards and risks associated with the work were worked for the year for both OTML and “ZERO HARM” PHILOSOPHY they undertake and also to implement the its contractors. WHERE AN INCIDENT AND appropriate controls and procedures so that INJURY FREE WORKPLACE work can be completed correctly and safely. As at December 31 2013, OTML had worked a total of 6.1 million person hours without a IS ACHIEVABLE. In 2013, Occupational Health and Safety lost time injury. During 2013, PGK 6.4 million and Wellness (OHSW) training totalled (USD 2.8 million) was spent on OHSW capital 61,560 person hours. The OHSW Training projects. These results maintain OTML’s (OHSW&T) Department offers a 104 OHS position as a premier safety leader not only courses across all areas of the business. in PNG but also when compared against the The OHSW&T team is a centralised resource global metalliferous mining industry. providing support and advice on OHSW OTML management is committed to issues to the operating departments. They co- achieving Zero Harm and during the ordinate a centralised OHSW management restructuring period in the latter half of system and organise monthly OHSW 2013, Visible Leadership was implemented campaigns based on various safety themes. by managers attending shop floor safety Each major operating section has dedicated meetings and workplace inspections. These OHSW staff including an OHS manager at the interventions not only helped identify potential Mine and Processing departments. hazards, but demonstrated management’s commitment to OHS&W and also offered employees further opportunities to discuss issues with their supervisors and managers.

50 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OTML annual safety performance indicators OCCUPATIONAL LAGGING TARGETS (OTML AND CONTRACTOR) 2009 2010 2011 2012 2013 HEALTH AND SAFETY LTIFR (per year) 0.56 0.21 0.53 0.82 0.26 COMMUNICATIONS OTML has a monthly TRIFR (per year) 3.51 2.69 3.25 2.80 1.49 occupational health and safety SIFR (per year) 1.89 2.41 3.32 3.47 1.94 theme which is rolled out to all work locations through ANNUAL SAFETY PERFORMANCE toolbox meetings. Ongoing OHS awareness sessions are Frequency Rate Total Recordable Injury Frequency Rate Significant Injury Frequency Rate Lost Time Injury Frequency Rate conducted throughout the 4.0 year. OTML has implemented

3.51 a layered approach to OHS 3.47 3.32 communications. This includes 3.25 3.0 face-to-face formal meetings, 2.80 2.69 informal coaching by peers and

2.41 supervisors, noticeboards and the use of the Company radio 2.0 1.89 1.94 network and television channel to broadcast OHS messages 1.49 and get the information to as 1.0 many people as possible. OHS 0.82 messages are also loaded onto 0.56 0.53 each computer screen saver on 0.26 0.21 the OTML network. 0 2009 2010 2011 2012 2013 Formal communication through structured meetings Each year the management team review OCCUPATIONAL HEALTH AND provides employees and the findings of the OHS audits and as part contractors, the opportunity to SAFETY MANAGEMENT SYSTEMS of the annual planning cycle develop OHS provide feedback and participate Work continued on further integration and improvement programmes. These plans in processes that impact their standardisation of the OHS management are compiled in the Safety, Health and areas of work and/or areas of system to align with OHSAS 18001 Environmental Action Plan (SHEAP) and responsibility. These include: requirements. In 2013, an external audit of the actions are allocated to departments and system indicated an overall 8% improvement individuals for implementation. Progress • senior managers’ against the OHSAS 18001 criteria compared against the SHEAP is formally reviewed leadership: health, safety, to 2012. In late 2013, the business decided during each quarter. In 2013, the target for community relations and to upgrade all of its operating systems to a SHEAP completion was 80%, however an environment meetings; fully integrated management system using actual completion rate of 83% was achieved. • safety technical the SAP business software in 2015. This committee meetings; opportunity will enable both the Risk and A review of the Company risk and injury OHS modules to be fully embedded into the data identified that there were twelve areas • departmental OHS meetings; integrated system. Whilst this may impact of significant risk. A major awareness • occupational health, on the Company’s immediate goal to have programme was rolled out to all employees safety and environment the OHS system aligned with OHSAS 18001 and contractors. Monthly safety themes contractor meetings; by 2015, there are still significant benefits to address a particular risk. Resource training, be gained by having a fully integrated OHS wall posters, task observations and audits • tool box meetings; will continue to be deployed throughout system by late 2015. • shift pre-start meetings; 2014 to ensure safe work procedures are being followed. • technical working groups; and • risk assessment working parties and review meetings.

SECURING OUR FUTURE 51 OCCUPATIONAL HEALTH, SAFETY AND WELLNESS CONTINUED

OCCUPATIONAL Not all employees are exposed to all of these review, annual medicals will be introduced hazards and therefore work activities were in 2014 commencing with employees in HEALTH PROGRAMME assessed to identify which occupations the higher risk exposure groups, in order to During 2013, OTML continued to were potentially at risk. A number of monitor changes in the individual’s health develop its occupational health these hazards are seasonal, for example, and to allow the implementation of suitable monitoring programme. OTML dust during short periods when the Ok interventions. OTML is also working with the has engaged external specialists Tedi region is dry. Baseline monitoring catering partners, to provide healthy meal who have completed target programmes continued to be conducted options to all the meal facilities. occupational health monitoring to collect information across all work sites. During 2013, the services that provide part campaigns, supported the The information collected in 2013 has of the Employee Wellness programmes were Company’s management system been analysed and will assist in a more restructured, resulting in the centralisation of development and provide training targeted monitoring programme in 2014. In all services under the OHSW&T Department. to occupational health staff. areas where the monitoring has indicated The Department coordinates the EHWP, higher than recommended exposures, a A review of potential the Recreational Services Section and the review of engineering controls and PPE occupational aspects that Employee Assistance Programme (EAP), requirements were completed. Associated could impact on employees’ combining all areas relating to the promotion with this information is the development of health identified the following of a holistic approach to employee support information training packages on the hazards occupational hazards: through physical, medical and psychological and controls for delivery to employees and • dust and fibrous minerals; wellbeing. The medical staff at the mill, contractors as part of the Company’s OHS • noise; mine, Kiunga and Bige clinics are also part toolbox talks. • lighting; of the Department. In 2013 a new medical • vibration; and assessment facility was approved at • ergonomics. EMPLOYEE HEALTH AND Tabubil to facilitate mandatory medical and WELLNESS PROGRAMME position profile assessments services in the The aim of the Employee Health and workplace, whilst the Tabubil hospital under Wellness Programme (EHWP) is to assist the management of DPhL, will continue to employees to remain physically and provide routine and emergency care to the medically fit for work and also enjoy quality greater Tabubil community. time with their families. As part of the EHWP in 2013, the Company commenced with targeting lifestyle factors including those that contribute to heart complications like obesity, high blood pressure and diabetes. In 2013, an increased number of patients were referred from the hospital for non-work related illnesses requiring overseas attention in Singapore, Philippines or Australia. The number of referrals increased from 10 in 2012 to 41 in 2013, with the increase being mainly due to improved diagnosis. In 2013, the Company reviewed its pre-employment medicals and this resulted in adopting a number of lifestyle factor assessments for inclusion in future testing. As a result of this

52 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SECURING OUR FUTURE 53 OCCUPATIONAL HEALTH, SAFETY AND WELLNESS CONTINUED

FATIGUE MANAGEMENT OFF-THE-JOB HEALTH OTML AND STATE MINING The management of fatigue in the AND SAFETY DEPARTMENTS workplace is a priority for OTML. OTML also introduced an “Off-the-Job” The OTML OHSW&T Department is active in In 2012, fatigue was identified safety campaign that has targeted families partnering with the PNG Mines Inspectorate as a contributing risk factor to and schools. The Company believes that through the Apex Mining Safety Council to incidents that need to be pro- safety does not stop at work and that it develop mining specific guidelines for major actively managed. Factors that is part of everyday life. Mechanisms to hazards. OTML coordinated with other PNG can contribute to fatigue include; ensure that safety and health awareness are mines to develop the guidelines for Light the work hours and rostering available to the families of OTML employees Vehicle operations. Other guidelines currently and night shift employees not and contractors were incorporated into the under review by the Apex Mining Safety sleeping adequately during campaign and form an important part of Council that OTML has contributed towards the day. In 2013, OTML getting commitment for the ongoing health and include fatigue management, supervision, commenced a three year fatigue safety improvement of OTML’s employees. and contractor management. The PNG management programme, by Department of Mineral Policy & Geohazard A school health and safety programme was engaging Dr Adam Fletcher of Management is currently undertaking a review conducted over a five month period for all Integrated Safety Support Pty of the Mining Health and Safety Act. OTML the local schools. The programme featured Limited, a fatigue specialist from has provided senior staff support to the PNG topics such as bicycle safety, playground Melbourne, Australia. Chamber of Mines and Petroleum peer review safety, road safety, dental care, healthy diet of the draft Act and Regulations. OTML also The programme kicked-off and eye care. The OTML healthy eating and prepares regular OHS reports for the PNG with site surveys and includes wellness mascot “Moses Munch” kept the MRA including monthly, quarterly and the awareness training, supervisor children focused on the important topics Annual OHS Year Books as requested by the fatigue tool kits, assessment being presented. of fatigue across all areas of PNG Chief Inspector of Mines. the operation and the impact OTML organised a safety week in Tabubil of cultural issues. The report as part of PNG Mineral Resources Authority SECURITY HUMAN identified areas for improvement nationwide initiative to showcase the OHS RIGHTS TRAINING including rosters, single persons’ initiatives and work being undertaken by The OTML Asset Protection Department accommodation, and the need OTML and the contractors towards safety (APD) manages security and contractor for awareness and management improvements. During the week a variety security for OTML Assets. Human Rights training. These findings have of activities were staged to focus on the training completed in 2013 meets the been incorporated into new importance of health, safety, and wellness. content intent of the International Voluntary working roster arrangements, for The highlight of the week was the Expo, Principles on Security and Human Rights. implementation in February 2014 which was open to all stakeholders, schools and also incorporated into the and the general community. design of the new single person accommodations. The fatigue monitoring programmes will be continually reviewed and refined during 2014 to 2015.

54 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 CASE STUDY

EMERGENCY RESPONSE 2013 PNG MINING EMERGENCY RESPONSE CHALLENGE OTML has developed competent In November 2013, OTML was the proud host of the 3rd National Mining Emergency Response Teams (ERT) under Emergency Response Challenge in Port Moresby. The aim of the challenge was the direction of the APD. Due to the remote to allow the Company’s emergency response teams to compete in both theory location of the mine and limited public and practical exercises. The challenge provides an avenue for individual and emergency response capability, OTML team self-improvement and for individuals to take away positive experiences. has to be able to mobilise its teams in Karl Spaleck, Chairman of the National Apex Mining Safety Council, told the the event of an emergency. Regular risk participating teams at the welcoming night that anything was possible in PNG reviews are completed to identify the range if they applied themselves diligently. ‘The challenge itself is not only about of emergencies that could occur during winning trophies, it’s about the opportunity to measure oneself as a team and to exploration and mining activities, at the challenge oneself to reach full potential. It is about being leaders and respecting processing facilities at Kiunga and Bige and others and about integrity, honesty, and also responsibility’. during logistic and transport activities. Due to the distance between each operational The teams came from the following PNG mineral resource projects and companies: base, the Company has developed an ERT • Hidden Valley Gold Mine - Morobe Mining Joint Venture; at each centre. • Porgera Gold Mine - Barrick Gold; Training of Emergency Response Teams • Oil Search Limited; is an ongoing commitment so each team • Ramu Nico Management (MCC) Limited; member can develop the skills required to • Simberi Operations – St Barbara Limited, rapidly deploy in the case of an emergency. • Lihir Gold Mine – Newcrest Mining Limited; and Training is to Certificate IV competencies • Ok Tedi Mining Limited. and based on Australian course material All teams took part in the following seven events: Hazardous Material and hands on practical training sessions. Management, Rope Rescue, Search and Rescue, Fire Fighting, Multi-Casualty, Following each training session and Endurance, and Theory. emergency callout, debriefing sessions are The following assessments were carried out during each event: Captain Assessment, conducted to identify what worked well Team Safety Assessment, First Aid Assessment, and Scenario Assessment. and areas for improvement. In 2013, OTML hosted the 3rd National Mining Emergency On the afternoon of the welcome reception, the 63 participants undertook a Response Challenge at Sir Hubert Murray written theory paper followed by the Chief Inspector’s question session. Stadium in Port Moresby. During the presentation night, OTML’s MD and CEO, Nigel Parker remarked that the nine teams were all to be congratulated on the participation and enthusiasm for the challenge and that their skills were an integral part of safety management in the resource sector in PNG.

Image: OTML emergency response members recovering a simulation motor vehicle accident victim during the challenge

SECURING OUR FUTURE 55 ENVIRONMENT

OTML IS COMMITTED TO The Ok Tedi mining operations are centred The 2013 focus areas for the environmental ACHIEVING IMPROVEMENTS on the Mt Fubilan deposit in the upper team are as follows: Fly River catchment in the remote Star IN ITS ENVIRONMENTAL • monitoring and assessing the effects Mountains, Western Province and only PERFORMANCE AND AS A of tailings and waste rock disposal 16 km east of the Indonesian border. The on the downstream riverine receiving MINIMUM REQUIREMENT, mine is located at approximately 2,000 environment and the communities MEETING THE CURRENT m relative elevation in an area of dense who depend upon natural resources rainforest where annual average rainfall ENVIRONMENTAL LICENSE throughout the Fly River system; CONDITIONS. is approximately 10,000 mm per annum. Geotechnical hazards comprise fractured • mine mitigation programmes aimed at and friable siltstone with limestone outcrops reducing sediment and chemical effects that erode easily, resulting in frequent on the riverine system; localised landslips. • monitoring the establishment of the The OTML Environment department is engineered waste rock stable dump; responsible for providing advice and • rehabilitation trials on the riverine dredged support to the operational teams, by stockpiles at Bige; monitoring and assessing the effects of • working with the PNG Department of the mining and associated activities on Environment and Conservation and the receiving environment, implementation their external reviewers to complete an of environmental mitigation programmes external review of the environmental and support to the Community Relations studies for mine continuation studies; department with environmental information. The team is responsible for monitoring • waste management initiatives; and impacts along the 900 km downstream • environmental management system riverine system from the mine to the Gulf development. of Papua. This includes maintaining a hydrological network of monitoring stations COMPLIANCE MONITORING along the river system, regular field sampling The Ok Tedi Mine is governed by the campaigns and community consultation and Mining (Ok Tedi Agreement) Act, 1976 as information dissemination in consultation amended and supplemented. The schedule with the community relations team. The to this Act is the Principle Agreement that is environmental department uses contract amended from time to time and to date has local labour to assist with monitoring and been amended ten times previously. The Ninth maintaining the hydrologic network. The Supplemental Agreement that was passed by department has its own environmental the PNG Parliament in 2001 has adopted the testing laboratory facilities that are PNG “Environmental Regime” which contains OTML’s Laboratory Accredited and also sends environmental management and reporting samples overseas for complex determinants obligations against a set of six environmental and to maintain a high level of quality values. The Environmental Regime requires control. In 2013, PGK 235.6 million OTML to undertake specific annual monitoring (USD 88.5 million) was expended on activities and to prepare an Annual Environmental environmental programmes. Report (AER) for the State.

56 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OTML prepared the 2013 AER (covering July 2012 – June 2013) and submitted a copy to the State in September 2013. The Mine was in compliance with all the Environmental Regime conditions and there were no fines or non-monetary sanctions. This is summarised below and compared to the previous four years of monitoring:

ENVIRONMENTAL CRITERIA 2009 - 2013 COMMENTS REGARDING 2013 ASSESSMENT The water in the main channel and the floodplain satisfies drinking water standards if allowed to settle. Apart from dissolved copper (dCu), key water quality parameters measured in 2013 were within Water in main channel acceptable limits of aquatic ecosystem standards (ANZECC, 2000). Dissolved copper is the main concern satisfies drinking water Compliant for water quality within the river system. While the concentration measured is variable with time and standards space, an improving trend has been observed, especially in the Middle Fly, over the last decade. This improvement reflects changes in mine cut-off grade and the implementation of the mine waste tailings project in 2008. Levels of contaminant metals (Cd, Cu, Pb and Zn) in Fly River fish were comparable to levels in similar Fish metal concentrations food within relevant international (Australian and US) and regional (Porgera, Strickland and Fly) market are below ANZFA Food Compliant basket and dietary studies. Intake of these metals was within the range of the values established by the standards guidelines World Health Organisation. Terrestrial food resources Levels of contaminant metals (Cd, Cu, Pb and Zn) in terrestrial food were comparable to international are below ANZFA Food Compliant (Australian and US) and regional (Porgera, Strickland and Fly River catchments) market basket and dietary standards guidelines studies. Intake of these metals is low compared to the World Health Organisation thresholds. River levels over the past decade have generally been above average due to the absence of El Nino Fly River navigability Compliant conditions. There was no unusual impediment to shipping due to low river levels during 2013. There were 47 non-shipping days at Kiunga in 2013 compared with 52 in 2012. A general decrease in dCu and bioavailable copper concentration has been observed over the last decade. Dissolved and bioavailable These decreasing trends are caused by a combination of factors including: high water levels, decreasing Compliant copper concentrations exposure of oxidisable sediments, implementation of the mine waste tailings project and a decrease in copper cut-off grades. Algal growth inhibition (%AGI) at all compliance sites except Ningerum was below or only slightly exceeding the 5% threshold for significance, as has been the case over the last five years. Bacterial Undertaking eco-toxicological growth inhibition (%BGI) at all sites mostly exceeded the 25% threshold value for significance. %BGI for Compliant monitoring programme Obo and to a lesser extent, Nukumba has generally decreased over the last five years. The improvement in %AGI and to a lesser extent %BGI observed over the last decade is associated with the observed decrease in the concentrations of dissolved copper and bioavailable copper. Fish biomass remains Analysis of the long term (1983-2013) catch data shows a biomass decrease at all sites monitored with sufficient to provide food for Compliant the highest decreases observed closest to the mine. While biomass decreases are observed throughout households along the river the system, there remains sufficient fish to satisfy the food needs of the community. Vegetation dieback mapping undertaken in 2013 revealed that the total area affected by dieback was 1,875 km2, representing a 3.0% (55 km2) increase over the previous year. The area under some form of Extent of vegetation dieback Compliant recovery has fallen 3.4% (from 298 km2 to 288 km2). The area of dieback is approaching its maximum likely extent, which is significantly less than the previously predicted future maximum extent of 2,395 km2. Results of the extensive surveys of sediments in the river system and the mine waste dumps conducted Monitoring of potential during 2013 indicate that the acid-base chemistry of the riverine sediments continues to improve for ARD formation within Compliant following the implementation of various mitigation measures, especially the mine waste tailings project. mine and river The critical ANC/MPA ratio in dredged sediments at Bige increased to an annual average of 1.98 in 2013, the third consecutive year that the ratio has exceeded the target of 1.5.

SECURING OUR FUTURE 57 ENVIRONMENT CONTINUED

Fungal communities growing in the natural environment.

MANAGEMENT OF MINING The primary environmental and human health risks associated with riverine waste WASTE ROCK AND TAILINGS disposal based on external and internal risk The primary effect of the mine operation assessments include: on the environment is caused by the use of riverine waste disposal. In 2013, 15.7Mt of • increased duration of overbank flooding tailings was discharged to the upper reaches and associated forest dieback; of the Ok Tedi, and 44.9Mt of waste rock • the potential to generate Acid Rock was discharged to a failing dump to the Drainage (ARD) due to oxidation of north of the mine and the stable waste dump residual pyrite in waste rock dumps and to the south of the mine. The discharge tailings exposed on raised sandbanks of waste to the river results in sediment and river banks during low flows. deposition on the bed of the river and to a Limestone waste, which can neutralise lesser extent on the associated floodplains. the ARD has decreased as mining accesses deeper ore zones;

• increased metal concentrations (especially copper) in both dissolved and particulate phases in the river system and the risk of adverse ecological effects; and

• decrease in fish biomass in the main channels through smothering of habitat and dissolved metal concentrations.

58 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 The table below summarises the main environmental risk mitigation programmes implemented by OTML.

MITIGATION APPROACH RATIONALE AND EFFECT Bed aggradation occurs when sand particles settle on the bottom of the river bed, which increases the amount of time the river floods its floodplain in high flow and consequently can cause vegetation dieback. While the area of dieback has continued to slowly increase since 1998, the rate of increase has markedly decreased and presently is not expected to reach the original estimated area of 2,395 km2. Removal of riverine sediments The dredge removes 85% of sand passing Bige which is approximately 100 km downstream of the mine. In 2013, by dredge at Bige. 18.9Mt of sand and silt were removed from the river and placed in engineered stockpiles on the East and West Banks (1998 – current) of the Ok Tedi River. Measurement of the river’s cross-section at various points downstream of the dredge show that the bed aggradation has stabilised since the implementation of dredging. However, there is a ‘wave’ of sand that was downstream of the dredge in 1998 that is slowly moving through the system and which will cause increased floodplain inundation in the lower reaches of the middle Fly River over the next few decades. The removal of pyrite from tailings is important to reduce the risk of ARD formation when sulphur oxidises if left exposed on sandbars or river banks in low river flow conditions. The MWTP treats tailings to remove most of the pyrite and transports the PCon 125 km downstream by pipeline to Bige where the PCon is stored in pits below the water table on the West Bank of the Ok Tedi River at Bige. Mine Waste Tailings Project (MWTP) When full, the PCon pits are covered with at least 10m of dredged sand to ensure that the PCon remains saturated (2008 – current) with water (which renders it unreactive) even under drought conditions. The material being dredged at Bige in 2013 was not acid forming and is being used to produce a final capping cover for the stockpiles. In addition, the sulfur concentration of sediments in the river system has shown a gradual decrease in concentration. The MWTP will ensure that the sulphur concentrations in the river will continue to decrease. To minimise the risk of ARD developing in the failing waste dumps at Mt Fubilan, limestone is added to the waste rock stream to make sure that there is sufficient excess limestone to control any oxidation of pyrite in the waste rock. This -150 NAPP plan is referred to the -150 NAPP (Net Acid Production Potential) plan. (2002 – current) OTML monitors the NAPP of the mine area creeks immediately downstream of the waste dumps on an annual basis. Since the implementation of the -150 NAPP plan, sediments in the mine area creeks have generally approached or exceeded the -150 NAPP target and no evidence of ARD formation is observed. To increase sand-sized limestone particles to the riverine deposits in the Ok Tedi River, the mill has produced on average, Milling Limestone 4,000t of limestone per day. Monitoring shows that the limestone content of material reaching Bige increases, but the (2010 – current) effect is muted due to deposition of limestone in the river upstream of Bige (which improves ARD control upstream of Bige). Since the implementation of this initiative, a gradual increase in limestone content at Bige has been observed. In 2013, the cut-off ore grade was lowered due to location of the ore zones in the pit and ore availability. This has the effect of converting waste containing significant quantities of copper into ore. The copper is extracted by metallurgical processing before disposing of the residue tailings material. The effect of this is to decrease the total load of copper Changes to mine cut-off ore grades being added to the rivers. (continuous) In combination with the MWTP the copper concentration in dredged material at Bige has decreased by approximately 20% over the last three years. The average dissolved copper concentrations in the river system have fallen year on year to a low 7 microgram per litre (ug/L) in 2013 compared to 10 ug/L in 2009.

SECURING OUR FUTURE 59 ENVIRONMENT CONTINUED

BIODIVERSITY IMPACTS Since 1998, OTML has operated a Detailed fish diversity studies throughout dredging operation at Bige that removes the Ok Tedi and Fly River systems have The primary impacts on approximately 85% of the sand-sized been completed in 2005 and 2011/12. The biodiversity are caused by the material passing through the river system. By most recent independent report; “Fly River use of riverine waste disposal removing the sand, increases in floodplain fish diversity survey 2011/2012”, stated and to a lesser extent land inundation downstream is reduced and since that, clearing for Bige stockpiles. The “Overall the 2005 and 2011/2012 the implementation of dredging, the rate of discharge of waste to the river fish diversity surveys and associated increase of dieback has decreased markedly. results in sediment deposition sampling in the catchment since 2000 have on the bed of the river and to a A second major effect on biodiversity relates demonstrated that the majority of the fishes lesser extent on the associated to fish diversity. OTML has monitored fish in the Fly River system continue to maintain floodplains. The secondary biomass and diversity using standardised populations within the catchment, but with effect of sediment deposition on methods since 1983 and is therefore able to marked reductions in the diversity of fishes the bed of the river has caused assess the effect of riverine waste disposal in most reaches downstream of the Ok Tedi an increase in the duration of on diversity particularly in the main channels mine, at least as far as Everill Junction where floodplain inundation, which has of the river where the effect of riverine waste the Strickland River converges with the in turn resulted in conversion of disposal is greatest. It is conservatively Fly River, and possibly downstream of that parts of the forested floodplain to assumed that the decrease in fish diversity point. Declines are more pronounced in the grassed floodplain in the lower Ok is solely due to the Mine’s riverine waste channel, but changes in the floodplain are Tedi and the Middle Fly reaches disposal practices. However, there are also also evident”. of the river system. The forest other effects due to: OTML will continue to monitor the dieback extent is monitored riverine biodiversity as part of the annual • a rapidly increasing human population annually and reported to the monitoring programme and maintain the with greater access to modern technology State in the Annual Environmental environmental mitigation projects to reduce (e.g. outboard motors and fishing nets); report. In 2013, 1,875 km2 the overall impacts. of dieback was recorded, of • a commercial fishery that operates which 288 km2 showed some periodically in the middle Fly; and ENVIRONMENTAL form of recovery. The areas • introduced species such as Tilapia PERFORMANCE have not been recorded on the appearing in the rivers and off water bodies. OTML is committed to improving PNG register as having high Fish diversity is monitored annually at three environmental performance across all biodiversity values or protected sites in the middle Fly River and reported to aspects of the Company’s operations and status. OTML has not developed the State in the annual environmental report. have prepared the 2013 data tables and Biodiversity Management Plans In 2013, decreases in species richness (used previous four years of data for comparison. for the impacted area. No direct here as a surrogate for ‘diversity’) of 35%, The total volume of waste rock and tailings restoration of impacted areas 51% and 37% over the period from 1983 to disposed in the riverine environment in 2013 has occurred, however regular 2013 were reported at the three monitoring was 59.9Mt, consisting of 44.2Mt of rock and monitoring is completed. sites at Kuambit/Erekta, Bosset and Ogwa. 15.7Mt of tailings. The tailings production was 37% lower than 2012 production. This was due to extended down time as a result of the failure of the SAG mill 2, pit flooding impacting on ore delivery and general maintenance time in the processing circuit.

60 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 CASE STUDY

WATER USAGE WASTE RUBBER RECYCLING PLANT In 2013, total water use was 31% lower than Disposal of mobile mining equipment waste tyres is a global mining industry in 2012 and 77% of the water was recycled environmental management issue. Current industry practice has been to bury through the processing plant with only 23% these tyres in engineered constructed waste dumps. Environmental concerns made up of freshwater. Whilst the overall total have been raised about the potential risk that tyres can resurface from the waste water use reduced, the water use per tonne of dump burial in the future and the leaching of contaminants into waterways. copper increased from 109 to 122m3/t. At OTML burial of tyres in engineered waste dumps is not an option, due to the failing waste dump methodology. Tyres and other major rubber waste such as ENERGY CONSUMPTION used conveyor belts have been stockpiled at various locations at the Mt Fubilan Mining and processing of ores is an energy mine site and at Tabubil. This waste stream totals approximately 40,000m3 in intensive industry. OTML is a significant 2013 and occupies valuable land, is unsightly, a fire hazard, does not break user of diesel fuel in PNG. Fuel costs are a down and is a potential community health risk by providing a breeding site for major component of the overall costs and rodents and mosquitoes. where possible high cost fossil fuel use is In 2012, OTML purchased plant and equipment suitable to convert tyres and minimised whilst hydroelectric base load conveyor belts into three recyclable products including: rubber crumb, steel and power is being generated. waste textile. This plant is a first for PNG and cost PGK 14 million (USD 6 million). Diesel is used for all major transportation The plant was commissioned in 2013 and small batches of tyres processed including: powering of cargo ships and to confirm product consistency. In 2013, 139t of tyres and conveyor belt was concentrate barges, road transportation crumbed, resulting in 107t of rubber crumb with the rest being steel or fibre belt. of materials and goods from the Kiunga The plant produces a rubber crumb (1-3 mm granules), and OTML sold 70t wharf facility to Tabubil town and the mining to an Australian firm specialising in using the crumb for recycled products. fleet consisting of trucks and shovels and This includes; a component of asphalt road construction as a residual binder, ancillary equipment and supplementary low impact surfaces for sporting fields, playgrounds and gymnasiums, sound power generation at Tabubil and Kiunga. suppressing cladding for walls, bollards, boundary posts, road barriers, speed In 2013, total diesel consumption was bumps and rubber bricks. Further developments are planned to recycle the 93.3 Megalitres (ML) and 26% was used rubber crumb into usable products onsite. for power generation. Diesel is sourced from the PNG State owned Interoil refinery Image: Waste rubber recycling plant during commissioning. in Port Moresby and shipped to Kiunga. Hydroelectric power provided 74% of the power requirement through the two hydroelectric generation stations, one at Ok Menga and the other at Yuk Creek.

Twelve Gigawatt hours (GWh) of electricity, comprising approximately 2% of OTML’s total of 520GWh of electricity generated, was sold to Western Power Utility for distribution in the Kiunga town.

Greenhouse gas emissions were 40% lower at 232,000 t CO2-e in 2013 compared to 2012. This decrease is attributed to less fuel use and higher hydroelectric power generation. The main CO2 sources include diesel power generation, transportation and

CO2 generated as part of the conversion of limestone to lime in the lime kiln.

SECURING OUR FUTURE 61 ENVIRONMENT CONTINUED

ENERGY TYPE 2013 CONSUMPTION (PJ) Total energy used (fossil + renewables) 5.07 Total energy (fossil) 3.69 Total renewable energy 1.38 Energy used for transportation (ships, planes, transport etc.) 3.2

ENVIRONMENTAL MANAGEMENT PERFORMANCE 2009 2010 2011 2012 2013 Environmental induction (No. of OTML and contract employees) 3,339 1,403 1,364 1,978 1,745 Environmental action plan (% completed) 74 81 85 81 81 Incidents level 3+ (medium, major or catastrophic) 0 1 5 1 1

WATER MANAGEMENT Total water used (‘000 m3) 44,051 64,354 56,434 75,542 57,665 Freshwater (‘000 m3/% of total) 18,569 / 42 12,227.3 / 19 9,730 / 17 13,601 / 18 12,840 / 23 Recycled water (‘000 m3/% of total) 25,482 / 58 53,259 / 81 46,704 / 83 61,940 / 82 44.820 / 77 Freshwater intensity index (m3/t contained copper) 124 77 75 109 122

WASTE MANAGEMENT Total riverine disposal (‘000 t) 54,235 45,705 27,279 53,978 59,873 Waste rock (‘000 t/% of total) 33,965 / 63 25,412 / 56 9,485 / 35 32,517 / 60 44,177 / 74

Tailings (‘000 t/% of total) 20,270 / 37 19,570 / 44 17,794 / 65 21,461 / 40 15,696 / 26

Riverine disposal intensity index (t/t contained copper) 360 286 209 431 464 Annual dredge slot production rates (Mt) 18.2 18.0 17.9 18.0 18.9 Average annual % sulphur in waste rock 1.46 0.92 0.25 0.53 0.68 Average annual % sulphur in tailings 0.82 0.99 0.95 0.86 0.86 Average annual ANC/MPA in dredged sediments 1.11 1.33 1.58 1.64 1.98 Average dissolved copper (ug/L) at Nukumba 10 9 9 8 7 Scrap metal (t shipped for recycling) 5,064 6,142 6,124 4,869 4100

ENERGY AND GREENHOUSE GAS PRODUCTION Total diesel consumption (ML) 105.6 114 95 106 93.3 Diesel consumption for power generation (ML/% of total) 43.1 / 41 51.6 / 45 39 / 41 45 / 42 31.6 / 34 Diesel used for machinery / other (ML/% of total) 62.5 / 59 62.2 / 59 56 / 59 61 / 58 62.7 / 66 Electricity use (MWh) 521,500 483,516 469,478 532,899 519,700 Diesel generated electricity (MWh/% of total) 139,098 / 27 151,113 / 31 126,801 / 27 159,364 / 30 134,700 / 26 Hydroelectricity (MWh/% of total) 382,402 / 73 332,403 / 69 342,677 / 73 373,535 / 70 385,000 / 74 Power sold (MWh) NR NR NR NR 12 Energy intensity index (MWh/t contained copper) 3.5 3 3.6 4.3 4.8

GHG emissions (‘000 t CO2 e) 391 422 352 392 232

GHG emissions index (t CO2 e/t contained copper) 2 2 2 3.1 2.2 New land disturbed in 2013 (ha) 0 0 0 54.9 30 Total land disturbed to date (ha) 2,623 2,623 2,623 2,678 2,708 Land rehabilitated in 2013 (ha) 0 0 0 0 42

(NR = Not recorded)

62 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SECURING OUR FUTURE 63 LAND DISTURBANCE AND MINE CLOSURE PLANNING In 2013, a further 30ha of new land was disturbed for the expansion of the Bige sediment stockpiles, taking the maximum disturbance to 2,708ha. During this period, 42ha of Bige stockpiles were rehabilitated using a mixture of grasses and tree species. No land rehabilitated meets the end land use. MINE CLOSURE PLANNING The progressive rehabilitation of land and mine closure planning are required to meet stakeholder expectations and environmental licence conditions. In 2013 a revised Mine Closure Plan (MCP) At the Mt Fubilan mining area, there has The Mt Fubilan operation was prepared to address the new mine been no progressive rehabilitation to date and processing plant have a works and increased disturbance associated due to the mining area still being an active comprehensive closure plan with the mining West Wall Pit cutback, operational area. However, self-seeding in place. Implementation of development of the stable waste dump and and revegetation of areas of the older pit the plan was to commence in a further ten years of stockpile development wall and benches has occurred. At Bige, 2014/2015, however, with the at Bige. The aim of mine closure planning is the Company has established a nursery mine continuation, mine closure to reduce the environmental impacts to as where local trees have been propagated for will commence after 2025. low as practicable, progressively rehabilitate revegetation of the Bige Stockpiles. Trial final disturbed land when it comes available areas have been contoured and planted for closure, to create stable landforms and with various grasses and tree seedlings with vegetate with plants and trees native to the the necessary fertiliser and organic material local areas. The MCP was submitted to the which species can establish and survive. State for approval. The MCPs are reviewed This trial work will continue through 2014. with the CMCA communities. As part of planning for closure, OTML has put aside PGK 555 million (USD 227) million in a Financial Assurance Trust Fund for closure works. This was reviewed as part of the mine continuation studies. Financial modelling has demonstrated that the principle amount will meet the financial needs for future closure based on normal financial investment returns.

64 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 WASTE MANAGEMENT OTML waste management other than waste rock and tailings, previously described in this report includes the recycling of various waste products. No hazardous waste was transported, imported or exported. Other general waste streams are sent to landfill.

Recycling included:

Waste oil 2.3ML was used as fuel in the lime kiln

Water 73% of process water was recycled through the processing plant Rural village in mine affected area. Tyres and rubber 139t of rubber was shredded ENVIRONMENTAL COMPENSATION and 70t sold to A1 Rubber in OTML reports on the amount of environmental compensation paid to communities and Australia for recycling landowners either as direct payment for damage to crops, gardens, waterways in the event of Steel a process or chemical spill or other mine related incident. These are reported as non-CMCA 4,100t of scrap steel was related payments. In 2013, these payments totalled PGK 457,808 (USD 200,611) comprising shipped to Port Moresby for of PGK 360,000 (USD 157,752) for Kobom Creek vegetation dieback identified in 2012, onward sale as recycling. contamination of Kum Creek with copper concentrate from the Kilometre 59 pump station, identified in 2012 PGK 30,000 (USD 13,146) and PGK 67,808 (USD 29,713) for sediment impact to a creek line to the north west of the mine pit from mine operations. In addition to compensation being paid, remedial actions were put in place as a result of these incidents. The other annual compensation payment was made to the nine CMCA regions as direct reparation due to legislated continued use of riverine tailings discharge. In 2013, this payment totalled PGK 64,818,631 (USD 28,403,524).

ENVIRONMENTAL COMPENSATION (PGK) 2009 2010 2011 2012 2013 Non-CMCA related 0 8,000 1,077,140 0 457,808 CMCA related 64,565,984 65,153,570 66,410,654 64,373,513 64,818,631 Total 64,565,984 65,161,570 67,487,794 64,373,513 65,276,439

ENVIRONMENTAL COMPENSATION (USD) Non-CMCA related 0 2,935 452,398 0 200,611 CMCA related 23,502,018 23,898,329 27,892,475 31,079,532 28,403,524 Total 23,502,018 23,901,264 28,344,873 31,079,532 28,418,511

SECURING OUR FUTURE 65 ENVIRONMENT CONTINUED CASE STUDY

BIGE REHABILITATION The aim of the revegetation is to: MINE WASTE TAILINGS TRIALS • stabilise the stockpile’s outer slopes PROJECT ALLOWS COVERS The Bige dredging project has and crown through sustainable TO BE PLACED ON BIGE EAST vegetation cover; been operational since 1998 and BANK STOCKPILES. has recovered approximately • establish a primary vegetation cover In late 2008, the Mine Waste Tailings 17Mtpa of sand and silt. This through which final canopy tree species Project (MWTP) was commissioned material has been placed into can be planted; and by OTML. This project had been engineered stockpiles on the • develop standard rehabilitation protocols implemented primarily in response to the East and West banks of the that include preferred species, vegetation gradually increasing sulphur content of the river. Sections of the East bank techniques and fertilisers that can then be mine’s tailings and the associated risk of stockpile have reached final applied to future revegetation. ARD developing in the Bige stockpiles and design and the environmental in some sediments deposited through the team commenced revegetation As part of the trials, the team identified lower Ok Tedi and Middle Fly Rivers. trials on sections of the stockpile. that the finer silt material could support The stockpiles are predominately vegetation and harvesting of the silt material The MWTP consists of three major constructed of sand-sized naturally eroding from the stockpiles has components with a capital cost exceeding particles and have negligible resulted in the recovery of over 20,000t of PGK 1,221 million (USD 466 million). The organic and nutrient content. material that has been reused in recent trials. first component is the Tailings Processing OTML purchased an industrial tub grinder to Plant (TPP) which is effectively a complete mulch and chip trees and other vegetation. additional flotation circuit added to This grinder was commissioned in the back end of the existing copper November and will be able to progressively concentrator. The TPP removes at least chip vegetation from areas where new 80% of the sulphur in the form of the stockpiles are planned. The wood chip will mineral pyrite from the copper concentrate be incorporated into the final soil layer to tailings. The TPP produces two products; provide valuable organic material. a Pyrite Concentrate (Pcon) which is transported via pipeline to Bige for safe In May 2013, the Bige team commenced storage in constructed subaqueous pits the trials for the hydro mulch technology on the Ok Tedi floodplain at Bige and on a 0.2ha area of the East bank stockpile a tailings stream comprising residual outer slope. The hydro mulch uses a ground up rock, with a mean sulphur mixture of bonded fibre matrix (chipped concentration of less than 1% that is sorghum, paper, glues and tackifiers), discharged to the river system. The second Japanese millet, Acacia auriculiformis, component of the MWTP is a 125km native seed (Premna serratifolia, Nauclea pipeline which transports the PCon to orientalis, Timonus timon, Paraserianthes OTML’s Bige site and the third component falcataria and Glochidian novoguineense) is a series of large storage pits dredged and inoculum. The mixture is sprayed onto into the Ok Tedi floodplain that allow the the slopes and initial success indicated a PCon to be safely and permanently stored healthy establishment of trees and grasses subaqueous and ultimately buried under at after seven months. It is anticipated that the least 10 metres of dredged sand. learnings from this trial can be replicated on future stockpiles. By decreasing the sulphur content of the tailings, the sulphur content of sediments throughout the river system is gradually decreased thereby decreasing the ARD risk. At Bige the concentration of sulphur in dredged material has decreased to approximately 1.50% in 2013. Simultaneously, the Acid Neutralising

66 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Capacity (ANC) of the dredged material has VARIATION IN ANC/MPA increased as a result of targeted limestone AT BIGE BY YEAR dumping into the mine’s waste dumps and Median annual ANC/MPA ratio through the milling of barren limestone. As 2 a result the dredged material has changed from being Potentially Acid Forming (PAF) in

2008 to being on average, Non-Acid Forming 1.5 (NAF) since the MWTP implementation.

The best measure of the improvements in the geochemical quality of the dredged 1 material is through the ANC/MPA ratio which is a measure of the risk of acid formation occurring for a sample. Extensive testing on 0.5 OTML dredged materials shows that if the ANC/MPA is less than one, then there is a very high probability of the sediment being 0 acid forming ultimately. If the value is greater 2009 2010 2011 2012 2013 than one, the risk of acid formation drops off rapidly and the higher the ANC/MPA ratio The alkaline material can be placed over the lower the ARD risk. (The graph shows older, PAF material on the East Bank how the median ANC/MPA ratio in dredged stockpiles at Bige as a cover. This will material has continuously improved over decrease the potential acid generation by time since the MWTP was commissioned approximately 90%. Moreover since it has and in 2013 was 1.98.) such a high ANC/MPA ratio, the risk of future acid generation forming on the cover is Images (top to bottom): Mine Waste Tailings plant, minimised which allows for the successful Regrading Bige stockpiles prior to vegetation, Bige revegetation after seven months. revegetation of the stockpiles.

SECURING OUR FUTURE 67 SOCIAL RESPONSIBILITY

OTML IS COMMITTED OTML acknowledges that its environmental COMMUNITY CONSULTATION impacts are inherent with the business TO CONDUCTING ITS OTML believes that open dialogue with and therefore the Company needs to fully OPERATIONS IN A SOCIALLY its stakeholders is very important and key disclose the effects as part of transparent RESPONSIBLE MANNER to building strong relationships based on communications and the license to operate. trust and respect. By listening and openly THAT RESPECTS CULTURAL The Company engages with its stakeholders discussing issues, the views and concerns of HERITAGE AND TRADITIONAL and maintains open and transparent the community and stakeholders can be used dialogue with the impacted communities RIGHTS. OTML BELIEVES in the business decision making process. THAT IT CAN CONDUCT and government. The Community Relations The CRD is responsible for managing BUSINESS IN A SAFE AND department (CRD) undertakes comprehensive community engagement with all of those the dissemination of information to the SUSTAINABLE MANNER communities who are affected by the communities and undertaking formal and THAT CAN BRING BENEFITS operations. The license to operate is linked informal consultation. They are the main TO CURRENT AND FUTURE to Free Prior Informed Consent (FPIC) and interface between the stakeholders and GENERATIONS. THE without a social license granted by the the Company. In the last ten years, there COMPANY RECOGNISES CMCA communities, the PNG Government has been no major community disruption to OTML operations and the Company THAT THE OPERATIONS CAN and stakeholders, OTML acknowledges it could not operate. generally enjoys a healthy working HAVE BOTH POSITIVE AND relationship with the communities and this The social responsibility programmes NEGATIVE IMPACTS. has attributed to continuous consultation include a priority to recruit from the local and resolving issues promptly. Twice a year, area wherever possible and engage local the team completes formal community businesses for contract services. The visits to each of the 156 villages in the programme’s focus is on developing CMCA region. These meetings provide the partnerships with local communities, community and OTML a process to listen to governments and businesses in order to each other’s plans and grievances. OTML improve long term social and economic uses the meetings to provide feedback development in Western Province. on issues previously raised, provide This approach ensures the community information updates on mining operations development programmes and benefits and environmental impacts. The community are distributed appropriately and they is able to raise issues of concern and these complement government initiatives and are recorded as requests or as grievances aid agencies and Non-Government through the grievance mechanism for follow- Organisations (NGOs) working in the region. up and resolution. Formal meetings are also A key goal is to build capacity within the held with local, ward, provincial and national local community in order to manage long government authorities. The bi-annual term sustainable outcomes in health, community meeting process has proven to education, business and employment. be successful and has been used for the OTML participates in local business capacity CMCA community reviews and for the mine building through providing resources and continuation consultation. The patrols cover staff to participate on various boards and all of the 156 CMCA villages and cover a trusts, strategic planning support, technical geographical area of over 98,000km2. services, networking assistance, financial and in-kind resources.

The commitment to social responsibility covers all phases of the project life cycle from exploration, construction and development, operations and mine closure activities.

68 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SECURING OUR FUTURE 69 SOCIAL RESPONSIBILITY CONTINUED

The level of maturity in the Company’s consultation processes was tested during the past three years of negotiations regarding the proposed mine continuation. This three-year consultation programme commenced with a request from the communities to OTML to investigate how the mine operations could extend beyond the proposed 2015 mine closure date. A four-step consultation process was implemented with all of the 156 CMCA villages and culminated in early 2013 with CMCA communities consenting to the mine continuation plans to extend the mine operations to 2025. Other material issues raised by the communities and other stakeholders during 2013 include the following:

• waste disposal of rock and tailings to the riverine system;

• economic performance and flow of benefits to During the consultation process, the the community from mine MINE CONTINUATION community expressed concern about waste continuation; COMMUNITY CONSULTATION management practises and long-term impact • community consultation; Mine continuation community consultation on the river. As part of the social license to was a phased approach, culminating in • community development extend the mine, the Company proposed a a consultation programme in April 2013. programmes; geotechnically stable waste rock dump be The mine continuation consultation was constructed at the mine and also that the • health; completed by a PNG based consultancy as total sediment loading impact to the riverine independent facilitators supported by the • education; and system should not exceed that of the 2015 OTML CRD. The consultancy was assisted by impacts. These constraints were incorporated • employment and independent observers, two PNG nationals into the engineering studies and a suitable training opportunities. of notable repute who were responsible for mine plan was developed that enabled the monitoring the process and publicly reporting mine life to extend to 2025. To meet the on the conduct of each meeting. riverine constraint, processing production will decrease after 2016 from 23Mtpa to 15Mtpa. Lower production will reduce income and subsequent royalty and community economic benefits in the early years whilst the large waste rock removal programme is completed to expose the mineral resources.

70 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Electrical maintenance workers completing transmission line repairs.

The four phase process that was incorporated into the mine continuation consultation included:

PHASE ONE June 2009 – “Preparations, Agenda Setting and Information Exchange”. Discussions with all the villages and the nine CMCA groups to select delegates. 1 Set out the consultation process and provide background information.

PHASE TWO March 2010 – “Options Discussed and Information Shared”. Formal meetings held in the village, regional and delegate levels. Meetings focussed on 2 open sharing of information and exchanging views and concerns between all parties.

PHASE THREE 2011 – 2012 – “Build Agreement” OTML presented to all parties the studies on the mine continuation project and the findings from the environmental studies. The objective was to provide the communities 3 with a balanced understanding of the mine continuation benefits and environmental impacts and the proposed environmental mitigation plans. This information exchange was very important for the communities to make an informed decision.

PHASE FOUR November 2012 – April 2013 – “Signing of Mine Continuation Agreement” All nine CMCA regions consenting to the mine continuing through to 2025 and 4 signing of the Mine Continuation Agreement and communicating the outcomes of the process to all 156 communities through a community consultation patrol.

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The meetings held between SIGNIFICANT DISPUTES INTEGRATED COMMUNITY November 2012 and April 2013 concluded the formal mine RELATING TO LAND USE OR DEVELOPMENT continuation consultation and the CUSTOMARY RIGHTS MANAGEMENT SYSTEM following information and activities In 2013 there were eight current land Considerable progress with development were shared with the communities: disputes still open and under review or of the Integrated Community Development involving court proceedings. The disputes Management System (ICDMS) occurred • final mine continuation are generally about land ownership claims during the year. The ICDMS focus is feasibility studies; around the Special Mining Lease land that is to provide a robust system to manage • final environmental studies leased to OTML and/or royalty payments. community relation issues through till 2025. on the mine continuation; The ICDMS builds upon previous work and In 2013 there was no resettlement of following a review of issues and challenges • Community Mine Continuation community landowners on OTML leased lands. Agreement finalised; a number of system components were updated or developed. These include: • final OTML compensation ALLUVIAL SMALL SCALE MINING package for CMCA Gold panning in the Upper OK Tedi provides • community relations Strategic communities; a livelihood to community members who are Management Plan 2014 -2018. This plan unable to obtain other formal employment. is aligned with the OTML 2025 Vision • PNGSDP commitments; OTML completed surveys in 2008 and and the content is aligned with the IFC • PNG Government 2010 to determine the extent of small-scale Performance Standards. The 2014 work commitments; and mining. In 2010, 241 miners were interviewed plan and budget was finalised; • other amendments to comprising 70% male and 30% female, with • review of the community relations team legal documents including 66% operating in the Western Province. structure, roles and responsibilities. This Trust Deeds and Financial Those interviewed indicated they knew of up review also identified a need for updating Autonomy for Village to five other persons involved at any one time. skills, training and knowledge transfer; Planning Committees An estimate of potential miners engaged in • development of the Community Grievance the activity is up to 2,300 persons. The survey The final step in providing Mechanism (CGM) system and database; identified that a further three persons per legal approval and setting miner depend directly or indirectly on alluvial • Community Development Tool Kit license conditions for the mine mining. On average an alluvial miner could training; and continuation and all of the earn up to PGK 1,000 (USD 230) per week social commitments is for the • Community relations data and records if conditions were favourable. The reasons PNG Parliament to develop management review and completed cited for mining were to earn an income to and pass the OTML Eleventh analysis for a socio-economic database. meet daily living needs, pay school fees, Supplementary Agreement. increase buying power and to meet bride price demands. Issues associated with alluvial mining include; impacts to the environment through illegal settlements and uncontrolled dumping of rubbish, health issues, increased illegal sale of alcohol, drugs, theft, gambling and prostitution.

72 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 WOMEN’S REPRESENTATION In 2007 during the mine benefits stream negotiations for communities affected by the OTML operations, each CMCA region was represented by one woman. The women were able to negotiate for 10% of the Opening of the Kuem Primary School (Middle Fly) solar electrical supply project. funds from the mine operations. These funds are to be dedicated OTML STAKEHOLDER COMPLIANT COMMUNITY RELATIONS to women and children’s programmes. This was a ground AND GRIEVANCE MECHANISM STAFF UP-SKILLING IN breaking achievement for women In the Mineral Resource industry, addressing COMMUNITY DEVELOPMENT in PNG and reinforced women’s environment and social complaints and During 2013, an external consultant provided access rights of representation grievances in a responsible and systematic training for the Community Relations teams. at the highest levels of decision- approach is now an internationally accepted The course included 20 sessions of the making on mine benefits for local standard. The United Nations and IFC International Council of Metals and Mining communities. The Memorandum have encouraged the use of a Grievance (ICMM) Community Development Toolkit of Agreement (MOA) following Mechanism tool in resource industries as (2013) “Train the Trainer” and two additional the review specifically provided a means of empowering human rights and toolkit sessions on the ICMM Sustainable for recognition of women’s resolving grievances. Livelihoods Framework and Logical representatives on Village The OTML Community Relations department Framework Approach. The training methods Planning Committees (VPC), the has developed a Grievance Mechanism were based on a participatory approach and CMCA Association and the Board Framework for implementation under the “Ok used problem based learning techniques, of the OTDF. The 10% translated Tedi 2025 Securing Our Future”. The objective short lectures and group presentations into PGK 101 million (USD of the CGM is to have a standard process to deliver capacity building outcomes. 45 million) and as expected, in place and a procedure for receiving, The learnings will assist in development planning and disbursing the registering and addressing complaints and of the ICDMS and improved community money into projects presented grievances in a timely manner. The CGM development programmes. implementation challenges. has a process of escalation leading to independent arbitration should a compliant COMMUNITY MINE be unresolved through normal negotiation CONTINUATION AGREEMENT processes with OTML management. This agreement defines the cash compensation, investment and development payments that OTML will make to the 156 CMCA villages affected by the operations. The CMCA communities are grouped into nine areas (Regional Map) and represent over 120,000 people. The nine CMCA regions extend from the mine to the South Fly. Each region is represented by four representatives, with at least one woman. A total of 36 elected community members comprise the CMCA Working Group and attend the delegates meetings along with government representatives, OTML, churches, women and youth organisations and NGOs.

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The CMCA women’s leadership During the planning stages the women • Ownership and sustainability – the engaged with the PNG identified five high impact priority negotiators would like women’s Department of National Planning, expenditure areas for project design and leadership to be consulted to ensure OTML, PNGSDP and the OTDF implementation as follows: ownership and sustainability; and who assisted in planning by • capacity building and institutional • Greater representation on the OTDF board. articulating and prioritising strengthening; the vision and needs into nine During the mine continuation’s final five weeks respective CMCA Women and • infrastructure (feeder roads, of negotiations, the World Bank was invited Children’s Action Plans for water transport, electricity and by OTML to be an independent observer of implementation. Drawdown communications); the process and to observe women’s roles in the process and to document women’s of the funds and successful • sustainable livelihoods and food security; project implementation has been aspirations and expectations from the • education and adult literacy; and slower than anticipated due process. The World Bank prepared a report to the challenges on capacity • health (water and sanitation). on the process entitled, “Negotiating with the deficits and knowledge around PNG Mining Industry for Women’s Access The CMCA women leaders identified the the process of the MOA, funding to Resources and Voice: The Ok Tedi Mine main challenge as being ensuring mine sources and responsibilities of Continuation Negotiations for Mine Benefit continuation compensation funds are different entities charged with Packages”, December 2013 can be found at properly used for social and economic project implementation. www.worldbank.org/png. infrastructure projects such as roads, jetties, In 2012, when the Mine bridges, health centres, health outpost, In 2013, eight of the CMCA Women’s Continuation Agreements came classrooms, libraries, teachers, doctors and Associations were formally registered and up for five year review, up to 30 nurse’s houses. The view is that these are election of women leaders completed and women leaders participated in the critical enablers for service delivery. initial meetings conducted. Highlights in the negotiation process. Each 2013 were the women earning first place Other community needs include support region was represented by three at the Morobe Show for their display, the for the growing of cash crops such as women negotiators with six from Middle Fly women funding their own agro- rubber and eaglewood and food production the Mine Village CMCA. During forestry eaglewood project, the opening of including vegetables, fish and poultry to the negotiations, the women learning and training centres at Haidowogam support community livelihoods. The mine were able to increase the trust in North Fly and Deware in the South Fly. continuation funding was seen as being a funding set-aside for women lever for change leading to a self-supporting and children from between 10% COMMUNITY HEALTH sustainable future without OTML. to 18.24%, depending on the Access to high quality health services by the region. Support for the increase It was recognised by the women leaders that community and the Company’s employees came from the male leaders there are still further steps to improve the is a priority. OTML has been the main as they recognised that the implementation including: provider and financial supporter of private women leaders were facilitating • Capacity Development – institutional and public health services in the Tabubil and programmes that benefit the capacity and human resource development mine affected regions. The Company works whole village and the families. are the primary means to ensuring closely with a number of multi-sectoral that women are able to manage their stakeholders for provision of health services associations, take control and manage the through the Western Province. These include Women and Children’s Fund separately the Western Province Provincial Health from current Trust arrangements; Department, various church based providers, NGOs and private health providers. • Stakeholder collaboration – closer collaboration and partnership between all stakeholders to complement each other’s efforts in project delivery;

• Empowering Village Planning Committees with project management skills – empowering VPCs to manage small village projects would ensure project ownership;

74 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 CASE STUDY

OTML, as part of its long-term sustainability JOSEPH RETURNS HOME TO SAMARI VILLAGE vision, has outsourced the provision of major health services to concentrate on its core AS A QUALIFIED PRIMARY TEACHER business of mining. OTML has engaged Siware Joseph lives in the Samari village in the South Fly district and returned as Divine Word University’s (DWU) commercial a qualified primary school teacher thanks to sponsorship from the CMCA Kiwaba subsidiary, Diwai Pharmaceuticals Limited Trust. After completing Grade 12 in 2008, Joseph was left with no opportunities (DPhL) to manage the Tabubil hospital. for continuing his education so he remained in the village for two years helping The hospital, which is owned by OTML, his parents with gardening and fishing. In 2010 Joseph heard about the Catholic has served employees and their families, Sacred Heart Teachers College in Port Moresby. He applied for entry and his contractors and communities from Western family submitted a sponsorship request to the Kiwaba Trust Board. Joseph was Province and Telefomin District for many accepted into the college and the Trust sponsored Joseph for two years so he years and is best known for being the could complete his Diploma in Primary Teaching in 2012. Western Province’s referral hospital, After graduating, instead of staying in Port Moresby teaching, Joseph returned to servicing the North, Middle and South Fly Samari village to teach grade 3 and 4 at Samari Primary School. districts. OTML will continue to provide core Asked what made him return to his village, which is one of the most isolated funding for the hospital and a new Board villages in the Kiwai Group of Islands, he said: comprising members from DWL and OTML “I had no opportunity for will provide oversight and governance. employment whatsoever but because of the (Kiwaba) Trust, I am now a teacher Under the arrangements DPhL will develop so I felt that I needed to return home and contribute something back to my village the hospital into a teaching hospital that will and the region. This is my way of saying thank you” and, “this is where I belong support university students under the rural and this is where I can help bring change.” health programme in their clinical training Considered as educated elite within his own community, Joseph said in order and also conduct medical research. The for Samari including the other 155 villages in the CMCA region to change, hospital has consistently rated five stars in people must change their attitudes. “Samari is one of the 11 villages that have accreditation under the PNG National Health been declared as Model Villages by OTDF in an attempt to deliver wholesale Service Standards. development changes within the CMCA. With education being one of the areas In 2013, the focus was on completing this programme will be looking at improving, I believe that this will change so the handover and transition to DPhL many things, not just for myself and my family, but my whole village including the he said. management, whilst providing high level of Kiwaba region and Western Province as a whole,” patient service and care. A review of staffing, Image: Mr Joseph Siware (RHS) and headmaster Mr Bernard Bama from Samari Primary School, South Fly Region housing, funding and developing a 2014 strategic plan was completed. A number of staff transitioned from OTML to DPhL contracts. The hospital currently has over 80 staff with senior medical practitioners specialising in obstetrics and gynaecology, paediatrics, general surgery, consulting physicians and offers outpatient, pathology, x-ray, dental, blood bank services as well as public health programmes.

The community has also established the “Friends of Tabubil Hospital”, an auxiliary group that meets monthly. The group holds regular fund raising functions and also provides support through visitations especially to the children’s and maternity wards. The group has donated ultrasound equipment for the maternity ward and televisions in the outpatient areas.

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Tabubil hospital provides support for the six local aid posts in the mine lease areas including Finalbin, Bultem, Migalsim, Sissimarkem, Ok Ma and Atemkit. As part of the rural health plan functional aid posts stocked with medicines and qualified staff mean that the community can be assessed and treated for most illnesses by the aid post and if serious, referred to the Tabubil hospital. Local treatment options mean that patients do not have to travel to centralised services and this has reduced the number of outpatients presenting at Tabubil.

In June 2013 the CMCA committees and governmental Recently constructed regional Balimo Hospital funded from the Ok Tedi Tax Credit Scheme. health officials created the Western Province Health Steering Committee in collaboration NORTH FLY HEALTH SERVICES The PNG National Department of Health’s Annual Sector Review reported that provision with the Fly River Provincial 2013 marked the completion of the first across the North Fly District remained above Government (FRPG). This five years of the North Fly Health Services national averages for eight of the 14 indicators committee combines all interested Development Programme (NFHSDP). This used to monitor the performance of the health stakeholders from the community, public private partnership is funded by system across the country in 2012 (2013 public and private sectors and OTML and is a partnership between OTML, report is not due till May 2014). Key areas of meets quarterly to bring together Evangelical Church of PNG, Catholic Health improvement in the North Fly District are: the key stakeholders with the Services, North Fly District Health Services will to improve health outcomes and Abt JTA, a specialist International • pneumonia related deaths in children across the Province. health sector firm. The programme works under five years of age decreased from with all health service delivery stakeholders 4.5% in 2011 to 3.2% in 2012; in North Fly to achieve sustainable health • the percentage of low birth weights improvements through the strengthening decreased from 13% to 8%; of the existing health system. In November 2013, OTML committed funds for a further • a decrease in incidence in malaria from five years of the programme. 342 cases per 1,000 population to 207 cases per 1,000 population; The NFHSDP was designed and is being implemented in line with the National • the proportion of women having Department of Health’s (NDoH) Strategic supervised births in health centres and Plan and priorities. The NDoH priorities, hospitals remains high at 95%; and therefore a number of the NFHSDP’s • adequacy of medical supplies with the 12 objectives, align with several United percentage of months that facilities have Nation Millennium Development Goals no shortages is high at 95%; and (MDGs), including: • 3rd dose pentavalent immunisation • MDG 4 - Reduce Child Mortality; coverage remains high at 74%. • MDG 5 - Improve Maternal Health; and

• MDG 6 - Combat HIV/AIDS, Malaria and other diseases.

76 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 • North Fly District Administrator assumed • repaired radio and cold chain the role of Chairperson of the North Fly equipment at Kiunga Hospital, District Health Management Committee. Catholic Health Services and The committee was previously run as the Rumginae Hospital; Programme Implementation Coordinating • 11 participants from all Committee convened and chaired by health service agencies NFHSDP and has now evolved into a participated in a two day broader forum for health sector coordination, radio maintenance training a significant achievement towards programme in November; sustainability in health sector governance; • commemorated World TB • drafted an options paper for using mobile day (24 March) in Kiunga and health to address challenges in health Tabubil, with a community service delivery in North Fly District. programme to raise awareness Recommendations will be considered and about the prevention and implemented in 2014; treatment of TB; and • one vehicle donated to Callan Services • commemorated World AIDS to assist with their outreach services to day (1 December) in Kiunga people with disabilities; with a community programme • new Tuberculosis (TB) ward, surgical to raise awareness about the ward and morgue constructed at Kiunga prevention and treatment of HIV Hospital, and completed in April; and reducing stigma for people NFHSDP achievements in 2013 include: living with HIV and AIDS. • assisted Catholic Health Services • 16,100 outpatient services at Tabubil to conduct Village Health Volunteer Urban Clinic. This was an increase of over Community Action and Participation 1,000 consultations compared to 2012; training in three villages in September;

• 22 Maternal and Child Health (MCH) • coordinated and participated in the patrols conducted in collaboration with International Education Agency Couple’s health service partners. MCH patrols Counselling training in Kiunga in September; include immunising children, antenatal • 23 health workers trained in administering checks, family planning clinics treating TB shots in December, a training sick people and school health visits; programme funded by NFHSDP; • over 10,000 immunisations have been • six rain water tanks installed at Kungim administered. In addition to routine MCH Health Centre, in partnership with North patrols with partner organisations, the Fly District Health Services; NFHSDP participated in the national Supplementary Immunisation Activity in July; • attended a ceremony for the re-opening of Mogulu Health Centre, for which • 6-weekly MCH outreach clinics from NFHSDP contributed building materials Tabubil Urban Clinic to villages along the in 2009; Tabubil-Kiunga highway; • mobilisation activities with the • participated in an integrated multi- communities of Timinsiriap and stakeholder response to a typhoid Rudmesuk which saw the villages adopt outbreak in the Tabubil area in April; the World Health Organisation endorsed • constructed a multi-purpose building Healthy Village principles; at Matkomnai Health Centre, a Catholic • 15 ventilated and improved pit Health Services-run facility; toilets constructed in Timinsiriap, a collaborative effort between NFHSDP and community members;

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MIDDLE AND SOUTH EDUCATION Following a request from CMCA regarding improving education through the Western OTML has been a long-term supporter of FLY HEALTH SERVICES Province, OTDF facilitated the formation of the local schools and, through the PNGSDP Due to the success of the North the Western Province Education Steering and OTDF, has constructed and refurbished Fly Health Services Development Committee in collaboration with the Fly River many new school classrooms and teacher’s Programme, OTDF was invited Provincial Government. The committee is houses. Education is widely accepted by the by the Western Province Health expected to meet quarterly and bring together Western Province communities as a way their Steering committee to complete the key stakeholders with the aim to improve children can improve their self-worth and a a health feasibility study to the education sectors across the Province. investigate how to improve pathway to obtaining quality employment and Primary Health care in the Middle a career. Provision of high quality education The Education Steering Committee had and South Fly districts. Abt JTA is important for all residential employees who its inaugural meeting in June 2013 and were selected by the committee raise their families in Tabubil. In Tabubil there is chaired by the Provincial Education to deliver a comprehensive are the Primary and Secondary Schools. Adviser. By year-end a second meeting saw health improvement programme In 2013, OTML provided funding for the members deliberate on an evaluation of 19 throughout all Middle and South completion of new classrooms for years 11 Expressions of Interest submitted to conduct Fly CMCA villages over the next and 12 at the Secondary school and these an education feasibility study, namely: classrooms were completed in time for the five years, worth PGK 43 million “To develop a Provincial Education 2014 school intake. (USD 20 million). Abt JTA recently improvement programme with a focus on completed a six-month baseline In Tabubil, OTML also supported the elementary, primary and vocational education”. study including visiting 65 International School. The school was Three companies were short listed and villages and reviewing capacity recently managed by Star Mountains approached to prepare a detailed proposal and infrastructure assessments Institute of Technology, a subsidiary of by February 2014. and an action plan for 2014, the PNGSDP, which closed operations in prepared in consultation with late 2013. OTML invited DWU to take over The Education Steering Committee also key stakeholders (Fly River management of the school, in a similar agreed to return to the former centralised Provincial Government, private partnership to the Tabubil Hospital. schooling system created under the previous Churches and local communities). DWU is a premier university in PNG and has Australian administration. Consequently, strong strategic links with the education OTDF took the opportunity to select model primary sector. The school offers the schools in the Middle and South Fly and International Baccalaureate curriculum for partner with the Trinity Anglican School in primary students aged three to 12 years Cairns, OTML and the Liklik Skul Foundation and a middle year’s programme for students to deliver school resources, improve teacher aged 12 to 16. The plan is to extend the capacity and infrastructure. To date there school programme to include classes up has been the installation of commercial solar to year 12. In 2014, the Memorandum power at the Kuem and Nakaku Primary of Agreement will be finalised and the schools funded by OTML, the delivery management transition completed. of more than a tonne of school books, stationery, craft and sporting equipment from Other initiatives include DWU taking over Trinity Anglican School and the rehabilitation management of the Community Learning of the Kuem and Bosset elementary Centre, which offers adult distance learning classrooms by the Liklik Skul Foundation. In up to year 12. Development of this centre 2014, the Trinity Anglican School teachers into a Flexible Learning centre will result in will visit Kuem for a fortnight during school DWU being able to offer flexible learning term to understand the needs of the school diploma, degree and masters level courses. and to subsequently develop a teacher capacity-building plan.

The OTDF has been encouraging funding to potential teachers and health workers with an agreement with the FRPG to then return to vacant positions in their respective regions.

78 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OK TEDI DEVELOPMENT • Regional Development – this group engages in development projects that FOUNDATION benefit people living in the North, Middle The Ok Tedi Development Foundation (OTDF) and South Fly Areas; is a non-profit organisation established to manage the delivery of projects for the people • Project Support Services – this group of the CMCA in Western Province. OTDF manages services such as the Tax Credit has proven to be successful in planning and Scheme, Special Support Grants and delivery of services, training and infrastructure CMCA infrastructure projects; and and is now the community provider of choice • Finance and Logistics – this group for projects funded from CMCA Trust Funds, comprises the CMCA Trust Administration The Western Province People’s Dividend Team, OTDF Logistics, Finance and Trust Fund (WPPDTF) and the Women and Support teams. Children’s Funds. OTDF also takes on delivery In 2013, OTDF completed 285 Trust of OTML’s TCS projects. Development Projects across the Province OTDF works both independently on behalf worth PGK 14.1 million (USD 6.2 million). of the communities and also partners with The larger projects included: multi-sectoral stakeholders including the Fly • sponsorship of 1,869 students to attend River Provincial Government, PNGSDP, The various education institutions across PNG National Government and aid agencies PNG - PGK 3.3 million (USD1.5 million); like the Australian Agency for International Development (AusAID) to deliver a wide • building and housing infrastructure range of community development and improvements benefiting 305 families - infrastructure programmes. PGK 4.3 million (USD 1.9 million);

OTDF has a team of 120 comprising both • Women and Children’s Programme - full time employees and contractors. Within PGK 478,992 (USD 210,725); and the OTDF structure the three main groups to • livelihood development programmes support the delivery of services and projects (food security, forestry, water supply) - to the Western Province communities are: PGK 601,874 (USD 264,825).

In 2013, PGK 135.8 million (USD 60.0 million) was available in the WPPTDF and four major projects were approved by the committee for funding. These included:

Middle and South Fly CMCA Area Health Programme PGK 43.0 million (USD 18.9 million) Pampenai Road Rehabilitation Project PGK 10.1 million (USD 4.4 million) Ningerum to Nupmo Footbridge PGK 10.6 million (USD 4.7 million) Aiambak to Lake Murray and Kasa Feeder Road Project PGK 61.3 million (USD 27.0 million) Total PGK 125.0 million (USD 55.0 million)

Further information on OTDF activities can be found on the website: www.otdfpng.org and in the OTDF Annual Report, 2013.

SECURING OUR FUTURE 79 SOCIAL RESPONSIBILITY CONTINUED

OTDF SUPPORT FOR CMCAS The CMCA has many small enterprises wanting to start business opportunities as well as primary industry opportunities thanks to improved transport infrastructure, agriculture and forestry projects being CMCA small business Muscovy duck husbandry project. delivered by OTDF. To support small businesses startups and cooperatives, OTDF has PNGSDP OTML’s economic contribution to PNG and recruited a Team Leader and the Western Province economy is through The PNGSDP was established as an three staff members to fully the following ways: Independent not-profit, special purpose support communities from 2014. company with a mandate to apply OTML • royalties from sales of copper, Other CMCA projects that the dividends for infrastructure and other gold and silver product; OTDF has facilitated include sustainable projects are in the Western financial literacy and agriculture • salaries paid directly to employees; Province and other regions of PNG. (e.g. rice farming, aquaculture), PNGSDP had committed PGK 33.2 million • capital and operating expenditure to agroforestry (eaglewood) and (USD 14.6 million) in funding to various suppliers of goods and services in PNG; livestock training (e.g. Muscovy projects, including the Women and Children’s duck husbandry) across the • payments under the various land and fund, South Fly water project and other CMCA as well as the Women and community agreements; projects to be delivered by OTDF. With the Children’s Programme delivery • various business taxes including, company, freeze in funds subsequent to the cessation (e.g. cooking and sewing). payroll, goods and services, TCS; as a shareholder of OTML, delivery of these projects has been put on hold. It will be • donations and investments in community important for OTML to work with the State development programmes; and to release these funds from the PNGSDP to • investment in local and regional honour the agreed funding commitments. infrastructure including roads, bridges, jetties, etc. ECONOMIC CONTRIBUTION A summary showing all payments over the Part of OTML’s social responsibility is the past five years is shown in the following Table. ability to make positive social and economic contributions to the region and communities The total payments to all entities were lower in the Western Province. OTML is the single in 2013 than for the previous four years. Due largest business in the Western Province to declining ore grades, metal prices and and provides significant funds towards considerable operational down time in 2013, sustainable socio-economic development. the Company’s profit in 2013 was much lower To maintain the social license to operate the than in 2012. During 2013, the mine moved Company has a commitment to comply with into the first phase of commencing the mine various agreements. Development must be continuation with large stripping of waste rock undertaken in partnership with stakeholder from the Mt Fubilan pit. No dividends were involvement including communities and paid. Salaries and wages were higher due to various levels of governments. OTML redundancy payouts. contributes economically to the communities both directly – through services and infrastructure provided specifically for community benefit and indirectly – through facilitating community access to services and infrastructure necessary for the business.

80 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OTML contributions to Western Province and the PNG Economy in 2013 PGK MILLIONS USD MILLIONS 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Taxes & levees paid to PNG Government 310.0 919.5 1,173.5 444.8 261.5 112.8 337.3 496.0 214.3 114.6 Dividend Paid - PNGSDP 485.4 939.0 490.4 458.3 - 176.7 344.4 221.9 221.9 - - Government 140.0 303.9 141.6 132.3 - 52.5 110.0 64.1 64.1 - - Fly River Provincial Government, MRA 140.0 237.7 141.6 132.3 - 52.5 85.0 64.1 64.1 - 765.4 1,480.6 773.6 722.9 - 281.7 539.4 350.0 350.0 -

Royalty Payment - Western Provincial Government 33.6 46.8 42.9 32.7 25.1 12.2 17.2 18.1 15.8 11.0 - Land Owners 33.6 46.8 42.9 32.7 25.1 12.2 17.2 18.1 15.8 11.0 Less: Royalty tax - Land Owners (1.7) (2.3) (2.1) (1.6) (1.2) (0.6) (0.8) (0.9) (0.8) (0.5) 65.4 91.3 83.7 63.8 49.0 23.8 33.5 35.4 30.7 21.5

Tax Credit Scheme (TCS) - Health 17.5 8.8 2.9 5.6 0.9 6.4 3.2 1.2 2.7 0.4 - Education 7.8 12.4 11.8 0.1 6.7 2.8 4.5 5.0 0.05 2.94 - Roads, bridges, airports 0.6 11.9 11.5 0.2 6.2 0.2 4.4 4.9 0.1 2.7 - Utilities 14.7 13.7 16.2 0.1 11.9 5.4 5.0 6.9 0.0 5.2 40.6 46.8 42.4 6.0 25.7 14.8 17.2 17.9 2.9 11.3

Goods Purchases in PNG 284.2 434.7 286.8 313.3 294.0 103.4 159.4 121.2 150.9 128.8 PNG Contractors 1,025.3 503.7 507.7 483.0 441.3 373.2 184.8 214.6 232.7 193.4 Local training costs 6.6 7.6 8.6 8.0 8.1 2.4 2.8 3.6 3.9 3.5 Salaries and wages 302.8 315.9 202.6 209.4 460.2 110.2 115.9 85.6 101.1 190.8 TOTAL 2,800.3 3,800.1 3,078.9 2,251.2 1,539.8 1,022.4 1,390.2 1,324.4 1,086.5 663.9

SECURING OUR FUTURE 81 SOCIAL RESPONSIBILITY CONTINUED

ROYALTY PAYMENTS In 2013, OTML paid PGK 49 million (USD 22 million) in royalties based on the copper production. The royalties were distributed as follows to the various recipients:

Western Provincial Government PGK 25.1 million (USD 11.2 million) Landowners PGK 25.1 million (USD 11.2 million) National Government (IRC withholding tax) PGK (1.2) million (USD -0.4 million)

An annual payment of PGK 34.8 million (USD 15.3 million) was also incurred for the Kiunga to Tabubil road maintenance. COMPENSATION PAYMENTS OTML makes annual compensation payments. These payments typically cover payment for the various leases the mine and its infrastructure overlay, general compensation payments to CMCA, donations, mine landowner projects, environmental and other general compensation.

In 2013 compensation payments totalled PGK 72.8 million (USD 32.0 million). CMCA PAYMENTS The CMCA provides specific funding on an annual basis to the 156 CMCA villages. The funding includes reparation for the mining impacts on the receiving environment. The Agreement requires OTML to seek consent prior to making material changes to its operations and make investment and development payments through the eight Trust Regions and six Mine Villages. To mobilise the Trusts, the VPC are empowered to identify and prioritise sustainable development projects. The Trustees of each Trust meet every quarter to approve new projects submitted by the VPC’s and to review progress of projects under construction.

In 2013 the following funds were deposited to the various groups and Trusts accounts:

Mine Landowners (6 village communities) PGK 2.68 million (USD 1.18 million) Development Fund PGK 15.96 million (USD 7.02 million) Women & Children’s Fund PGK 4.91 million (USD 2.16 million) Investment Fund PGK 7.19 million (USD 3.16 million) Special Compensation PGK 22.18 million (USD 9.76 million) Logi, Kawok, Komokpin Villages PGK 1.83 million (USD 0.81 million) TOTAL PGK 54.75 million (USD 24.09 million)

82 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 LOCAL BUSINESS DEVELOPMENT OTML is a major customer for local businesses who can provide a reliable and competitive service. Local business is a very important industry that provides direct employment and services to OTML and the broader CMCA women’s small business sewing training project. community. To be sustainable in the longer term, local businesses TAX CREDIT SCHEME need to diversify and develop a larger customer base rather than The Tax Credit Scheme (TCS) was established by the PNG National Government in 1996 just rely on OTML. to deliver infrastructure and development projects to the Province in which the resource company operates. This funding stream is poorly understood and is often thought to be OTML’s Contracts and the resource developer’s funds, where in fact it is the National Government’s direct funding Procurement department for projects, from the taxes collected in the Province where they were generated. The TCS engages over 40 local businesses guidelines issued by the Internal Revenue Commission define the types of projects that with small to medium and large qualify for TCS funding. The funding is based on the lesser of the income tax payable for the contracts. Annually, over PGK year or 0.75% of assessable income. 294 million (USD 130 million) is being awarded in contracts OTML’s TCS was established in 1997 and has provided significant development and impact to PNG businesses. The local project funding to the Western Province and Sandaun Province worth circa PGK 287.7 million businesses that have been (USD 115 million). In 2013, the OTML TCS contribution was PGK 25.7 million (USD 11.3 million). proven suppliers usually have The projects included: well developed management and HEALTH governance frameworks which Balimo Hospital – Redevelopment (Stage 2) PGK 0.9 million (USD 0.4 million) provide them with the capacity to be awarded larger and more EDUCATION complex contracts with OTML. Oksapin High School Development Project PGK 3.3 million (USD 1.4 million) Telefomin High School Repair & Maintenance PGK 2.8 million (USD 1.3 million) Raiakam Primary School Development PGK 0.6 million (USD 0.3 million)

ROADS, BRIDGES, AIRPORTS & BUILDINGS Rehabilitation of existing Jetties and one new Jetty PGK 6.2 million (USD 2.7 million)

UTILITIES Kiunga Town Water Supply Upgrade PGK 11.9 million (USD 5.2 million) TOTAL PGK 25.7 million (USD 11.3 million)

SECURING OUR FUTURE 83 SOCIAL RESPONSIBILITY CONTINUED

With the mine continuation reducing production and costs by approximately 30% into the future, a review of the impact on local businesses identified the following issues:

• there are many small businesses competing against each other offering the same services, and with limited capacity;

• the larger, well-performing businesses do not consistently declare dividends and local shareholders miss out, especially in joint ventures and partnerships; and

• local shareholding structures are not clearly defined for landowner businesses.

In the future, local businesses In 2013, there were 2,154 service contracts (e.g. labour, plant and equipment hire, etc.) will not be immune to an overall awarded to PNG companies which was 84% of all contracts. The overall percentage value reduction in purchasing from was 49% of total value. The total value of service contracts was PGK 441.3 million OTML and the challenge going (USD 194.2 million). Goods purchased in PNG totalled PGK 294.0 million (USD 129.4 million). forward for OTML is to review its contractor local businesses and The breakdown of purchase of goods by location is shown in the table below. implement a strategy that still ORIGIN VALUE IN PGK VALUE IN USD upholds its social responsibility Western Province, PNG 50,021,685 22,009,541 without compromising viability. National Papua New Guinea 244,006,605 107,362,906 There are a number of options that the OTML and OTDF Overseas 390,395,796 171,774,150 business teams are reviewing TOTAL 684,424,086 301,146,597 to ensure that the Small and Medium Enterprises (SME) Breakdown of Purchase of Goods in Western Province, PNG supply chain remain viable, are LOCAL PURCHASES IN WESTERN PROVINCE VALUE IN PGK VALUE IN USD dependable business partners Daru 57,991 25,516 with OTML and the underlying Kiunga 3,963,405 1,743,898 shareholders receive dividend returns from the business profits. Tabubil 46,000,289 20,240,127 TOTAL 50,021,685 22,009,541

84 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Tabubil High School start of term student intake.

SOCIALLY RESPONSIBLE • complete an internal audit against ISO26000: Guidance on Social PLANNING FOR 2014 Responsibility. This standard comprises The Community Relations Strategic Plan seven core subjects aimed at identifying outlines the programme planned for and maintaining a social license to operate; deployment in 2014. The plan includes: • complete a Pilot Social Impact • improvement of functionality of the Assessment review of a village affected Integrated Community Development in Middle Fly River by overbank flooding Management System (ICDMS) and staff and quantify against social mapping training. This will include a review and and land-use criteria. The Pilot will be update of all Community Relations (CR) used to develop and test social and land procedures and development of an mapping tools for a future wider review updated CR manual. This will support the and assessment of impacted villages; and overall CR strategies and objectives; • delivery of Community Development and • implementation of a CR document control infrastructure projects through OTDF. and data management system that meets data collection and storage requirements for IFC Performance Standards;

• Tabubil household survey. As part of the mine continuation Social Management Plan a commitment to update the 2009 Tabubil household survey was recommended and will provide updated social data for assessment and future planning;

SECURING OUR FUTURE 85 FINANCE

THE FOLLOWING INFORMATION SUMMARISES THE ECONOMIC PERFORMANCE FOR THE 2013 YEAR. THE FINANCIAL STATEMENTS HAVE BEEN EXTERNALLY AUDITED BY PRICEWATERHOUSECOOPERS PNG. DURING THE 2013 YEAR THERE WAS NO DIRECT FINANCIAL ASSISTANCE IN THE FORM OF TAX SUBSIDIES, ROYALTY RELIEF, GRANTS OR FINANCIAL INCENTIVES RECEIVED BY THE COMPANY New Caterpillar 793F truck tray enroute to Mt Fubilan mine. FROM THE PNG GOVERNMENT.

Breakdown of Contributions to the PNG Economy 2011 2012 2013 %%% National Government, Tax Credit Scheme, Product levy 35 18 15 Dividend (National Government and PNGSDP) 23 27 0 PNG goods and services 16 20 27 OTML contractors 15 22 30 Employment 6 8 23 Royalty 3 2 2 Community compensation 2 3 3

Sales Revenue by Commodity (Million) 2011 2012 2013 2011 2012 2013 PGK PGK PGK USD USD USD Copper 2,981 1,960 1,602 1,241 943 706 Gold 1,638 1,352 1,091 692 650 482 Silver 90 52 45 37 25 20 FinaIisation/revaluation -173 -4 -68 -75 -3 -32 Total sales revenue 4,536 3,360 2,670 1,895 1,615 1,176

86 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 PRODUCT STEWARDSHIP OTML produces copper-gold-silver in concentrate which is sold to smelters or refineries in Asia or Europe. The OTML marketing division is located in Brisbane, Australia and has formalised agreements with customers in Japan, the Philippines, South Korea, India and Germany. Despite a decrease in output in 2013, customers remain committed to retaining contracts to purchase copper concentrate due to the consistent quality and to OTML’s reliability as a supplier.

OTML’s commitment to product stewardship is from the processing plant to the storage vessel from where international ships load the copper concentrate for export markets. OTML’s product management systems ensure that the concentrate chain-of-custody follows the product from the processing mill via the pipeline to the drying and storage facilities at Kiunga. From Kiunga the product is blended to meet specific customer contractual specifications and then loaded onto copper feeder vessels where it is shipped to the storage silo vessel, which is either moored in the Gulf of Papua or in Port Moresby harbour, depending on seasonal weather factors.

OTML’s copper concentrate is considered to be clean by world standards with fluorine as the only potential trace element of concern. The production process is carefully monitored to ensure the copper concentrate product meets customer’s contractual specifications.

There were no outside penalties applied to OTML shipped concentrate product and no external customer complaints in 2013.

Exports in 2013 2011 2012 2013 Concentrate (t) 553,574 459,335 394,622 Contained copper (t) 146,336 121,432 100,212 Contained gold (oz) 456,869 395,820 352,050 Contained silver (oz) 1,189,033 889,381 929,380

Exports by Recipient Countries CHANGE 2011 2012 2013 (2012 TO 2013) % % % % Japan 43.8 64.3 43.6 -32.2 South Korea 15.5 6.5 12.6 93.8 Philippines 17.3 7.7 23.6 206.5 Germany 3.6 12.9 5.1 -60.5 India 14.4 8.6 10.1 17.4 Indonesia 5.4 0 5.0

SECURING OUR FUTURE 87 FINANCE CONTINUED

RESULTS: INCOME STATEMENT 2011 2012 2013 2011 2012 2013 PGK’MILLION PGK’MILLION PGK’MILLION USD’MILLION USD’MILLION USD’MILLION

Sales revenue 4,536 3,360 2,670 1,895 1,615 1,176 Other operating income 20 0 5 8 0 2 Marketing costs -271 -263 -274 -114 -127 -120 Cash operating costs -1,918 -1,468 -1,526 -719 -768 -772 Change in product inventories -66 93 -47 -19 31 -5 Depreciation and amortisation -471 -470 -614 -187 -116 -245 Profit from operations 1,830 1,252 214 864 635 36 Net finance costs 18 -8 7 -4 -1 Profit from ordinary activities before tax 1,848 1,244 212 871 631 35 Income tax expense -604 -331 -31 -250 -159 -18 Net profit for the year 1,244 913 181 621 472 17 RESULTS: BALANCE SHEET 2011 2012 2013 2011 2012 2013 PGK’MILLION PGK’MILLION PGK’MILLION USD’MILLION USD’MILLION USD’MILLION

Assets Cash and cash equivalents 506 448 423 237 214 167 Trade and other receivables 314 212 295 147 101 117 Inventories 385 483 453 160 205 201 Income tax refundable 0 49 77 0 24 31 Other 38 30 40 19 15 16 Total current assets 1,243 1,222 1,288 563 559 532 Financial assurance fund 462 483 577 217 230 228 Property, plant and equipment 1,299 1,682 1,819 545 740 758 Restoration and rehabilitation 170 121 78 63 47 32 Other 128 14 297 53 8 117 Total non-current assets 2,059 2,300 2,771 878 1,025 1,135

Liabilities Trade and other payables 116 156 362 55 74 143 Income tax payables -73 0 0 -34 0 0 Derivative financial instrument 34 17 0 69 9 0 Provisions 147 118 60 15 56 24 Total current liabilities 224 291 422 105 139 167 Deferred income tax liability 167 125 259 78 60 103 Restoration and rehabilitation 484 476 577 227 227 228 Derivative financial instrument 16 0 0 8 0 0 Provisions 21 23 0 10 11 0 Total non-current liabilities 688 624 836 323 298 331

Net assets 2,390 2,607 2,801 1,013 1,147 1,169

Share capital 195 195 195 234 234 234 Reserves -40 -13 0 -18 -5 0 Retained earning 2,235 2,425 2,606 797 918 935 Total equity 2,390 2,607 2,801 1,013 1,147 1,169

88 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 PRODUCTION OPERATING COSTS NON-CURRENT ASSETS Overall production during the year was Although production during the year was The Financial Assurance Fund disappointing due to a high number of lost significantly lower than budget, Kina (FAF) increased from PGK 483 production days brought about by flooding operating costs were over budget by 16%. million to PGK 577 million due to at the mine pit and breakdown of major plant The main causes was the redundancy the strengthening of USD against equipment. As a mitigating action some old payout expenses of PGK 224 million (USD Kina, with no significant change low grade stockpiles were processed to 80 million) in December. Excluding this in the USD 228 million value of maintain throughput. Last quarter production abnormal item, other operating costs were the portfolio. was also impacted by high fluorine content. actually PGK 159 million (USD 70 million) Significant capital expenditure Overall mill throughput was 16% below lower than budget, reflecting an increased in the year included west wall budget whilst concentrate production was focus on operating costs in the changing stripping and payments for new 9% below budget. economic environment. mining equipment in Capital work in progress. Higher depreciation REVENUE RECEIVABLES was charged during the year due Gross revenues were 34% down in USD The higher receivables at balance date to significant capital expenditure terms (25% in Kina terms) against budget reflect the timing of shipments with three in 2012 and 2013, offset by mainly due to lower shipments and falling shipments in December and the last BOL continuation of mine life for metal prices. Concentrate shipments were dated 28 December 2013. depreciation purposes to 2025. 18% down on budget due to the lower production and a buildup of inventories at INVENTORY CURRENT LIABILITIES year end, whilst realised copper and gold Physical concentrate stocks were high Payables increased due to the prices were 8% and 16% below budget at balance date due to the high fluorine tax withheld for the redundancy respectively. The strengthening USD product being held back, although the strong payments made in December. bolstered Kina revenues. December production volumes reduced unit Provisions decreased mainly due costs. A provision of PGK 28 million (USD 12 to lower Share in Success Scheme million) was raised to cover the fluorine issue. (SISS) charges for the year.

EQUITY NON-CURRENT Nil reserves at year end as small limited hedging contracts expired in mid-2013. LIABILITIES No dividends were declared during the year due to the reduced revenues, profit and the No change in the estimated resultant impact on cash. Restoration & Rehabilitation provision at PGK 582 million (USD Five-Year Summary of Earnings Before Interest and Tax (PGK) 230 million), with unwinding of the 2009 2010 2011 2012 2013 discount offset by the significant EBIT 2,252 2,869 1,847 1,244 211 exchange rate movement. EBIT Margin 56% 56% 41% 37% 8%

Five-Year Summary of CL Cash Cost (USD) 2009 2010 2011 2012 2013 Copper Cash Cost 1.54 1.9 2.33 2.99 3.49 Metal Credits -1.47 -1.75 -2.35 -2.50 -2.21 Cash Cost 0.07 0.15 -0.02 0.49 1.28

SECURING OUR FUTURE 89 90 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013

CONTENTS PAGE NO.

Annual Report of the Directors to the Shareholders 92 Independent Auditor’s Report to the Shareholders 94

FINANCIAL STATEMENTS: Income Statement 96 Statement of Comprehensive Income 96 Statement of Changes in Equity 97 Statement of Financial Position 98 Statement of Cash Flows 99 Notes to and forming part of the Financial Statements 101

SECURING OUR FUTURE 91 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES ANNUAL REPORT OF THE DIRECTORS TO THE SHAREHOLDERS FOR THE YEAR ENDED 31 DECEMBER 2013

THE DIRECTORS ARE ACTIVITIES DIVIDENDS PLEASED TO PRESENT THEIR During the year, the Group has continued its The Directors did not declare and pay any dividends REPORT ON THE AFFAIRS principal activity of mining and processing copper during the year (2012: K3.75: USD1.82 per share / ore. Shipments for the year totalled 394,622 (2012: 2012: K722,946,000 or USD350,000,000). OF THE GROUP, INCLUDING 459,335) dry metric tonnes of copper concentrate. THE FINANCIAL STATEMENTS, AUDITORS FOR THE YEAR ENDED FINANCIAL RESULTS Details of amounts paid to the auditors 31 DECEMBER 2013. The Group made a profit after tax of K180,744,000 for PricewaterhouseCoopers for audit and other services the year (2012 of K913,450,000). In US dollar terms are shown in note 3(a) to the financial statements. the result was a profit after tax of USD16,835,000 (2012 of USD471,799,000). The profit was low for the DONATIONS year as compared to previous year mainly due to low The total amount of donations made by the Company revenue attributed to lower metal prices and lower is stated in note 3(a) to the financial statements. shipments as a result of lower production due to the shutdown of SAG2 and flooding in the pit. SHARE REGISTER During the year, the 122,200,000 ordinary shares in DIRECTORS the Company held by PNG Sustainable Development The Directors as at balance date were: Program Limited were cancelled and 122,200,000 Mr D. Vele (Chairman) new ordinary shares were issued to the Independent Mr N. Parker (Managing Director/CEO) State of PNG consequent to the 10th Supplementary Mr M. Gumoi Agreement passed by Parliament. Mr J. Weiss The Company Secretaries as at balance date were: ACCOUNTING POLICIES Mr E. Tajonera Any changes in accounting policies are stated in note Mr C. Clark 1 to the financial statements. INTEREST REGISTER No entries were made in the interest register in 2013.

DIRECTORS’ REMUNERATION The following Directors’ fees and remuneration were paid during the year: 2013 2012 K’000 K’000 Mr N. Parker 3,353 2,392 Mr A. Roberts 270 560 4,518 2,952

92 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 REMUNERATION OF EMPLOYEES Remuneration paid to employees during the year, in excess of K100,000 in bands of K10,000 were: SALARY BANDS NO. SALARY BANDS NO. SALARY BANDS NO. SALARY BANDS NO. K’000 OF EMPL. K’000 OF EMPL. K’000 OF EMPL. K’000 OF EMPL. 100-109 107 400-409 4 720-729 2 1,110-1,119 1 110-119 104 410-419 8 730-739 4 1,120-1,129 1 120-129 81 420-429 11 740-749 1 1,150-1,159 2 130-139 90 430-439 11 760-769 1 1,160-1,169 1 140-149 75 440-449 10 770-779 1 1,170-1,179 1 150-159 77 450-459 4 780-789 3 1,190-1,199 1 160-169 72 460-469 5 790-799 2 1,230-1,239 1 170-179 71 470-479 1 800-809 2 1,300-1,309 1 180-189 69 480-489 1 810-819 2 1,310-1,319 1 190-199 84 490-499 5 820-829 2 1,320-1,329 2 200-209 77 500-509 4 830-839 1 1,340-1,349 1 210-219 90 510-519 5 840-849 1 1,360-1,369 1 220-229 85 520-529 3 850-859 4 1,400-1,409 1 230-239 57 530-539 4 860-869 4 1,420-1,429 2 240-249 65 540-549 5 870-879 1 1,450-1,459 2 250-259 61 550-559 2 880-889 2 1,500-1,509 1 260-269 49 560-569 5 890-899 2 1,560-1,569 1 270-279 53 570-579 2 900-909 1 1,570-1,579 3 280-289 44 580-589 3 910-919 2 1,590-1,599 1 290-299 44 590-599 2 920-929 1 1,630-1,639 1 300-309 34 600-609 4 930-939 2 1,690-1,699 1 310-319 35 610-619 1 940-949 1 1,780-1,789 1 320-329 23 620-629 8 960-969 2 1,950-1,959 1 330-339 19 630-639 1 980-989 2 2,070-2,079 1 340-349 27 640-649 1 990-999 1 2,120-2,129 1 350-359 18 660-669 3 1,000-1,009 2 2,330-2,339 1 360-369 17 670-679 5 1,010-1,019 1 3,010-3,019 1 370-379 8 680-689 2 1,020-1,029 1 3,350-3,359 1 380-389 14 690-699 3 1,030-1,039 1 390-399 10 710-719 1 1,090-1,099 1

Signed for, and on behalf of, the Board on 28 February 2014.

DIRECTOR DIRECTOR

SECURING OUR FUTURE 93 INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF OK TEDI MINING LIMITED

REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of Ok Tedi Mining Limited (the Company), which comprise the statements of financial position as at 31 December 2013, the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 December 2013 or from time to time during the financial year. DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The Directors are responsible for the preparation of these financial statements such that they give a true and fair view in accordance with generally accepted accounting practice in Papua New Guinea and the Companies Act 1997 and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the Company and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

94 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OPINION In our opinion, the accompanying financial statements: 1. comply with International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea; and 2. give a true and fair view of the financial position of the Company and the Group as at 31 December 2013, and their financial performance and cash flows for the year then ended. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS The Companies Act 1997 requires in carrying out our audit that we consider and report on the following matters. We confirm in relation to our audit of the financial statements for the year ended 31 December 2013: 1. we have obtained all the information and explanations that we have required; 2. in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records; and 3. other than in our capacity as auditor, we have no relationship with, or interests in the Company or any of its subsidiaries. These services have not impaired our independence as auditor of the Company and the Group. RESTRICTION ON DISTRIBUTION OR USE This report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1997. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditor’s report and for no other purpose. We do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.

PRICEWATERHOUSECOOPERS

STEPHEN BEACH Partner Registered under the Accountants Registration Act 1996 Port Moresby 5 March 2014

SECURING OUR FUTURE 95 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2013

COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 CONTINUING OPERATIONS Operating Revenue: Sales revenue 2(a) 2,670,179 3,359,570 2,670,179 3,359,570 Other operating income 2(b) 4,931 220 37,305 254 Total Operating Revenue 2,675,110 3,359,790 2,707,484 3,359,824 Operating costs 3(a) (2,461,851) (2,107,627) (2,492,957) (2,108,066) Profit from Operating Activities 213,259 1,252,163 214,527 1,251,758 Finance costs 3(b) (4,976) (14,126) (5,132) (14,126) Finance income 3(b) 3,071 6,306 3,164 6,711 Profit Before Income Tax 211,354 1,244,343 212,559 1,244,343 Income tax expense 4 (30,610) (330,893) (30,645) (331,088) Net Profit for the year 180,744 913,450 181,914 913,255

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013 Net Profit for the year 180,744 913,450 181,914 913,255

Other Comprehensive Income: Changes in fair value of derivative financial instruments 18,864 38,016 18,864 38,016

Tax effect of change in fair value of derivative financial instruments (5,301) (10,891) (5,301) (10,891)

Other Comprehensive Income Net of Tax 13,563 27,125 13,563 27,125

Total Comprehensive Income for the year 194,307 940,575 195,477 940,380

This statement is to be read in conjunction with the Notes on pages 101 to 124.

96 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013

COMPANY CONSOLIDATED ORDINARY HEDGE RETAINED RETAINED SHARES RESERVE EARNINGS TOTAL EARNINGS TOTAL NOTE K’000 K’000 K’000 K’000 K’000 K’000

BALANCE AT 31 DECEMBER 2011 195,102 (40,688) 2,234,779 2,389,193 2,230,845 2,385,259 Comprehensive Income Net Profit for the year - - 913,450 913,450 913,255 913,255 Other Comprehensive Income - 27,125 - 27,125 - 27,125 Prior Period Adjustment - - - - 916 916 Transactions with owners Dividends paid 20 - - (722,946) (722,946) (722,946) (722,946)

BALANCE AT 31 DECEMBER 2012 195,102 (13,563) 2,425,283 2,606,822 2,422,070 2,603,609 Comprehensive Income Net Profit for the year - - 180,744 180,744 181,914 181,914 Other Comprehensive Income - 13,563 - 13,563 - 13,563 Transactions with owners Dividends paid 20 ------

BALANCE AT 31 DECEMBER 2013 195,102 - 2,606,027 2,801,129 2,603,984 2,799,086

This statement is to be read in conjunction with the Notes on pages 101 to 124.

SECURING OUR FUTURE 97 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013

COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 CURRENT ASSETS: Cash and cash equivalents 5 423,470 447,924 570,902 490,110 Trade and other receivables 6 295,164 211,761 298,158 213,822 Inventories 7 452,826 483,116 452,826 483,116 Income tax refundable 14 77,214 49,443 78,087 48,304 Other current assets 8 39,610 30,263 39,610 30,263 Total Current Assets 1,288,284 1,222,507 1,439,583 1,265,615 NON-CURRENT ASSETS: Property, plant and equipment 9 1,344,413 1,521,655 1,344,585 1,521,867 Mine development costs 10 475,017 160,922 475,017 160,922 Restoration and rehabilitation 11 78,240 120,621 78,240 120,621 Deferred income tax asset 16 219,026 204,478 218,639 206,412 Investment in subsidiaries 24(c) 26 26 - - Financial assurance fund 25 576,817 482,584 576,817 482,584 Other non-current assets 12 77,262 14,128 77,262 14,128 Total Non-Current Assets 2,770,801 2,504,414 2,770,560 2,506,534 Total Assets 4,059,085 3,726,921 4,210,143 3,772,149 CURRENT LIABILITIES: Trade and other payables 13 361,778 156,490 367,874 164,456 Provisions 15 60,347 117,829 204,681 136,543 Derivative financial instruments 26(b)(ii) - 17,452 - 17,452 Total Current Liabilities 422,125 291,771 572,555 318,451 NON-CURRENT LIABILITIES: Deferred income tax liability 16 258,687 329,198 261,358 333,265 Provisions 17 - 22,909 - 40,603 Restoration and rehabilitation 18 577,144 476,221 577,144 476,221 Total Non-Current Liabilities 835,831 828,328 838,502 850,089 Total Liabilities 1,257,956 1,120,099 1,411,057 1,168,540 Net Assets 2,801,129 2,606,822 2,799,086 2,603,609 SHAREHOLDERS’ EQUITY: Ordinary shares 19 195,102 195,102 195,102 195,102 Hedge reserve - (13,563) - (13,563) Retained earnings 2,606,027 2,425,283 2,603,984 2,422,070 Total Shareholders’ Equity 2,801,129 2,606,822 2,799,086 2,603,609

These financial statements were authorised for issue by the Board on 28 February 2014 For, and on behalf of, the Board.

DIRECTOR DIRECTOR

This statement is to be read in conjunction with the Notes on pages 101 to 124.

98 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013

COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers 2,586,776 3,461,725 2,648,885 3,461,761 Payments to suppliers and employees (1,671,187) (1,683,412) (1,752,476) (1,684,181) Cash Generated From Operations 915,589 1,778,313 896,409 1,777,580 Interest received 3,071 6,306 3,618 6,340 Realised gold & copper hedge settlements 26(b)(ii) (14,148) (35,754) (14,148) (35,211) Fund received from trustee - - 137,673 - Royalty payments (30,143) (65,454) (30,143) (65,454) Production levy paid (5,990) (10,530) (5,990) (10,530) Amounts paid to compensation trust funds 17(b) (12,643) (13,497) (12,643) (13,497) Amounts paid under CMCA 15(a) (69,639) (54,154) (69,639) (54,154) Amounts paid to Shares in Success 24(b) (52,884) (81,238) (66,678) (99,320) Income tax paid 14 (104,966) (229,473) (104,966) (229,473) Net Cash Generated From Operating Activities 628,247 1,294,519 733,493 1,275,738 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment 9 (389,719) (467,903) (389,719) (467,903) Mine development present costs 10 (318,472) (147,812) (318,472) (147,812) Proceeds from sale of property, plant and equipment 214 425 214 436 Financial Assurance Fund investment 25 - (14,484) - (14,484) Net Cash Used In Investing Activities (707,977) (629,774) (707,977) (629,763) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid 20 - (722,946) - (722,946) Net Cash Used In Financing Activities - (722,946) - (722,946)

Net increase/(decrease) in cash and cash equivalents (79,730) (58,201) 25,516 (76,971) Cash and cash equivalents at beginning of the year 447,924 506,125 490,110 567,081 Foreign exchange effect on foreign currency balances 55,276 - 55,276 -

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 5 423,470 447,924 570,902 490,110

This statement is to be read in conjunction with the Notes on pages 101 to 124.

SECURING OUR FUTURE 99 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

RECONCILIATION OF NET PROFIT AFTER INCOME TAX TO NET CASH GENERATED FROM OPERATING ACTIVITIES COMPANY CONSOLIDATED 2013 2012 2013 2012 K’000 K’000 K’000 K’000

Net Profit For The Year 180,744 913,450 181,914 913,255 Add back non cash and non-operating items: Depreciation of property, plant and equipment 566,044 244,761 566,044 246,034 Amortisation of restoration and rehabilitation 42,199 49,703 42,199 49,703 Amortisation of Lower Ok Tedi Compensation 182 463 182 463 Amortisation of pre-production expenditure 4,377 4,397 4,377 4,397 Non-cash finance charges - - - - Non-cash interest – Financial Assurance Fund (4,976) (14,126) (4,976) (14,125) (Gain)/loss on sale of property, plant and equipment (214) (95) (214) (95) Net unrealised exchange (gain)/loss (117,436) (12,322) (117,398) (12,042) Unrealised hedging (gain)/loss - 7,695 - 7,695 Provision for inventory obsolescence 39,237 10,195 39,237 10,195

Changes in Operating Assets and Liabilities: (Increase)/decrease in trade and other receivables (83,403) 119,334 (84,336) 122,259 (Increase)/decrease in inventories 30,290 (97,625) 30,290 (97,625) Increase/(decrease) in trade and other payables 205,288 30,717 203,418 26,145 Increase/(decrease) in provisions and others (121,255) (40,213) (13,327) (57,950) (Increase)/decrease in income tax payable (27,771) 23,489 (29,783) 24,577 Increase/(decrease) in deferred income tax (85,059) 54,696 (84,134) 52,852 Net Cash Generated from Operating Activities 628,247 1,294,519 733,493 1,275,738

This statement is to be read in conjunction with the Notes on pages 101 to 124.

100 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013

1. PRINCIPAL ACCOUNTING POLICIES • Amendments to IAS 19, ‘Employee benefits’ • IFRS 13, ‘Fair value measurement’ (effective 1 January 2013) require the (effective 1 January 2013) aims to The principal accounting policies applied in the recognition of all re-measurements of defined improve the consistency and reduce preparation of these consolidated financial statements benefit liabilities/assets immediately in other complexity by providing a precise are set out below. These policies have been comprehensive income (removal of the so-called definition of fair value and a single consistently applied to all the years presented, unless ‘corridor’ method) and the calculation of a net source of fair value measurement otherwise stated. interest expense or income by applying the and disclosure requirements for (A) BASIS OF PREPARATION discount rate to the net defined benefit liability or use across IFRSs. The requirements These general purpose consolidated financial asset. The Group does not have a defined benefit do not extend the use of fair value statements of Ok Tedi Mining Limited and its pension scheme. accounting but provide guidance on subsidiaries have been prepared in accordance • IFRS 10, ‘Consolidated Financial Statements’ how it should be applied where its with the Papua New Guinea Companies Act 1997 (effective 1 January 2013) replaces all of the use is already required or permitted and comply with International Financial Reporting guidance on control and consolidation in IFRS 27 by other standards. The Group does Standards (IFRS) and other generally accepted Consolidated and Separate Financial Statements, not use fair value measurement accounting practice in Papua New Guinea. All and SIC 12 Consolidation – Special Purpose extensively and it is unlikely the new amounts are stated in Papua New Guinea Kina (K), Entities. The core principle that a consolidated rules will have a significant impact the functional currency of the Company, rounded entity presents a parent and its subsidiaries on any amounts recognised in the to the nearest thousand Kina. as if they are a single economic entity remains financial statements. However, application of the new standard The accounts have been prepared on the basis unchanged, as do the mechanics of consolidation. will impact the type of information of historical costs and do not take into account However the standard introduces a single disclosed in the notes to the changing money values or current valuations definition of control that applies to all entities. financial statements. of non-current assets, other than for most It focuses on the need to have both power and financial instruments which are measured at rights or exposure to variable returns before • IAS 27 (revised 2011) ‘Separate fair value. Cost is based on the fair values of the control is present. Power is the current ability to financial statements’ (effective 1 consideration given in exchange for the assets. direct the activities that significantly influence January 2013) is now a standard returns. Returns must vary and can be positive, dealing solely with separate The preparation of the financial statements in negative or both. There is also new guidance on financial statements. Application conformity with IFRS requires the use of certain participating and protective rights and on agent/ of this standard will not affect accounting estimates. It also requires management principal relationships. Management do not expect any of the amounts recognised in to exercise its judgement in the process of applying the new standard to have any impact on the the consolidated or parent entity the Group’s accounting policies. The areas involving existing group. financial statements but may impact a higher degree of judgement or complexity, or the type of information disclosed in areas where assumptions and estimates are • IFRS 11, ‘Joint arrangements’ (effective 1 relation to the parent’s investments significant to the consolidated financial statements January 2013) introduces a principles based in the separate parent entity are disclosed in note 1(c). approach to accounting for joint arrangements. The focus is no longer on the legal structure of financial statements. The Directors have the power to amend these joint arrangements, but rather on how rights • IAS 28 (revised 2011), ‘Associates financial statements after its issue. and obligations are shared by the parties to the and joint ventures’ (effective Changes in Accounting Policies and Disclosures joint arrangement. Based on the assessment 1 January 2013) includes the of rights and obligations, a joint arrangement requirements for joint ventures, a) Standards, amendment and interpretations will be classified as either a joint operation or as well as associates, to be equity effective in 2013 joint venture. Joint ventures are accounted accounted following the issue of The following new standards and for using the equity method, and the choice to IFRS 11. The Group is not a party to amendments were applicable for the first proportionately consolidate will no longer be any joint ventures. time during the accounting period beginning permitted. Parties to a joint operation will account • Amendment to IFRS 7, ‘Financial 1 January 2013: their share of revenues, expenses, assets and instruments: Disclosures’ on • Amendment to IAS 1, ‘Financial statement liabilities in much the same way as under the offsetting financial assets and presentation’ (effective 1 July 2012) previous standard. As the Group is not a party to financial liabilities (effective 1 regarding other comprehensive income any joint arrangements, this standard will not have January 2013) enhance current requires entities to separate items any impact on its financial statements. offsetting disclosures. They are presented in other comprehensive • IFRS 12, ‘Disclosures of interests in other entities’ unlikely to affect the accounting for income into two groups, based on (effective 1 January 2013) includes the disclosure any of the Group’s current offsetting whether they may be recycled to profit or requirements for all forms of interest in other arrangements. loss in the future. This will not effect the entities, including joint arrangements, associates, • Amendment to IFRS 1, ‘First time measurement of any items recognised in special purpose vehicles and other off-balance adoption’, on government loans the balance sheet or profit and loss in the sheet vehicles. Application of this standard will (effective 1 January 2013) is not current period. not affect any of the amounts recognised in the relevant to the Group. financial statements, as the Group has no interest in other entities.

SECURING OUR FUTURE 101 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

1. PRINCIPAL ACCOUNTING b) New standards, amendments and • IFRIC 21 “Levies”. This is an interpretation to POLICIES (CONTINUED) interpretations issued but not effective for the IAS 37, “provisions, contingent liabilities and year ended 31 December 2013 or adopted early: contingent assets. IAS 37 sets out criteria for (A) BASIS OF PREPARATION The following standards, amendments and the recognition of a liability, one of which is (CONTINUED) interpretations to existing standards have been the requirement for the entity to have present • Annual improvements 2011 published and are mandatory for the entity’s obligation as a result of past event (known as (effective 1 January 2013) include accounting periods beginning on or after 1 obligating event). The interpretation clarifies that minor changes to IFRS 1, IAS 1, January 2014 or later periods, but the entity has the obligating event that gives rise to a liability to IAS 16, IAS 32 and IAS 34. The not early adopted them: pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. Group does not expect that any • IFRS 9, ‘Financial Instruments’ (effective date adjustments will be necessary as of is open) is the first phase of replacing IAS 39, • IFRS 9 “Hedge Accounting” (no effective result of applying the revised rules. ‘Financial Instrument” with a standard that is less date – the standard is available for immediate • IFRIC 20, ‘Stripping costs in the complex and principles based. The new standard application”). IFRS 9 relaxes the requirements for production phase of a surface mine’ addresses the classification, measurement and hedge effectiveness and, consequently to apply (effective 1 January 2013) sets derecognition of financial assets and financial hedge accounting. IFRS 9 replaces the 80%-125% out the accounting for overburden liabilities. The standard is not expected to change hedge effectiveness test with a requirement for waste removal (stripping) costs in the entity’s existing accounting policy for its an economic relationship between the hedged the production phase of a surface financial assets and liabilities. IASB has also item and hedging instrument, and for the ‘hedged mine. The interpretation may require amended IFRS 9 to allow entities to early adopt ratio’ to be the same as the one that the entity mining entities to write off existing the requirement to recognise in OCI the changes actually uses for risk management purposes. striping assets to opening retained in fair value attributable to changes in an entity’s Hedge ineffectiveness will continue to be reported earnings if the assets cannot own credit risk (from financial liabilities that are in profit or loss (P&L). An entity is still required be attributed to an identifiable designated under the fair value option). This can to prepare contemporaneous documentation; component of an ore body. This be applied without having to adopt the remainder however, the information to be documented interpretation has been early of IFRS 9. under IFRS 9 will differ. The new requirements change what qualifies as a hedged item, primarily adopted by the Group effective 1 • Amendments to IFRS 10, ‘Consolidated financial removing restrictions that currently prevent some January 2012. statements’, IFRS 12 and IAS 27 for investment economically rational hedging strategies from entities (effective 1 January 2014) provides qualifying for hedge accounting. The standard an exemption to investment entities from provides an accounting policy choice for an entity consolidating controlled investees. The Company to continue to apply hedge accounting (and hedge is not an investment entity and will not therefore accounting only) under IAS 39 instead of IFRS be affected by these amendments. 9 until the IASB completes its separate macro • Narrow scope amendments to IAS 36 “Impairment hedging project. of assets” (effective 1 January 2014) address the • Amendment to IAS 19 regarding defined benefit plans disclosure of information about the recoverable (effective 1 July 2014). These narrow scope amount impaired assets if that amount is based amendments simplify the accounting for contributions on fair value less costs of disposal. The Group has to defined benefit plans that are independent of no such impaired assets. the number of years of employee service. • Amendments to IAS 32, “Financial Instrument: • Annual improvements 2012 (effective 1 July 2014) Presentation” (effective 1 January 2014). These makes minor changes to IFRS 2, IFRS 3, IFRS 8, amendments are to the application guidance in IFRS 13, IAS 16, IAS 37 and IAS 39. IAS 32 and clarify some of the requirements for offsetting financial assets and financial liabilities • Annual improvements 2013 (effective 1 July 2014) on the balance sheet. makes minor changes to IFRS 1, IFRS 3, IFRS 13 and IAS 40. • Amendment to IAS 39, Financial instruments: Recognition and measurement, amendment in relation to “novation of derivatives” (effective 1 January 2014). This amendment provides relief from discontinued hedge accounting when novation of a hedging instrument to a central counter party meets specified criteria.

102 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 (B) CONSOLIDATION The total costs on the MLE feasibility study the Minister for Mining on 7th May The subsidiary undertakings and special-purpose was K111.6 million (2012: K111.6 million) 2012. The Company have submitted an entities for which the Company has an interest of which have been capitalised. Other MLE related updated MCP in 19th December 2013, more than one half of the voting rights or otherwise capital expenditure on new or upgraded plant with no changes on the estimated has power to exercise control over the operation are and equipment of K804.6 million has also been Fund value of USD227 million. With consolidated. They are consolidated from the date capitalised. Stripping cost to date of K466.3 the life of mine extension to 2025, the on which control is transferred to the Company and million (2012: K147.8 million) in preparation for Company will be preparing another are no longer consolidated from the date that control MLE have also been deferred in the balance sheet. Detailed MCP in 2015. Should the new ceases. All inter-entity transactions, balances and Total costs included in the balance sheet related estimate of the Fund be higher than unrealised gains and losses on transactions between to the MLE as at 31 December 2013 are K1,382.5 USD227 million, then the Company group companies are eliminated. million (2012: K452.5 million). Should the MLE not needs to make a bi-annual contribution ultimately be approved, these costs will need to to ensure the new estimated Fund In the Company’s financial statements, investments be assessed for impairment and write down. requirements is met by 2025. in subsidiaries are stated at the lower of cost or recoverable amount. The State has extended the Change Notice (iii) Provision for Obsolescence #52/4.2;27/29.2 in respect of access to the area Consumable items that have not (C) CRITICAL ACCOUNTING ESTIMATES up to March 2014. AND JUDGEMENTS been issued in the last two years are The impact of a change in life of mine estimate included as part of current inventory. The most significant estimates and judgements is applied prospectively from the beginning of the A full provision however is made for relate to the long term copper and gold price, mineral financial year during which the change has been potential write-off of these items. reserves and remaining open pit mine life, provision for determined. The financial effect of increasing Management considers that it is restoration and rehabilitation obligations, recoverability the estimated mine life by one year would be to prudent to make such provision given of long-lived assets (including mine development costs) decrease the life of mine asset’s depreciation and the uncertainties concerning the and depreciation. Actual results could differ from those amortisation for 2014 by K51 million. remaining life of the open pit mine. estimates and may affect amounts reported in future years. Management believes that the estimates and (ii) Provision for Restoration and Rehabilitation (iv) Depreciation and Amortisation assumptions are reasonable. The Provision for Restoration and Rehabilitation is of Long Term Assets The estimates and assumptions that have a risk based largely on an obligation to contribute to the In estimating the remaining life of of causing a material adjustment to the carrying Ok Tedi Financial Assurance Fund (refer note 1(i) the open pit mine, for the purpose amounts of assets and liabilities within the next and note 26). Pursuant to the Mine Closure Code, of depreciation and amortisation financial year are outlined below: contained in the Mining (Ok Tedi Mine Continuation calculations, due regard is given to (Ninth Supplemental) Agreement) Act 2001, the the volume of remaining economically (i) Life of Mine Company is required to update its Mine Closure Plan recoverable reserves but not to During 2013, Management have changed the (MCP) and submit it to the Office of the Environment limitations that could arise from the estimated life of mine through which the mining and the Department of Mining every two years. The potential for changes in technology, and processing of copper ore operation of the updated MCP must notify, amongst other things, what demand and other issues, such as early open pit mine are forecast to continue from 2015 the Company’s latest estimate is of the open pit mine mine closure. These are inherently to 2025. The new mine life of 2025 is based on closure costs. The Company previously agreed in difficult to estimate and this uncertainty the mine life extension (MLE) feasibility study that 2002 a MCP submitted to the Department of Mining can lead to a financial limitation on the was approved by the Board in February 2013. The to contribute USD100 million into the Fund by 2010. basis of depreciation and amortisation completed MLE feasibility study together with the However, with the mine continuation up to 2013, the adopted and is reviewed annually under environmental impact plan has been submitted to 2006 Draft MCP which was approved by the Minister prevailing circumstances. both the Department of Mining and the Department for Mining in January 2008, stated that the Fund Major costs being depreciated or of Conservation and Environment for approval. should contain USD130 million by 2013. In December amortised over the extended mine of 2010, the Company lodged its 2009 Detailed MCP Agreements for the extension of the mine life life to 2025 that would have a in which the Fund was estimated to be USD227 have been completed and agreed with the nine (9) significant financial impact should million by 2013. The Detailed MCP was approved by Community Mine Continuation Agreement (CMCA) early mine closure eventuates are: impacted regions in December 2012. Management and the Board anticipate legislative COMPANY CONSOLIDATED changes to give legal effect to the Independent 2013 2012 2013 2012 State of Papua New Guinea (the State) and K’000 K’000 K’000 K’000 CMCA agreement for MLE to be presented before Parliament during 2014. Property, plant and equipment 1,344,413 1,410,044 1,344,585 1,410,256 Mine development 475,017 160,922 475,017 160,922 Restoration and rehabilitation 78,240 120,621 78,240 120,621 Roadco prepayment 1,433 2,866 1,433 2,866 Total Costs At Risk 1,899,103 1,694,453 1,899,275 1,694,665

SECURING OUR FUTURE 103 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

1. PRINCIPAL ACCOUNTING done net of treatment and refining charges. However, The Group documents, at the inception of the POLICIES (CONTINUED) for revenue disclosure purposes the sales are grossed transaction, the relationship between hedging up and the treatment and refining charges from the instruments and hedged items, as well as its risk (C) CRITICAL ACCOUNTING smelters and refineries are included in marketing management objective and strategy for undertaking ESTIMATES AND JUDGEMENTS costs (note 3(a)). various hedge transactions. This process includes (CONTINUED) Unfinalised shipments at balance date are valued linking all derivatives designated as hedges to specific forecast concentrate sales. The Group also documents (v) Impairment Assessment using metal prices, weights and assays known at that its assessment, both at the hedge inception and on of Long Term Assets date. Where, in accordance with the terms of the sales contract, prices have not been finalised, sales values an ongoing basis, whether the derivatives that are As a result of recent events in global have been determined using three months forward used in hedging transactions are highly effective financial markets the Company price for copper and spot prices at year end for gold in offsetting changes in fair values or cash flows of has reassessed its key economic and silver. hedged items. assumptions in relation to its future In assessing the fair value of non-traded derivatives cash flow. The future cash flows of The average forward prices used at 31 December and other financial instruments, the Group obtains a the Company are most exposed to 2013 were USD3.34 per pound for copper (31 valuation from an external party. volatility in the following: December 2012: USD3.60), USD1,222 per ounce for gold (31 December 2012: USD1,688) and USD20.00 The Company’s hedge programme expired in June 2013. • Copper and gold prices; per ounce for silver (31 December 2012: USD29.00). • Fuel prices; and (F) PROPERTY, PLANT AND EQUIPMENT Interest income is recognised on a time-proportion All property, plant and equipment are stated at • Exchange rates (PNG Kina, US basis using the effective interest method. Dollar and Australian Dollar). historical cost less depreciation. Historical cost (E) MINERAL HEDGING includes expenditure that is directly attributable to In accordance with the Group the acquisition of the asset. Subsequent costs are policy (note 1(s)), the Company Derivative financial instruments are initially included in the asset’s carrying amount, or recognised has undertaken an assessment recognised in the balance sheet at cost and are as a separate asset as appropriate, only when it is of impairment indicators and not subsequently remeasured at their fair values. On the probable that future economic benefits associated withstanding the potential impact date a derivative contract is entered into, the Group with the item will flow to the Company and the cost of of changes to these key economic designates the contract as a hedge against specific the item can be reliably measured. assumptions, the Group does not at future production. The method of recognising the present, consider it necessitates any resulting gain or loss is dependent on the nature of Certain properties owned by the company and rented impairment provisions to be made the item being hedged. externally to third parties would be classified as against any of its long term assets. Changes in the fair value of derivatives that are Investment property under IAS 40. These properties designated against future production and that qualify are classified under Property and accounted for under (D) REVENUE RECOGNITION as cash flow hedges, and are deemed highly effective, IAS 16 at depreciated costs as the carrying amount is Revenue from the sale of copper are recognised in equity. Amounts deferred in equity considered immaterial for re-classification. All other concentrate, which also contain are transferred to the income statement and classified repairs and maintenance costs are expensed. quantities of gold and silver, is brought as revenue in the same periods during which the Property, plant and equipment are depreciated on a to account: at the time of shipment to hedged sales affect the income statement. straight-line basis over their estimated economic lives the buyer; when the significant risks Certain derivative instruments, while providing or the extended life of the mine, whichever is shorter. and rewards of ownership have been effective economic hedges under the Company’s Capital spare parts are depreciated over the life of the transferred to the buyer; the Group no risk management policies, do not qualify for equipment for which they are purchased. longer has control over the goods; and hedge accounting under the specific rules in IAS The range of estimated economic lives of the major the amount of revenue can be reliably 39, “Financial Instruments - Recognition and asset categories are: estimated. The revenue is based on one Measurement”. Changes in the fair value of any hundred percent of provisional weights, Buildings 5 years to life of mine derivative instruments that do not qualify for hedge assays and prices and is adjusted accounting under IAS 39 are recognised immediately Automotives and 4 - 10 years to life of when actual values are determined in the income statement. other equipment mine and invoiced in accordance with the terms and conditions of the relevant When a hedging instrument expires or is sold, or Mobile mining equipment 4 years to life of mine when a hedge no longer meets the criteria for hedge sales contract. The final settlement Support facilities 5 years to life of mine adjustments on the copper portion of accounting under IAS 39, any cumulative gain or Processing equipment 10 years to life of mine the sales contracts is generally based loss existing in equity at that time remains in equity and is recognised when the committed or forecast on the average London Metal Exchange The current life of the open pit mine estimate is that production is ultimately recognised in the income (LME) price for a specified future period mining and processing of ore will continue until the statement. If the committed or forecast production is generally three to five months after end of 2025 (note 1(c)(i)) (2012: end of 2015). arrival at the customers’ facility. The no longer expected to occur however, the cumulative copper concentrate sales invoicing is gain or loss reported in equity is immediately transferred to the income statement.

104 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Gains and losses on disposal of property, plant The Mine Closure Code contained in the Mining (L) FOREIGN CURRENCY TRANSLATION and equipment are brought to account in the (Ok Tedi Mine Continuation (Ninth Supplemental) Items included in the financial statements determination of operating profit. An asset’s carrying Agreement) Act 2001 requires the Company to of each of the Group’s entities are amount is written down immediately to its recoverable contribute to a Mine Closure Fund (referred to as measured using the currency of the amount if the asset’s carrying amount is greater than the Ok Tedi Financial Assurance Fund). The Ok Tedi primary economic environment in its estimated recoverable amount (note 1(s)). Financial Assurance Fund is established to provide which the entity operates (the functional Repairs and maintenance are charged to the profit sufficient cash at mine closure for settlement of mine currency). The consolidated financial and loss account during the financial period in which rehabilitation and restoration liabilities (note 25). statements are presented in Kina, they incurred. Where future economic benefits are probable a which is the Company’s functional and corresponding asset is raised and subsequently presentation currency. (G) PRE-PRODUCTION EXPENDITURE AND amortised using the straight line method (note 11). EXPLORATION EXPENDITURE Transactions denominated in foreign The Group’s restoration, rehabilitation and currency are translated at a rate of Pre-production expenditure represents the net cost environmental expenditure policy identifies the exchange which approximates the rate of incurred by the Company prior to the commencement environmental, social and engineering issues to be exchange at the date of the transaction. of commercial production on 31 January 1985. Such considered and the procedures to be followed when Amounts owing to and by the Company expenditure is classified as a mine development asset providing for costs associated with the site closure. denominated in foreign currencies at and is being amortised on a straight-line basis over Site rehabilitation and closure involves the dismantling balance date are translated at exchange the life of the open pit mine (note 10). and demolition of infrastructure not intended for rates current at that date. All post-production exploration expenditure is subsequent community use, the removal of residual The rates used at 31 December 2013 expensed as incurred. materials and the remediation of disturbed areas. for United States dollars and Australian (H) DEFERRED STRIPPING COST Community requirements and long term land use dollars were 0.3955 and 0.4443 equal objectives are also taken into account. The company has adopted IFRIC 20 – stripping costs to one Kina respectively (31 December in the production phase of a surface mine. IFRIC 20 (J) COMPENSATION 2012 – 0.4775 and 0.4602 respectively). sets out the accounting for overburden and other The Group has signed various compensation Realised and unrealised foreign exchange mine waste materials during the operating phase of a agreements with landowners and other surrounding variations on revenue accounts are surface mine where those stripping costs are incurred communities affected by the mine. Compensation recognised in the income statement. as part of a stripping campaign to access additional packages are denominated in the local currency and, (M) INCOME TAX ore. This activity is referred to as development in the majority of instances, are payable over the life The Group provides for all taxes stripping. The directly attributable costs (inclusive of of the open pit mine. an allocation of relevant overhead expenditure) are estimated to be payable on net profit for Where payments are contingent upon mine initially capitalised as a mine development asset. the year. It prepares and lodges its tax continuation, the anticipated amounts payable annually return using PNG Kina as the functional Capitalisation of development stripping costs ceases are accrued on a pro-rata basis. Where payments have and presentation currency. at the time that saleable material begins to be to be made regardless of mine continuation, a full Deferred income tax is provided in full, extract from the additional ore body associated with provision is created against future expected payments using the liability method, on temporary the stripping campaign. The stripping asset is then using the same principles as in note 1(i). amortised over the life of the additional ore body differences arising between the tax accessed on a unit of production basis. (K) INVENTORIES bases of assets and liabilities and their Copper concentrate and product in process are carrying amounts in the consolidated (I) RESTORATION AND REHABILITATION physically measured or estimated and valued at the financial statements. Deferred income A provision is raised for anticipated expenditure lower of cost or net realisable value. Cost is derived on tax is determined using tax rates to be made on restoration and rehabilitation to be an absorption costing basis which includes fixed and (and laws) that have been enacted or undertaken after the open pit mine closure (note 18). variable overheads and depreciation. Net realisable substantially enacted by the balance These costs may include the costs of dismantling and value is the amount estimated to be obtained from the sheet date, and are expected to apply demolishing of infrastructure or decommissioning, the sale of inventories in the normal course of business, when the related deferred income tax removal of residual material, the remediation of disturbed less any costs anticipated to be incurred prior to sale. asset is realised or the deferred income tax liability settled. areas and the relocation and retrenchment of employees Spare parts and consumables are valued at weighted under an agreed MCP. The amount of any provision average cost into store. An appropriate provision recognised is the full amount that has been estimated for stock obsolescence is raised in respect of slow based on current costs to be required to settle present moving inventory. obligations, discounted using a risk adjusted interest rate of 0.38 percent (2012: 0.38 percent).

SECURING OUR FUTURE 105 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

1. PRINCIPAL ACCOUNTING (iii) T ermination Benefits (O) RETIREMENT BENEFITS POLICIES (CONTINUED) Termina tion benefits are payable when employment The Group contributes to NASFUND, an independent is terminated before the normal retirement date or defined contribution fund, on behalf of its citizen (M) INCOME TAX (CONTINUED) when an employee accepts voluntary redundancy in employees and contributions are charged direct Deferred income tax assets are exchange for those benefits. The Group recognises to the income statement when payable. Once the recognised to the extent that it is termination benefits when it is demonstrably contributions have been paid, the Group has no further probable that future taxable income committed to either terminate the employment of payment obligations. will be available against which the current employees according to a detailed formal (P) ROADCO USER CHARGE temporary differences can be utilised. plan without possibility of withdrawal, or providing The total commitment under the Roadco agreement, Income tax expense in the income termination benefits as a result of an offer made for use of the Tabubil Kiunga road during the life of the statement comprises the estimated tax to encourage voluntary redundancy. Benefits open pit mine, was fully prepaid in August 1995. The payable and the movement in deferred falling due after more than twelve months from the prepayment is being charged to the income statement on tax balances. balance sheet date are discounted to present value. a straight-line basis over the remaining life of the mine. Current and deferred tax balances The Group, as part of its MCP obligations attributable to amounts recognised (note 1(c)(iii)), has provided for comprehensive (Q) CASH AND CASH EQUIVALENTS directly in equity and also recognised termination payments to all National employees For the purpose of the statements of cash flows, cash directly in equity. (included as part of Restoration and Rehabilitation and cash equivalents include cash at bank and on hand, provision at note 18). net of overdraft, and deposits held on call with banks. (N) EMPLOYEE BENEFITS (iv) Profit-Sharing and Bonus Plans (R) FINANCIAL INSTRUMENTS (i) Wages and Salaries, Annual The Company recognises a liability and an expense Leave and Sick Leave Financial instruments carried on the balance sheet for bonuses and profit sharing (Share in Success include cash and bank balances, receivables, trade Liabilities for wages and salaries, Scheme), based on a formula that takes into payables, derivative financial instruments and annual leave are recognised, and consideration the profit attributable to the Company’s borrowings. These instruments are generally carried are measured as the amount unpaid shareholders and available cash flows after certain at their estimated fair value. For example, receivables at the reporting date at current adjustments. The Company recognises a provision are carried net of the estimated doubtful receivables. pay rates in respect of employees’ where contractually obliged or where there is The particular recognition methods adopted are services up to that date, including a past practice that has created a constructive disclosed in the individual accounting policies on-costs. obligation. The Share in Success Scheme (SISS) associated with each item. ended in December 31, 2013, and going forward the (ii) Long Service Leave Where possible, financial assets are supported by Company will replaced SISS with a bonus scheme. Liability for long service leave is collateral or other security. These arrangements recognised, and is measured as the are described in the individual accounting policies present value of expected future associated with each item. payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

106 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 (S) IMPAIRMENT OF ASSETS (V) TRADE RECEIVABLES (X) DIVIDEND DISTRIBUTION Non-current assets are tested for impairment whenever Trade receivables are recognised initially at fair Dividend distribution to the Company’s events or changes in circumstances indicate that the value and subsequently, where required, reduced by shareholders is recognised as a liability carrying amount may not be recoverable. provision for impairment. A provision for impairment in the Group’s financial statements in the Impairment of assets is recognised whenever the of trade receivables is established when there is year in which the dividends are approved carrying amount of an asset exceeds its recoverable objective evidence that the Group will not be able to by the Company’s Directors. collect all amounts due according to the original terms amount. The recoverable amount is measured as the (Y) TRADE AND OTHER PAYABLES higher of net selling price and value in use. Value in of receivables. The amount of the provision is the These amounts represent liabilities use for individual assets is calculated by discounting difference between the asset’s carrying amount and for goods and services provided to the future cash flows using a risk adjusted pre-tax the recoverable amount. The amount of the provision Group prior to the end of financial year discount rate. For purposes of assessing impairment, is recognised in the income statement. Subsequent which are unpaid. The amounts are assets are grouped at the lowest levels for which recoveries of amounts previously written off are unsecured and are usually paid within there are separately identifiable cash flows (cash credited against expenses in the income statement. 30 days of recognition. generating units). (W) COMPARATIVE FIGURES (T) BORROWING COSTS Comparative figures have been amended where Prior to the commencement of commercial appropriate to comply with changes in presentation production in 1985, the amount of interest costs adopted in the current year. eligible for capitalisation was based on the actual interest costs incurred because the borrowings were COMPANY CONSOLIDATED incurred to fund development of the mine property. Capitalisation of borrowing costs ceased following 2013 2012 2013 2012 K’000 K’000 K’000 K’000 the commissioning of the assets upon commercial production. These pre-production borrowing costs 2(A) SALES REVENUE are amortised using the straight line basis over the life of the mine. Borrowing costs incurred subsequent Copper 1,602,557 1,959,634 1,602,557 1,959,634 to the commencement of commercial production Gold 1,091,218 1,351,942 1,091,218 1,351,942 are expensed when incurred over the period of Silver 45,143 52,182 45,143 52,182 the borrowing, unless the borrowing relates to the construction of a qualifying asset, in which case the Finalisation/revaluation (68,739) (4,188) (68,739) (4,188) borrowing costs are capitalised. Interest is expensed adjustments (note 1(d)) using the effective interest method. Facility fees are Total Sales Revenue 2,670,179 3,359,570 2,670,179 3,359,570 amortised over the period of the facility. (U) LEASES 2(B) OTHER OPERATING INCOME Leases of property, plant and equipment, where Airfares recoveries 53 37 53 37 substantially all the risks and benefits incidental to the Other 4,878 183 37,252 217 ownership are assumed by the Group, are classified as finance leases. Finance leases are capitalised, Total Other recording an asset and liability equal to the present Operating Income 4,931 220 37,305 254 value of the minimum lease payments, including any guaranteed residual values. Leased assets are amortised over their useful lives. Lease payments are allocated between the reduction of the lease liability and the interest expense for the period. Operating lease payments, where substantially all the risks and benefits remain with the lessor, are expensed as incurred over the period of the lease. Commitments for such leases are disclosed in note 22(d).

SECURING OUR FUTURE 107 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 3(A) OPERATING COSTS Changes in inventories of product on hand and in process (increase)/decrease 46,929 (89,176) 46,929 (89,176) Operating costs, external charges and materials 79,868 78,956 79,868 78,956 Marketing costs 274,041 263,291 274,041 263,291 (Gain)/Loss on derivative financial instruments 26(b)(ii) 14,148 43,448 14,148 43,448 Salaries, wages & associated employee costs 28 582,912 332,000 584,422 332,000 Contractors and consultants 537,175 555,391 537,175 555,427 Consumables 437,235 554,546 437,235 554,546 Services and others 72,950 90,024 103,633 91,239 (Gain)/loss on sale of non-current assets (213) (95) (213) (95) Net foreign exchange gain/(loss) (195,996) (20,081) (197,083) (20,893) Depreciation of property, plant and equipment 9 566,044 244,761 566,044 244,761 Amort. of restoration and rehabilitation asset 11 42,199 49,703 42,199 49,703 Amortisation of Lower Ok Tedi compensation asset 182 463 182 463 Amortisation of pre-production expenditure 10 4,377 4,396 4,377 4,396 Total Operating Costs 2,461,851 2,107,627 2,492,957 2,108,066

Included in the operating profit before tax are the following items: Auditor’s remuneration: - Auditing services 645 476 842 476 - Other services 396 625 396 625 Charge to provision for employee benefits 17(a) 131,466 60,740 133,068 61,107 Charge to provision for obsolete stock 7(a) 39,237 10,195 39,237 10,195 Roadco user charge amortisation 1(p) 1,433 1,433 1,433 1,433 Charge to provision for compensation 17(b) 13,305 13,305 13,305 13,305 Charge to provision for doubtful debts 6(c) - 2,163 - 2,163 Donations 1,151 1,277 1,151 1,277 Charge to provision for CMCA 15(a) 72,594 55,151 193,924 55,151 Royalties 30,143 38,703 30,143 38,703 Production levy 5,990 7,741 5,990 7,741 Legal fees 3,806 2,109 3,806 2,109 Operating lease expenses 210,509 213,956 210,509 214,214

3(B) FINANCE INCOME AND COSTS Interest income 3,071 6,306 3,164 6,711 Realisation of discount on long term provisions: - Restoration and rehabilitation (4,976) (14,126) (5,132) (14,126) Total Net Finance Costs (1,905) (7,820) (1,968) (7,415)

108 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 4. INCOME TAX EXPENSE The prima facie tax charge on the profit for the year is reconciled to the income tax expense as follows: Profit for the year 211,354 1,244,343 212,556 1,244,343 Prima facie tax on the profit for the year at 30% 63,406 373,303 63,767 373,303 Tax effect of permanent differences: Non-deductible items 36 112 36 118 Non-taxable income 1,485 (4,238) 1,485 (4,238) Double deduction – staff training (1,075) (1,320) (1,075) (1,320) Dividend payment exchange - (1,591) - (1,591) Unrealised exchange (gain)/loss (34,315) 6,634 (34,604) 6,823 Under/(over) provision in prior years 1,073 (42,007) 1,073 (42,007) Income Tax Expense 30,610 330,893 30,645 331,088

Tax expense comprises: Income tax - current year 14 116,592 304,044 115,720 304,239 Deferred tax - current year 16(a) (87,055) 68,856 (87,759) 68,856 Prior year adjustment 1,073 (42,007) 2,684 (42,007) Total Income Tax Expense 30,610 330,893 30,645 331,088

5. CASH AND CASH EQUIVALENTS Cash on hand 117 71 119 73 Cash at bank 170,443 101,129 217,423 142,923 Short term deposits 252,910 346,724 353,360 347,114 Total Cash and Cash Equivalents 423,470 447,924 570,902 490,110

6. TRADE AND OTHER RECEIVABLES (CURRENT) Accounts receivable – trade 277,051 198,026 277,051 198,026 Accounts receivable – sundry (a), (b) 18,693 17,519 21,687 19,580 295,744 215,545 298,738 217,606 Less: Provision for doubtful debts (c) (580) (3,784) (580) (3,784) Total Current Receivables 295,164 211,761 298,158 213,822

SECURING OUR FUTURE 109 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

6. TRADE AND OTHER (B) PAST DUE BUT NOT IMPAIRED RECEIVABLES (CURRENT) As at 31 December 2013, sundry receivables of K3,213,000 (2012: K2,930,000) were past due but not (CONTINUED) impaired. These relate to employee, local, overseas and PNG sundry receivables for whom there is no recent history of default and/or regular partial payments are being received. The ageing analysis of these sundry The Company’s and the Group’s receivables is as follows: exposure to credit risk is discussed in 60 DAYS 90 DAYS 120 DAYS >120 DAYS note 26 (c) (i). (A) IMPAIRED RECEIVABLES 2013 K’000 938 540 533 1,202 As at 31 December 2013, trade 2012 K’000 351 1,645 96 838 and other receivables of the Group with a nominal value of K580,000 (C) PROVISION FOR DOUBTFUL DEBTS which are over six months overdue COMPANY CONSOLIDATED (2012: K3,784,000) are considered 2013 2012 2013 2012 to be impaired. The amount of NOTE K’000 K’000 K’000 K’000 impairment provision was K580,000 (2012: K3,784,000). The individually Opening balance 3,784 1,911 3,784 1,911 impaired receivables mainly relate Increase in provision 3(a) - 2,163 - 2,163 to employee, local, overseas and Write-offs applied PNG sundry receivables. It was against provision (3,204) (290) (3,204) (290) assessed that a portion of the receivables was expected to be Closing Balance 580 3,784 580 3,784 recovered. There were no impaired trade receivables in 2013 or 2012. (D) FOREIGN EXCHANGE RISK Information about the Group’s and the Company’s exposure to foreign currency risk in relation to Trade and Other Receivables is provided in note 26(b)(i). (E) FAIR VALUE Due to the short-term nature of the receivables, their carrying amount is assumed to approximate their fair value. COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 7. INVENTORIES (CURRENT)

CONSUMABLES: Spare parts and consumables 320,397 274,765 320,397 274,765 Less: Provision for obsolete stock (a) (98,566) (87,398) (98,566) (87,398) Goods in transit 102,539 92,295 102,539 92,295 Total Consumables 324,370 279,662 324,370 279,662

CONCENTRATE: Product in process 40,792 24,755 40,792 24,755 Product on hand 115,733 178,699 115,733 178,699 Less: Provision for high flourine (28,069) - (28,069) - Total Concentrate 128,456 203,454 128,456 203,454 Total Current Inventories 452,826 483,116 452,826 483,116

(A) PROVISION FOR STOCK Opening balance 87,398 77,203 87,398 77,203 Provisions created 3(a) 39,237 10,195 39,237 10,195 Closing Balance 126,635 87,398 126,635 87,398

110 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 COMPANY CONSOLIDATED 2013 2012 2013 2012 K’000 K’000 K’000 K’000 8. OTHER ASSETS (CURRENT)

Prepayments 24,301 24,330 24,301 24,330 Home Ownership Scheme loans receivable 15,309 5,933 15,309 5,933 Total Current Other Assets 39,610 30,263 39,610 30,263

PLANT, CAPITAL MACHINERY AND WORKS IN BUILDINGS EQUIPMENT PROGRESS TOTAL NOTE K’000 K’00 K’000 K’000 9. PROPERTY, PLANT AND EQUIPMENT Opening cost 1 January 2013 316,168 2,698,675 744,562 3,759,405 Opening accumulated depreciation (295,836) (1,941,914) - (2,237,750) Opening net book value 20,332 756,761 744,562 1,521,655 Additions – Per Cash Flow - - 389,719 389,719 Transfer from capital works in progress 20,388 697,524 (717,812) - Disposals and adjustments - (917) - (917) Depreciation charge 3(a) (15,638) (550,406) - (566,044) Closing Net Book Value 31 December 2013 25,082 902,962 416,369 1,344,413

Closing Cost 31 December 2013 336,661 3,318,953 416,369 4,071,983 Accumulated depreciation (311,579) (2,415,991) - (2,727,570) Closing Net Book Value 31 December 2013 25,082 902,962 416,369 1,344,413

Opening cost 1 January 2012 312,373 2,592,634 392,463 3,297,470 Opening accumulated depreciation (289,484) (1,709,143) - (1,998,627) Opening net book value 22,889 883,491 392,463 1,298,843 Additions – Per Cash Flow - - 467,903 467,903 Transfer from capital works in progress 3,795 112,009 (115,804) - Disposals and adjustments - (330) - (330) Depreciation charge 3(a) (6,352) (238,409) - (244,761) Closing Net Book Value 31 December 2012 20,332 756,761 744,562 1,521,655

Closing Cost 31 December 2012 316,168 2,698,675 744,562 3,759,405 Accumulated depreciation (295,836) (1,941,914) - (2,237,750) Closing Net Book Value 31 December 2012 20,332 756,761 744,562 1,521,655

In accordance with the Mining (Ok Tedi Agreement) Act, the State has the right, after the closure of the mine, to acquire certain infrastructure fixed assets. The accounting net book value of these fixed assets is K25,082,000 (2012: K20,332,000). At the time that these accounts were prepared the Company has not received, and does not expect to receive, notice that the State intends to acquire any of the assets concerned. The schedule above do not include the OTDF property, plant and equipment which has a closing net book value of K172,000 (2012: K212,000). There are no conditions that indicate impairment of property, plant and equipment as at 31 December 2013 and 31 December 2012.

SECURING OUR FUTURE 111 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

PRE- DEFERRED PRODUCTION STRIPPING EXPENDITURE COST TOTAL K’000 K’000 K’000 10. MINE DEVELOPMENT Opening cost 1 January 2013 392,710 147,812 540,522 Accumulated amortisation (379,600) - (379,600) Opening net book value 13,110 147,812 160,922 Additions - 318,472 318,472 Amortisation (4,377) - (4,377) Closing Net Book Value 31 December 2013 8,733 466,284 475,017

Closing cost 31 December 2013 392,710 466,284 858,994 Accumulated amortisation (383,977) - (383,977) Closing Net Book Value 31 December 2013 8,733 466,284 475,017

Opening cost 1 January 2012 392,710 - 392,710 Accumulated amortisation (375,204) - (375,204) Opening net book value 17,506 - 17,506 Additions - 147,812 147,812 Amortisation (4,396) - (4,396) Closing Net Book Value 31 December 2012 13,110 147,812 160,922

Closing cost 31 December 2012 392,710 147,812 540,522 Accumulated amortisation (379,600) - (379,600) Closing Net Book Value 31 December 2012 13,110 147,812 160,922

COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 11. RESTORATION AND REHABILITATION ASSET Opening net book value 120,621 169,527 120,621 169,527 Adjustment to cost 18 - 798 - 798 Amortisation 3(a) (42,381) (49,704) (42,381) (49,704) Closing Net Book Value 1(i) 78,240 120,621 78,240 120,621

Cost 476,464 475,666 476,464 475,666 Adjustment to Cost - 798 - 798 Accumulated amortisation (398,224) (355,843) (398,224) (355,843) Net Book Value 78,240 120,621 78,240 120,621

112 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 12. OTHER ASSETS (NON-CURRENT) Roadco prepayments 1,433 2,866 1,433 2,866 Advances to suppliers 60,994 - 60,994 - Home Ownership Scheme loans 14,835 11,080 14,835 11,080 Lower Ok Tedi - compensation asset - 182 - 182 Total Non-Current Other Assets 77,262 14,128 77,262 14,128

13. TRADE AND OTHER PAYABLES (CURRENT) (Unsecured) Accounts payable – trade 227,218 133,851 227,248 133,775 Accounts payable – other 134,560 22,639 140,626 30,681 Total Current Trade and Other Payables 361,778 156,490 367,874 164,456

14. INCOME TAX PAYABLE Opening balance refundable (49,443) (72,932) (48,304) (72,881) Prior year adjustment 4,758 (42,007) 3,016 (42,007) Tax expense 4 116,592 304,044 115,720 304,239 Interest withholding tax/Tax credit scheme (44,155) (9,075) (43,553) (8,182) Payments (104,966) (229,473) (104,966) (229,473) Closing Balance refundable (77,214) (49,443) (78,087) (48,304)

15. PROVISIONS (CURRENT) Employee entitlements 17(a) 11,408 36,699 12,817 37,719 Community Mine Continuation Agreements (a) 8,827 5,872 130,157 5,872 Compensation provision 17(b) 14,718 14,056 14,718 14,056 Employee Incentives (SISS) provision 24(b) 19,404 53,461 40,998 71,155 Production levy 3(a) 5,990 7,741 5,990 7,741 Total Current Provisions 60,347 117,829 204,680 136,543

(A) COMMUNITY MINE CONTINUATION AGREEMENTS (CURRENT) Opening balance 5,872 4,875 5,872 4,875 Provision created 3(a) 72,594 55,151 193,924 55,151 Less: Payments made against the provision (69,639) (54,154) (69,639) (54,154) Closing Balance 8,827 5,872 130,157 5,872

SECURING OUR FUTURE 113 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 16. DEFERRED INCOME TAX (NON-CURRENT) Deferred Income Tax comprises: Deferred Tax Asset: Provisions & employee benefits 215,901 210,014 215,901 210,081 Others 3,125 (5,536) 2,738 (3,669) Total Deferred Tax Assets 219,026 204,478 218,639 206,412

Deferred Tax Liability: Prepayments / consumables inventory 80,054 62,205 80,054 62,205 Property, plant and equipment 114,171 110,173 114,171 110,173 Hedge liability - (5,301) - (5,301) Others 64,462 162,121 67,133 166,188 Total Deferred Tax Liabilities 258,687 329,198 261,358 333,265 Net Deferred Tax Liabilities 39,661 124,720 42,719 126,853

(A) MOVEMENT IN DEFERRED INCOME TAX (ASSET)/LIABILITY Opening balance 124,720 70,024 126,853 74,001 Prior year adjustment (3,305) (25,051) (1,676) (26,895) Charged to income statement 4 (87,055) 68,856 (87,759) 68,856 Charged to equity 5,301 10,891 5,301 10,891 Closing Balance 39,661 124,720 42,719 126,853

17. PROVISIONS (NON-CURRENT) Employee entitlements (a) - 22,909 - 22,909 Compensation provision (b) - - - - Employee incentives (SISS) provision 24(b) - - - 17,694 Total Non-Current Provisions - 22,909 - 40,603

(A) EMPLOYEE ENTITLEMENTS (CURRENT AND NON-CURRENT) Opening balance 59,608 57,497 60,628 58,172 Provision created 3(a) 131,466 60,740 133,068 61,107 Less: Payments made against the provision (179,666) (58,629) (180,879) (58,651) Closing Balance 11,408 59,608 12,817 60,628

Current 15 11,408 36,699 12,817 37,719 Non-current - 22,909 - 22,909 Closing Balance 11,408 59,608 12,817 60,628

(B) COMPENSATION PROVISION (CURRENT AND NON-CURRENT) Opening balance 14,056 14,248 14,056 14,248 Provision created 3(a) 13,305 13,305 13,305 13,305 Less: Payments made against the provision (12,643) (13,497) (12,643) (13,497) Closing Balance 14,718 14,056 14,718 14,056

Current 15 14,718 14,056 14,718 14,056 Non-current - - - - Closing Balance 14,718 14,056 14,718 14,056

114 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 18. PROVISION FOR RESTORATION AND REHABILITATION Opening balance 476,221 483,792 476,221 483,792 Adjustment to cost 1 - 798 - 798 Impact of change in exchange rate on provision 95,947 (22,495) 95,947 (22,495) Interest charged 3(b) and 25 4,976 14,126 4,976 14,126 Closing Balance 1(c)(iii) and 1(h) 577,144 476,221 577,144 476,221

19. ORDINARY SHARES Issued and paid up capital 192,700,000 shares (2012: 192,700,000 shares) 195,102 195,102 195,102 195,102

During the year, the Company cancelled 122,200,000 ordinary shares held by PNGSDP and issued new shares to the Independent State of PNG (note 27).

CAPITAL RISK MANAGEMENT The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amounts of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group and the Company monitor capital on the basis of its gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total financial liabilities (including trade and other payables and derivative financial instruments as shown in the balance sheet) less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus debt. The gearing ratios at 31 December 2013 and 31 December 2012 were as follows: COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000

Trade and other payables 13 361,778 156,490 367,874 164,456 Derivative financial instruments 25(b)(ii) - 17,452 - 17,452 Less: Cash and cash equivalents 5 (423,470) (447,924) (570,902) (490,110) Net debts (61,692) (273,982) (203,025) (308,202) Equity 2,801,129 2,606,822 2,799,046 2,603,609 Total capital 2,739,437 2,332,840 2,596,018 2,295,407 Gearing Ratio -0.02 -0.12 -0.08 -0.13

The decrease in the gearing ratio during 2013 resulted primarily from higher trade and other payables as at balance date.

SECURING OUR FUTURE 115 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

20. DIVIDENDS DECLARED The Board did not declare and pay any dividends during the year: AND PAID COMPANY CONSOLIDATED As defined in the Company’s Constitution, 2013 2012 2013 2012 the Available Cash Flow of the prior K’000 K’000 K’000 K’000 financial year determines, without the First interim dividend - 308,008 - 308,008 need for declaration, the level of ordinary dividends payable each year. Second interim dividend - 207,469 - 207,469 The Constitution provides that the Board Final dividend - 207,469 - 207,469 may vote to: Total Dividends Declared and Paid - 722,946 - 722,946 - pay dividends as in the judgment of Dividend distributions to the Company’s shareholders are recognised as liability in the Company’s financial the Directors that the position of the statements in the year in which the dividends are approved by the Company’s Directors. Company justifies; and - reduce or increase the amount 21. CONTINGENCIES or delay the payment of an (A) GUARANTEES ordinary dividend. ANZ 3,391 3,559 3,391 3,559 Furthermore, as defined in the Fifth Total Guarantees 3,391 3,559 3,391 3,559 Restated Shareholders Agreement, the declaration and amount of any (B) LITIGATION dividend will be in accordance with the The Company is subject to various claims and litigation. The Directors however consider that the probability Constitution and otherwise at the sole of significant loss from these claims is remote. discretion of the Board. (C) MINE CONTINUATION The agreement that led to the dismissal of proceedings in relation to environmental damage included an undertaking by the Company to use best endeavours to include the villages that supported the actions in the CMCA process. There is no obligation for the inclusion of these villages to add to the total amount paid under the existing CMCAs. 22. COMMITMENTS including those to be provided by the other key stakeholders (PNGSDP and the PNG Government), (A) COMPENSATION PAYMENTS are estimated to total K1.01 billion (USD342 million) The Mining (Ok Tedi Restated Eighth Supplemental over the seven years from 2007 to 2013, of which Agreement) Act 1995 (No. 48) of Papua New the company is responsible for K324 million. Guinea was enacted in August 1995 and required With the agreement signed by the nine CMCA the Company to make annual payments to impacted regions for the MLE, total benefits agreed compensation trusts over the remaining life of the were approximately 85% of the existing package. mine. Required payments have been made by the Company and current liabilities are recognised in (B) ENVIRONMENTAL MONITORING COSTS the accounts. In OTML’s 2009 Detailed MCP, which was The Mining (Ok Tedi Mine Continuation (Ninth submitted to the PNG Office of Environment and Supplemental) Agreement) Act 2001 (No. 7) was Conservation and the Mineral Resources Authority enacted in 2001 and required the Company to in December 2009 which was approved by the make annual payments initially aggregating to Minister for Mining on 7th May 2012, the Company K161.5 million over the life of mine. has undertaken to monitor key environmental aspects for a 30 year period following closure of A requirement of the agreement was to have a mid- the open pit mine. The Detailed MCP included a term review which addressed many factors including detailed estimate of the cost of this Post Closure an assessment of whether predicted environmental Environmental Monitoring Programme (PCEMP) impacts are being exceeded. This occurred during which totalled USD34.1 million. This comprises: 2006 and agreements were successfully concluded Monitoring Activities which are aimed at the during the second quarter of 2007 with the formal performance of the cover on the Bige stockpiles signing of the CMCA Review Memorandum of and, throughout the riverine system, ARD, water Agreement between the delegates of the CMCA quality, fish biology and hydrography; Support regions and shareholders of the Company. The Programmes which cater for labour, equipment, communities downstream of the mine will benefit travel and access logistics, and operating, from the agreed increased compensation deal. management and reporting costs; and Contingency The new benefits provided by the Company and Escalation Costs which allow for both pre are approximately four times the amount of the closure and post closure cost movements. previous package. The total benefits package,

116 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 (C) CAPITAL EXPENDITURE (A) OK TEDI DEVELOPMENT As at 31 December 2013, the Company had contracted for capital commitments totalling K667,859,000 FOUNDATION LIMITED (OTDF) which are not provided for in the accounts (31 December 2012: K720,772,000). OTDF was established pursuant to the Mining (Ok Tedi Mine (D) OPERATING LEASES Continuation (Ninth Supplemental) Payments due under operating leases for property and equipment not provided for in the accounts are: Agreement) Act 2001. Before COMPANY CONSOLIDATED mine closure, the Company is under an obligation to transfer its 2013 2012 2013 2012 K’000 K’000 K’000 K’000 shares in OTDF to four reputable organisations engaged in Due within 1 year 141,942 184,749 141,942 184,749 development activities in Papua New Guinea consistent with the Due within 1-2 years 31,003 118,477 31,003 118,477 objects of OTDF. If the Company Due within 2-5 years 27,425 79,052 27,425 79,052 does not transfer its shares prior Total Operating Leases 200,370 382,278 200,370 382,278 to mine closure, OTDF must be wound up. During 2011, one share (E) FRONTIER RESOURCES LIMITED was transferred to PNG Sustainable Development Program Limited. In May 2010 OTML entered into Farm-in and Joint Venture Agreements with Frontier Gold (PNG) Limited and Frontier Copper (PNG) Limited in relation to five exploration licences. Under these agreements, OTML could The objects of OTDF are to pursue earn an 80.1% interest in the three licences held by Frontier Copper (PNG) Limited and a 58% interest in the the promotion of sustainable social two licences held by Frontier Gold PNG Limited. OTML was also to act as manager of the joint venture. improvement and economic activity in the Western Province and Telefomin OTML has entered into the above arrangements as trustee and on behalf of PNGSDP as beneficiary. PNGSDP district of the Sandaun Province for funded the above transactions under a flow through arrangement set out in the Trust and Funding Deed. the well being of persons resident in OTML had an option to assume the legal and beneficial ownership to the property and rights under the joint these provinces. OTDF must act solely venture and farm-in agreements, at which time OTML will reimburse PNGSDP for the full costs incurred. in pursuit of these objects. OTML did not exercise this option. OTDF have a break-even operating In September 2013, through the recommendation of OTML and as approved by PNGSDP, OTML have withdrawn result for the year (31 December from the Farm-in and Joint Venture Agreements with Frontier Gold (PNG) Limited and Frontier Copper (PNG) Limited. 2012: break-even). OTDF is exempt from PNG income tax and supplies 23. INSURANCE to OTDF do not attract GST. Further, The Company places insurance cover with insurers of high credit rating. The insurance policies cover the usual moneys paid or the cost of assets risks that are able to be transferred to insurers under property, liability and transit insurance policies. contributed to OTDF is an allowable At the time of renewing its major insurance coverage, on 1 July 2008, OTML changed the basis of deduction to the person making the indemnification for Business Interruption (BI) insurance from reimbursement of profits to reimbursement of fixed payment or contribution in the year costs and increased the cover from USD100,000,000 to USD400,000,000 (both values are inclusive of self- of payment or contribution. insured retentions). Self-insured retentions (ISR) include: Property Damage – USD25,000,000; Business Interruption – first 30 days after insurable event plus USD2,500,000 at various layers of the cover.

24. INVESTMENT IN SUBSIDIARIES The holding company’s investment in subsidiaries comprises shares at cost. ORDINARY % SHARES SHAREHOLDING Ok Tedi Development Foundation Limited (a) 3 75% OTML Shares in Success Limited (b) 2 100% Ok Tedi Australia Pty Limited (c) 10,000 100%

SECURING OUR FUTURE 117 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

24. INVESTMENT IN As at 31 December 2013, the following liabilities existed: SUBSIDIARIES (CONTINUED) COMPANY CONSOLIDATED (B) OTML SHARES IN SUCCESS 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000 LIMITED (SISL) SISL is the Trustee of OTML (SISS). Opening balance 53,461 81,403 88,849 134,873 SISS was established to provide Provision created 28 18,827 53,297 18,827 53,297 rewards to Company employees for their individual and collective Less: Payments made contributions to improving the against the provision (52,884) (81,238) (66,678) (99,320) productivity and profitability of the Less: Exchange variance - (1) - (1) Company and to those employees Total SISL Liability 19,404 53,461 40,998 88,849 who provide their services until mine closure. Current 15 19,404 53,461 40,998 71,155 The Company is required to pay SISL an annual amount of 5.2 Non-current 17 - - - 17,694 percent of Available Cash Flow Total SISL Liability 19,404 53,461 40,998 88,849 (denominated in US dollars and translated based on the year end The SISS ceased on 31 December 2013 with fund distribution to be paid in early 2014. exchange rate). The contributions (C) OK TEDI AUSTRALIA PTY LIMITED (OTAPL) made to SISL by the Company are OTAPL was incorporated on 19 June 2008 as a wholly owned subsidiary of OTML. The objects of OTAPL are to held on trust for the employees. provide marketing and logistics services to OTML. SISL also manages the funds it holds on trust for the employees. As at 31 December 2013, the Company’s investment in OTAPL at cost is as follows: Opening balance 26 26 - - Shares - - - - Total Investment 26 26 - -

25. OK TEDI FINANCIAL ASSURANCE FUND The Mine Closure Code contained in the Mining (Ok Tedi Mine Continuation (Ninth Supplemental) Agreement) Act 2001 requires the Company to contribute to a Mine Closure Fund (referred to as the Ok Tedi Financial Assurance Fund). The Ok Tedi Financial Assurance Fund has been established with Standard Bank Offshore Trust Company (Jersey) Ltd acting as independent Trustee. The Fund covers costs of (a) deconstruction and cleanup, (b) revegetation, (c) environmental monitoring and maintenance, (d) employee retrenchment, (e) dredging after closure and (f) post closure monitoring which are valued on USD based on current cost with contingency and escalation considered up to mine closure. The Ok Tedi Financial Assurance Fund is established to provide sufficient cash at the open pit mine closure for settlement of mine rehabilitation and restoration liabilities (refer note 1(i)). The Company’s updated estimate contained in the 2009 Detailed MCP submitted in December 2010 which was approved by the Minister for Mining on 7th May 2012, is that the Fund should contain USD227 million by 2013. As 31 December 2013, the Company have already met the fund required and ceased the semi-annual payments. The Funds are held by the Trustee to be applied in assisting both the Company and the State to comply with their respective MCP obligations under the Mine Closure Code. The assets of the Ok Tedi Financial Assurance Fund are legally separate from the Company and are not available to meet the claims of creditors in any winding up of the Company. They are irrevocably dedicated to funding open pit mine closure costs and cannot be used for any other purpose. Contributions to the Fund are initially recorded at cost and the Company recognises its receivable from the Fund at fair value. In accordance with accounting practice, the Ok Tedi Financial Assurance Fund is considered to be a special purpose entity controlled by the Company and it is consolidated in the Group financial statements. The assets of the Fund at 31 December 2013 comprised a portfolio of investments, valued at balance date at K577 million (USD228 million). These investments are accounted for as a financial asset at fair value through profit or loss.

118 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Total contributions by the Company to the Fund and the consolidated Fund equity are summarised as follows: CONSOLIDATED (CASH, CASH EQUIVALENTS COMPANY AND AVAILABLE FOR SALE (RECEIVABLE FROM THE FAF) INVESTMENTS AT FAIR VALUE) 2013 2012 2013 2012 K’000 K’000 K’000 K’000

Opening balance 482,584 462,214 482,584 462,214 Payment - 14,484 - 14,484 Portfolio return - current year (4,976) 14,126 (4,976) 14,126 Exchange variance 99,209 (8,240) 99,209 (8,240) Closing balance 576,817 482,584 576,817 482,584

Without considering the Ok Tedi Financial Assurance Fund and the Restoration and rehabilitation liability, the Company Financial Position would be: COMPANY CONSOLIDATED 2013 2012 2013 2012 K’000 K’000 K’000 K’000

Total Assets 3,482,268 3,244,337 3,633,326 3,289,565 Total Liabilities 680,812 643,878 833,913 692,319

26. FINANCIAL RISK MANAGEMENT (A) FINANCIAL RISK FACTORS The Group’s activities expose it to a variety of financial risks including market risk (consists of currency, price and interest rate risk), credit risk, liquidity risk and fair value risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by the Group’s treasury section under policies approved by the Board of Directors. The Company and the Group hold the following financial instruments: COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000

FINANCIAL ASSETS: Cash and cash equivalents 423,470 447,924 570,902 490,110 Trade and other receivables 295,164 211,761 298,158 213,822 Financial assurance fund 576,817 482,584 576,817 482,584 1,295,451 1,142,269 1,145,877 1,186,516

FINANCIAL LIABILITIES: Trade and other payables 361,778 156,490 367,874 164,456 Derivative financial instruments 26(b)(ii) - 17,452 - 17,452 361,778 173,942 367,874 181,908

SECURING OUR FUTURE 119 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

26. FINANCIAL RISK Monetary assets and liabilities denominated in foreign currencies, at balance date, are as follows: MANAGEMENT (CONTINUED) COMPANY CONSOLIDATED (B) MARKET RISKS FACTORS 2013 2012 2013 2012 K’000 K’000 K’000 K’000 (i) Foreign Exchange Risks ASSETS: The Company operates internationally and is exposed to Cash – US Dollars 310,749 258,425 332,351 293,821 foreign exchange risks arising from – Australian Dollars 54,129 105,770 55,666 106,710 various currency exposures, primarily with respect to the US Receivables – US Dollars 277,051 198,026 277,079 197,981 Dollar and the Australian Dollar. F inancial Assurance Fund Foreign exchange risk arises from receivable – US Dollars 576,817 482,584 576,817 482,584 future commercial transactions and recognised assets and liabilities. LIABILITIES: The Company’s revenues are in US Payables – US Dollars 68,289 18,196 68,289 18,212 dollars and a significant proportion – Australian Dollars 21,101 44,195 21,477 44,103 of costs are in US dollars and Australian dollars. Therefore the Provision-Shares in Success Company’s operations are exposed – US Dollars 19,404 53,461 40,998 71,155 to substantial foreign exchange risk. Provision-Restora tion & It is not the Company’s policy to Rehabilitation – US Dollars 577,144 476,221 577,144 476,221 hedge foreign exchange risk. Derivative Financial Instruments At 31 December 2013, if the Kina – US Dollars - 17,452 - 17,452 had moved by 5% against the US dollar with all other variables held (ii) Price Risks constant, the net profit after tax The final settlement price received by the Company for the sale of its copper/gold concentrate is usually specified (NPAT) for the year would have in sales contracts as being based on the average London Metal Exchange (LME) price for a defined future an effect of K68.7 million (31 period generally three to five months after arrival of shipments at the customers’ facilities (refer note 1(d)). December 2012: K58.3 million) higher/lower, mainly as a result of At 31 December 2013, a fluctuation of USD110 per tonne (USD0.05/pound) in the price of copper would have an foreign exchange gains/losses on effect of K20.4 million (USD8.1 million) on the NPAT. A fluctuation of USD10/ounce in the price of gold would have translation of US dollar denominated an effect of K6.1 million (USD2.4 million) on NPAT. These sensitivities assume all other variables remain constant. provision for restoration & The Company completed hedging of gold in June 2013. rehabilitation, trade receivables and COMPANY CONSOLIDATED cash at bank. 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000

Current Liabilities F orward contracts 19 - 17,452 - 17,452 Non-current Liabilities Forward contracts - - - - Net Derivative Financial Instruments - 17,452 - 17,452

120 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 Hedging is undertaken in order to avoid or minimise possible adverse financial or cash flow effects of (D) LIQUIDITY RISKS EXPOSURES movements in commodity prices. Prudent liquidity risk management The gold forward contracts, which were entered into with ANZ Bank in March 2007, were completed/closed implies maintaining sufficient cash, in June 2013 and no outstanding hedge at balance date. the availability of funding through All commodity contracts are settled other than by physical delivery of the underlying commodity. On maturity, an adequate amount of committed the contracted price is compared to the spot price on that date and the price differential is applied to the credit facilities and the ability to contracted quantity. A net amount is paid or received by the Company. close out market positions. The Company manages liquidity risk No future derivative financial instrument gross income is expected as the hedge was completed/closed by maintaining sufficient bank during the year (2012: K18 million). balances to fund its operations and Included in operating profit for the year is derivative financial instrument income (losses) of: the availability of funding through a COMPANY CONSOLIDATED committed credit facility. 2013 2012 2013 2012 Management monitors rolling NOTE K’000 K’000 K’000 K’000 forecasts of the liquidity reserve on the basis of expected cash flows. Gold hedging - Realised gain/(loss) (14,148) (35,754) (14,148) (35,754) - Unrealised gain/(loss) - (7,695) - (7,695) Total Hedging Gain/(Loss) 3(a) (14,148) (43,449) (14,148) (43,449)

The Ok Tedi Financial Assurance Fund (note 26) is not expose to price risks as such is contributed/ denominated in USD currency and the same currency being held offshore. (iii) Interest Rate Risks Exposures For the year ended 31 December 2013, the Company had an average of USD190 million (2012: USD238 million) cash at any given time. On average 70% (USD133 million) of these funds were invested in Short-Term Deposits (1 to 90 days) and earned an average of 0.3% per annum. The Company had no borrowings during 2013. At 31 December 2013, if interest rates had changed by 100 basis points from the year-end rates with all other variables held constant, NPAT for the year would have been USD0.2 million lower/higher, mainly as a result of higher/lower interest incomes from cash and cash equivalents. (C) CREDIT RISKS EXPOSURES The credit risk on financial assets of the Company which have been recognised on the balance sheet is generally the carrying amount, net of any provisions for doubtful debts. For derivatives, credit risk arises from the potential failure of counter parties to meet their obligations under the respective contracts. With respect to commodity contracts outlined above, the Company has an exposure to loss in the event counter parties fail to settle on contracts which are favourable to the Company. For trade receivables and financial commitments, the Company only deals with counter parties with a credit rating of BBB - or better. Since trade sales are spread over a number of customers the Company believes that no significant concentration of credit risks exists and it is not the Company’s policy to hedge credit risk. The Company has policies in place to ensure that sales are made to customers with an appropriate credit history and requires letters of credit from the majority of its buyers. Management does not expect any losses from non-performance by counterparties.

SECURING OUR FUTURE 121 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

26. FINANCIAL RISK MANAGEMENT (CONTINUED) (D) LIQUIDITY RISKS EXPOSURES (CONTINUED) Forecast liquidity reserve as of 31 December 2013 is as follows: 2014 2013 K’000 K’000

Opening balance for the year 418,706 447,924 Operating proceeds 2,466,095 4,111,336 Operating cash outflows (1,492,291) (2,490,667) Investing outflows (708,191) (1,437,955) Financing outflows - - Foreign exchange movements - - Closing Balance For The Year 684,319 630,638

The table below analyses the Company’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. 1 YEAR AND 2 YEARS AND 5 YEARS 5 YEARS K’000 K’000 K’000 K’000

At 31 December 2013 Derivative Financial Instruments - - - - Trade and other payables 361,778 - - -

At 31 December 2012 Derivative Financial Instruments 17,452 - - - Trade and other payables 156,470 - - -

The table below analyses the Company’s derivative financial instruments, which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contract maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. LESS THAN BETWEEN 1 BETWEEN 2 1 YEAR AND 2 YEARS AND 5 YEARS OVER 5 YEARS K’000 K’000 K’000 K’000

At 31 December 2013 Forward sale contracts – inflow/(outflow) Gold - - - -

At 31 December 2012 Forward sale contracts – inflow/(outflow) Gold (17,258) - - -

(E) FAIR VALUE ESTIMATION The fair value of derivative financial instruments is determined by an independent external party based on dealer quotes and market conditions existing at each balance sheet date. Quoted market prices or dealer quotes are used for long-term debt. The fair value contract prices by settlement date used by the Company in respect of its hedges of copper and gold were as follows: LESS THAN BETWEEN 1 BETWEEN 2 GOLD 1 YEAR AND 2 YEARS AND 3 YEARS OVER 3 YEARS $US/OUNCE $US/OUNCE $US/OUNCE $US/OUNCE

At 31 December 2013 N/A N/A N/A N/A At 31 December 2012 1,688 N/A N/A N/A

122 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 27. RELATED PARTY TRANSACTIONS (A) OWNERSHIP Shareholders and their respective shareholdings are as follows: ORDINARY SHARES % HOLDING

Independent State of Papua New Guinea 169,200,000 87.8 Minerals Resources Ok Tedi No. 2 Limited 23,500,000 12.2 192,700,000 100

On September 19, 2013, the PNG Parliament have passed the 10th Supplemental Agreement cancelling the 122,200,000 shares of PNGSDP and issuing a 122,200,000 new share to the State, making the Company a 100% State Owned Enterprise (SOE). Transactions with the Independent State of Papua New Guinea predominantly comprise the payment of taxes and other statutory payments. The following related party transactions were between the Company and PNGSDP: Amounts receivable from related party Total amounts receivable at 31 December 2013 totalled K84,600 (2012: K K40,600). (B) TRANSACTIONS DURING THE YEAR The total reimbursement made by PNGSDP to OTML to-date for the Frontier Exploration programme costs amounts to K51.6 million (equivalent to USD24.0 million) (C) KEY MANAGEMENT COMPENSATION 2013 2012 K’000 K’000

Salaries and short-term employment benefits 13,709 16,193 Post employment benefits 192 227 Total Compensation 13,901 16,420

Key management comprise the Managing Director, General Managers and Managers.

28. EMPLOYEE BENEFITS The average number of people employed by the Company during the year was 2,049 (2012: 2,176). COMPANY CONSOLIDATED 2013 2012 2013 2012 NOTE K’000 K’000 K’000 K’000

Staff costs comprise of the following: Salaries and wages 235,856 221,318 237,002 221,318 Redundancy costs 224,150 - 224,150 - Contribution to retirement benefit funds 20,152 13,837 20,152 13,837 Other employee on-costs 80,218 43,548 80,582 43,548 Shares in Success (b) 22,536 53,297 22,536 53,297 Total Staff Costs 3(a) 582,912 332,000 584,422 332,000

SECURING OUR FUTURE 123 OK TEDI MINING LIMITED AND ITS SUBSIDIARIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONTINUED

28. EMPLOYEE BENEFITS In accordance with the Deed of Settlement, OTML is required to pay the Scheme an annual amount of 5.2% of its (CONTINUED) Available Cash Flow (denominated in US dollars and translated at the month end exchange rate), which is held on trust for the benefit of OTML employees. (a) The Company terminated all The Scheme is required to maintain separate funds for Part A and Part B scheme employees, with criteria for employee contracts as at 31 employee eligibility and benefits payable from the Part A and Part B schemes set out in the Scheme Rules. Prior December 2013 and paid out to 3 March 2009, the Scheme was required to allocate 40% of its Net Cash Inflow to each of the Part A and Part all entitlements to annual leave, B Employment Funds, and 10% to each of the Part A and Part B End of Mine Life (EML) Bonus Funds. Amounts sick leave and long service credited to the Part A Employment Funds are paid out in the following year to permanent employees of OTML at leave together with the approved the end of each year, however for Part B, the amounts were spread over the Employment Contract Period of the redundancies payments. Certain employees. The amounts credited to Part A and Part B EML Bonus Funds were accumulated to be paid out to employees were then offered new remaining employees during the final years of mine life. contracts with the Company on new terms and contracts. The Deed of Settlement was revised effective 3 March 2009 in respect of contributions during the 2008 fiscal year and subsequent years. The Scheme is now required to allocate 50% (of the 5.2% of OTML’s Available Cash (b) The Shares in Success incentive Flow) each to the Part A and Part B Employment Funds. scheme (note 24 (b)) is a mechanism established to enable the Company In respect to the Part B Employee Fund, the amounts will no longer be vested over the Employment Contract Period to attract and retain employees of the respective employee, rather the full amount will be paid out each year, similar to the Part A Employee Fund. by allowing them to share in the No further contributions will be made to the EML Bonus Funds. The Part A and Part B EML Bonus Funds prior to the financial success of the Company. change will be retained and paid out to employees as at 31 December 2008 who are still with OTML during the final few years of mine life. The Board has declared 2013 as the End of Mine Life for SISS purposes, and amendments to the SISS rules were approved by the majority of the members of Part A that allows eligible employees of Part A as at 31 December 2008 to receive their entitlements in full from Part A EML Bonus Fund if their employment ceases prior to 31 December 2013. The scheme ceased at 31 December 2013 with final entitlements to be paid in early 2014.

29. INCORPORATION AND REGISTERED OFFICE The Company is incorporated in Papua New Guinea. The Registered Office and Address for Service of Notices is 1 Dakon Road, Tabubil, Western Province, Papua New Guinea.

30. POST BALANCE DATE EVENTS On 24 January 2014, in a court action brought by parties outside of the CMCA agreement, the High Court issued an ex parte injunctive order for the Company to stop riverine dumping of mine waste and tailings, which would effectively shut the mine. An application for a stay of these orders was granted by the National Court on 28 February 2014. The mine continues to operate normally and management are confident that the plaintiffs have no arguable case against the Company and that the orders will be dissolved.

124 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 GLOBAL REPORTING INITIATIVE

GENERAL STANDARD DISCLOSURES GENERAL STANDARD DISCLOSURES GRI DESCRIPTION REPORT SECTION - PAGE NUMBER/S

STRATEGY AND ANALYSIS G4-1 Statement from the CEO MD/ CEO report - pp 8, Chairman reports, pp 12 MD report - pp 8-11, Materiality - pp 28, G4-2 Key impacts, risks and opportunities Governance - pp 21 and 2013 Performance and Targets - pp 22-25

ORGANISATIONAL PROFILE G4-3 Name of organisation Company profile - pp 4 G4-4 Primary brands, products, and services Company profile - pp 4 G4-5 Location of organisation’s headquarters Company profile - pp 4 G4-6 Number of countries where the organisation operates Company profile - pp 4 G4-7 Nature of ownership and legal form Business - pp 26 G4-8 Markets served Business - pp 26 G4-9 Scale of the organisation Business - pp 26 G4-10 Total number of employees People - pp 46-47 G4-11 Percentage of total employees covered by collective bargaining agreements People - pp 46 G4-12 Organisation’s supply chain. Describe the organisation’s supply chain Business - pp 27 Governance - pp 18, Supply - pp 27, G4-13 Significant changes during the reporting period Mine Continuation Studies - pp 30 G4-14 How the precautionary approach or principle is addressed by the organisation Governance - pp 20 G4-15 Externally developed principles or initiatives to which the organisation subscribes Governance - pp 30, People - pp 46 G4-16 Memberships of associations & national or international advocacy organisations Governance - pp 30

IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES G4-17 Entities included in the organisations consolidated financial statements PWC statements - pp 91-124 G4-18 Process for defining the report content and the Aspect Boundaries Company profile - pp 5 G4-19 List all material aspects identified in the process for defining report content Materiality - pp 28 G4-20 For each material aspect, report the aspect boundary within the organisation Materiality - pp 29 G4-21 For each material aspect, report the aspect boundary outside the organisation Materiality - pp 29 G4-22 Report the effect of any restatements of information provided in previous reports Company profile - pp 5 Report significant changes from previous reporting periods in the G4-23 Company profile - pp 5 Scope & Aspect Boundaries

STAKEHOLDER ENGAGEMENT G4-24 List of stakeholder groups Materiality - pp 28 G4-25 Basis for identification and selection of stakeholders Materiality - pp 28 Materiality - pp 28, G4-26 Approaches to stakeholder engagement Mine Continuation Studies - pp 30, Social Responsibility - pp 68-70 G4-27 Key stakeholder topics and concerns Social Responsibility - pp 70, Materiality - pp 29

SECURING OUR FUTURE 125 GLOBAL REPORTING INITIATIVE CONTINUED

GENERAL STANDARD DISCLOSURES GENERAL STANDARD DISCLOSURES GRI DESCRIPTION REPORT SECTION - PAGE NUMBER/S

REPORT PROFILE G4-28 Reporting period Company Profile - pp 5 G4-29 Date of most recent previous report Company Profile - pp 5 G4-30 Reporting cycle Company Profile - pp 5 G4-31 Contact point for the report Inside cover - pp 1 G4-32 Report the ‘In accordance’ option Company Profile - pp 4 G4-33 Organisations policy and current practice with regard to seeking external assurance Company Profile - pp 4 GOVERNANCE G4-34 Governance structure Governance - pp 16 G4-37 Processes for consultation between stakeholders and the highest governance body Governance - pp 16, Social Responsibility - pp 68, 73 G4-45 Highest governance body’s role Governance - pp 16 Report the highest governance body’s role in reviewing the effectiveness of the G4-46 Governance - pp 17, 21 organisation’s risk Report the frequency of the highest governance body’s review of economic G4-47 Governance - pp 16, 21 environmental and social impacts risks and opportunities Highest committee or position that formally reviews and approves the organisation’s G4-48 Governance - pp 17 sustainability report G4-49 Process for communicating critical concerns to the highest governance body Governance - pp 17 Nature and total number of critical concerns that were communicated G4-50 Governance - pp 18 to the highest govt. body ETHICS AND INTEGRITY G4-56 Mission and values statement, codes of conduct and principles. Governance - pp 19, Vision and Mission - pp 6-7

126 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SPECIFIC STANDARD DISCLOSURES INCLUDING MINING AND METALS SUPPLEMENT DMA AND INDICATORS GRI DESCRIPTION PAGE NUMBER/S

CATEGORY: ECONOMIC

MATERIAL ASPECT: ECONOMIC PERFORMANCE G4-DMA Generic Disclosures on Management Approach Materiality - pp 28-29 Social Responsibility - pp 81 G4-EC1 Direct economic value generated and distributed Finance - pp 86 G4-EC4 Financial assistance received from government Social responsibility - pp 86 MATERIAL ASPECT: MARKET PRESENCE Ratios of standard entry level wage by gender compared to local minimum wage at significant G4-EC5 People - pp 46 locations of operation G4-EC6 Proportion of senior management hired from the local community at significant locations of operation People - pp 46 MATERIAL ASPECT: INDIRECT ECONOMIC IMPACTS G4-EC7 Development and impact of infrastructure investments and services supported Social Responsibility - pp 80-84 G4-EC8 Significant indirect economic impacts, including the extent of impacts Social Responsibility - pp 68-85 MATERIAL ASPECT: PROCUREMENT PRACTICES G4-EC9 Proportion of spending on local suppliers at significant locations of operation Social Responsibility - pp 84

CATEGORY: ENVIRONMENTAL MATERIAL ASPECT: ENERGY G4-EN2 Percentage of Materials used that are Recycled Input Materials Environment - pp 61-65 G4-EN3 Energy consumption within the organisation Environment - pp 61 G4-EN4 Energy consumption outside of the organisation Environment - pp 61-62 G4-EN5 Energy intensity Environment - pp 61-62 G4-EN6 Reduction of energy consumption Environment - pp 61-62 MATERIAL ASPECT: WATER G4-EN8 Total water withdrawal by source Environment - pp 61-62 G4-EN9 Water sources significantly affected by withdrawal of water Environment - pp 61 G4-EN10 Percentage and total volume of water recycled and reused Environment - pp 61-62 MATERIAL ASPECT: BIODIVERSITY Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high G4-EN11 Environment - pp 60 biodiversity value outside protected areas Description of significant impacts of activities, products, and services on biodiversity in protected G4-EN12 Environment - pp 60 areas and areas of high biodiversity value outside protected areas G4-EN13 Habitats protected or restored Environment - pp 60 G4-MM1 Amount of land disturbed or rehabilitated Environment - pp 62 G4-MM2 Number & % of total sites identified as requiring biodiversity management plans Environment - pp 60 MATERIAL ASPECT: EMISSIONS G4-EN15 Direct greenhouse gas (GHG) emissions (Scope 1) Environment - pp 61-62 G4-EN21 NOX, SOX, and other significant air emissions Not reported - no data

SECURING OUR FUTURE 127 GLOBAL REPORTING INITIATIVE CONTINUED

SPECIFIC STANDARD DISCLOSURES INCLUDING MINING AND METALS SUPPLEMENT DMA AND INDICATORS GRI DESCRIPTION PAGE NUMBER/S

MATERIAL ASPECT: EFFLUENTS AND WASTE G4-EN22 Total water discharge by quality and destination Environment - pp 61-62 Environment - pp 65 G4-EN23 Total weight of waste by type and disposal method (some data only) G4-EN24 Total number and volume of significant spills Environment - pp 62, 65 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the G4-EN25 Environment - pp 65 Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly G4-EN26 Environment - pp 60 affected by the organisation’s discharges of water and runoff G4-MM3 Total amounts of overburden, rock, tailing, and sludge and their associated risks Environment - pp 62 MATERIAL ASPECT: COMPLIANCE Monetary value of significant fines and total number of non-monetary sanctions for non-compliance G4-EN29 Environment - pp 57 with environmental laws and regulations MATERIAL ASPECT: TRANSPORT Significant environmental impacts of transporting products and other goods and materials for the G4-EN30 Environment - pp 61 organisation’s operations, and transporting members of the workforce MATERIAL ASPECT: OVERALL G4-EN31 Total environmental protection expenditures and investments by type Environment - pp 56, 64-65 MATERIAL ASPECT: ENVIRONMENTAL GRIEVANCE MECHANISMS Number of grievances about environmental impacts filed, addressed, and resolved through formal G4-EN34 Environment - pp 65 grievance mechanisms

CATEGORY: SOCIAL

SUB-CATEGORY: LABOR PRACTICES AND DECENT WORK MATERIAL ASPECT: EMPLOYMENT G4-LA1 Total number and rates of new employee hires and employee turnover by age group, gender and region People - pp 44-47 MATERIAL ASPECT: OCCUPATIONAL HEALTH AND SAFETY Percentage of total workforce represented in formal joint management-worker G4-LA5 health and safety committees that help monitor and advise on occupational health OHS&W - pp 51 and safety programmes Type of injury and rates of injury, occupational diseases, lost days, and absenteeism, and total number G4-LA6 OHS&W - pp 51 of work-related fatalities, by region and by gender G4-LA7 Workers with high incidence or high risk of diseases related to their occupation OHS&W - pp 52-54 G4-LA8 Health and safety topics covered in formal agreements with trade unions OHS&W – Not formalised MATERIAL ASPECT: TRAINING AND EDUCATION G4-LA9 Average hours of training per year per employee by gender, and by employee category People - pp 48 Programmes for skills management and lifelong learning that support the continued employability G4-LA10 People - pp 44, 48 of employees and assist them in managing career endings Percentage of employees receiving regular performance and career development reviews, by gender G4-LA11 People - pp 47 and by employee category

128 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 SPECIFIC STANDARD DISCLOSURES INCLUDING MINING AND METALS SUPPLEMENT DMA AND INDICATORS GRI DESCRIPTION PAGE NUMBER/S

MATERIAL ASPECT: DIVERSITY AND EQUAL OPPORTUNITY Composition of governance bodies and breakdown of employees per employee category according G4-LA12 People - pp 47 to gender, age group, minority group membership, and other indicators of diversity MATERIAL ASPECT: EQUAL REMUNERATION FOR WOMEN AND MEN Ratio of basic salary and remuneration of women to men by employee category, by significant locations G4-LA13 People - pp 46 of operation MATERIAL ASPECT: LABOR PRACTICES GRIEVANCE MECHANISMS Number of grievances about labour practices filed, addressed, and resolved through formal G4-LA16 People - pp 46 grievance mechanisms G4-MM4 Number of Strikes and lockouts exceeding one week duration People - pp 46 SUB-CATEGORY: SOCIETY MATERIAL ASPECT: ARTISANAL AND SMALL SCALE MINING G4-MM8 Number & % of company operating sites where artisanal & small scale mining takes place Social Responsibility - pp 72 MATERIAL ASPECT: RESETTLEMENT G4-MM9 Sites where resettlement took place Social Responsibility - pp 72 MATERIAL ASPECT: CLOSURE PLANNING G4-MM10 Number and % of operations with closure plans Environment - pp 64 SUB-CATEGORY: PRODUCT RESPONSIBILITY MATERIAL ASPECT: MATERIALS STEWARDSHIP G4-MM11 Programmes relating to materials stewardship Finance - pp 87 SUB-CATEGORY: HUMAN RIGHTS MATERIAL ASPECT: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING Operations and suppliers identified in which the right to exercise freedom of association and collective G4-HR4 People - pp 46 bargaining may be violated or at significant risk, and measures taken to support these rights MATERIAL ASPECT: SECURITY PRACTICES Percentage of security personnel trained in the organisation’s human rights policies or procedures G4-HR7 OHS&W - pp 54 that are relevant to operations MATERIAL ASPECT: INDIGENOUS RIGHTS G4-MM5 Total number of operations taking place in or adjacent to Indigenous People’s Territories Social Responsibility - pp 68 MATERIAL ASPECT: LOCAL COMMUNITIES Percentage of operations with implemented local community engagement, impact assessments, G4-SO1 Social Responsibility - pp 68 and development programmes G4-SO2 Operations with significant actual and potential negative impacts on local communities Social Responsibility - pp 68-73 G4-MM6 Number & description of significant disputes relating to land use, customary rights Social Responsibility - pp 72 G4-MM7 Extent to which grievance mechanisms were used to resolve disputes relating to land use Social Responsibility - pp 72-73 MATERIAL ASPECT: COMPLIANCE Monetary value of significant fines and total number of non-monetary sanctions for non-compliance Governance - pp 20 G4-SO8 with laws and regulations Environment - pp 57

SECURING OUR FUTURE 129 ABBREVIATIONS

% Percent EBIT Earnings Before Interest and Taxes

APD Asset Protection Department ECPNG Evangelical Church Papua New Guinea

AER Annual Environmental Report EHWP Employee Health and Wellness Programme

Ag Silver EIA Environmental Impact Assessment

AGI Algal Growth Inhibition EITI Extractive Industries Transparency Initiative

AIDS Acquired Immune Deficiency Syndrome EMS Environmental Management System

ANC Acid Neutralising Capacity ERT Emergency Response Teams

ANZECC Australian and New Zealand Environment and Conservation Council FAF Financial Assurance Fund

ANZFA Australian and New Zealand Food Authority Fe Iron

ARD Acid Rock Drainage FIFO Fly-In-Fly-Out

ASL Above Sea Level FPIC Free Prior Informed Consent

AS Australian Standard FRPG Fly River Provincial Government

Au Gold g/t Grams per tonne

AUD Australian Dollar GDP Gross Domestic Product

AusAID Australian Agency for International Development GDS Graduate Development Scheme

BAHA PNG Business Coalition Against HIV/AIDS GHG Greenhouse Gas Emissions

BGI Bacterial Growth Inhibition GIS Geographical Information System

CEO Chief Executive Officer GRI Global Reporting Initiative

Cd Cadmium GWh Gigawatt hour

CGM Community Grievance Mechanism ha Hectare

CHS Catholic Health Services HEO Health Extension Officer

CMCA Community Mine Continuation Agreement HIV Human Immunodeficiency Virus

CODE Centre of Distance Education HSE Health, Safety and Environment

CO2-e Carbon dioxide equivalent IBC Intermediate Bulk Container CRD Community Relations Department ICAM Incident Cause and Analysis Method

CSR Corporate Social Responsibility ICDMS Integrated Community Development Management System

Cu Copper ICMM International Council for Metals and Mining

dCu Dissolved copper IFC International Finance Corporation

DEC PNG Department of Environment and Conservation IFRS International Financial Reporting Standards

DLIR Department of Labour and Industrial Relations ILO International Labour Organisation

DMA Disclosure of Management Approach IMIU International Mining Industry Underwriters

DMCP Detailed Mine Closure Plan IPBC Act Independent Public Business Corporation Act

DMT Dry Metric Tonnes IRR Internal Rate of Return

DPhL Diwai Pharmaceuticals Limited JORC Joint Ore Reserves Committee

DWU Divine Word University km2 Square kilometres

EAP Environment Action Plan kt Kilotonnes

130 OK TEDI MINING LIMITED ANNUAL REVIEW 2013 LTIFR Lost Time Injury Frequency Rate PAD Preferred Area of Development m Metre PAF Potentially Acid Forming

M Million Pb Lead m3 Cubic metres PCon Pyrite concentrate m3/t Cubic metres per tonne PGK Papua New Guinea Kina

Ma Million years PJ Petajoule

MCH Maternal and Child Health PNG Papua New Guinea

MD Managing Director PNGSDP Papua New Guinea Sustainable Development Programme Limited

MDGs Millennium Development Goal (United Nations) PPE Personal Protective Equipment

ML Megalitres QA/QC Quality Assurance/Quality Control

MOA Memorandum of Agreement R and R Restoration and Rehabilitation

Moz Million ounces RAM Rotarians Against Malaria

MPA Maximum Potential Acidity SAG Semi Autogenous Grinding

MRA Mineral Resources Authority SAP Systems Applications & Products

Mt Million tonnes SHEAP Safety, Health and Environment Action Plan

Mtpa Million tonnes per annum SIFR Significant Injury Frequency Rate

MWh Megawatt hour SISS Shares In Success Scheme

MWTP Mine Waste Tailings Project SOE State Owned Enterprise

NAF Non Acid Forming SR Social Responsibility

NAPP Net Acid Production Potential S&TC Safety and Technical Committee

NDoH PNG National Department of Health STI Sexually Transmitted Infections

NEC National Executive Council t tonnes

NFDHA North Fly District Health Administration TB Tuberculosis

NFHSDP North Fly Health Services Development Programme TCS Tax Credit Scheme

NGO Non-Government Organisation TPP Tailings Processing Plant

NPV Net Present Value TRI Total Recordable Injuries

NRMH Net Revenue per Mill operating Hour TRIFR Total Recordable Injury Frequency Rate

NSR Net Smelter Return TSF Tailings Storage Facility

OHS Occupational Health and Safety TSS Total Suspended Solids

OHS&E Occupational, Health, Safety and Environment ug/L Microgram per litre

OHSW Occupational, Health, Safety and Wellness USD United States Dollar

OHSW&T Occupational Health, Safety, Welfare and Training VDO Voluntary Departure Offer

OTDF Ok Tedi Development Foundation Limited VPC Village Planning Committee

OTFRDP Ok Tedi Fly River Development Programme WHO World Health Organisation

OTML Ok Tedi Mining Limited WPPDTF Western Province People’s Dividend Trust Fund oz Ounces Zn Zinc

SECURING OUR FUTURE 131 CONTACT

ANZ BANKING OK TEDI MINING LIMITED CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION PO Box 1 GROUP LIMITED Certain information contained in this Annual Review 2013, ANZ Building, Harbour City Dakon Road, Tabubil including any information as to the Company’s strategy, Poreporena Freeway Western Province projects, plans, future financial or operating performance and Papua New Guinea other statements that express management’s expectations or Port Moresby, NCD estimates of future performance, constitute “forward-looking Papua New Guinea Phone: +67 5 649 3000 or statements”. All statements, other than statements of historical +67 5 649 3311 fact, are forward-looking statements. The words “aim”, “believe”, Fax : +67 5 649 9199 “expect”, “will”, “should”, “anticipate”, “contemplate”, “target”, BANK OF SOUTH “plan”, “project”, “continue”, “budget”, “may”, “intend”, PACIFIC LIMITED “estimate” and similar expressions identify forward-looking OK TEDI MINING LIMITED statements. Forward-looking statements are necessarily based Dakon Road upon a number of estimates and assumptions that, while PO Box 93 Tabubil, Western Province considered reasonable by management, are inherently subject Hoawaginai Drive, Kiunga to significant business, economic and competitive uncertainties Papua New Guinea Western Province and contingencies. The Company cautions the reader that such forward-looking statements involve known and unknown risks, Papua New Guinea INTERNAL AUDITOR uncertainties and other factors, many of which are beyond the Phone: +67 5 649 3724 control of the Company, that may cause the actual financial Deloitte Touche Tohmatsu Fax: +67 5 649 1046 results, performance or achievements of the Company to Riverside Centre be materially different from the Company’s estimated future results, performance or achievements expressed or implied Level 25 OK TEDI MINING LIMITED by those forward-looking statements and the forward-looking 123 Eagle Street PO Box 506 statements are not guarantees of future performance. These Brisbane, Queensland risks, uncertainties and other factors include, but are not limited Musgrave Street Australia to the impact of global liquidity and credit availability on the Port Moresby, NCD timing of cash flows and the values of assets and liabilities Papua New Guinea based on projected future cash flows, changes in the worldwide EXTERNAL AUDITOR/ price of gold, copper or certain other commodities (such as Phone: +67 5 321 3522 silver, fuel and electricity), possible variations of ore grade TAX CONSULTANT Fax: +67 5 320 1308 or recovery rates, failure of plant equipment or processes to PricewaterhouseCoopers operate as anticipated, ability to profitably produce and transport the Company’s product, demand for the Company’s product, Level 6 OK TEDI AUSTRALIA PTY LIMITED fluctuations in foreign currency markets, risks arising from Credit Corp Building PO Box 535 holding derivative instruments ability to successfully complete Cuthbertson Road, announced transactions and integrate acquired assets, legislative, Hamilton Central QLD 4007 political or economic developments in the jurisdictions in which Port Moresby, NCD 936 Nudgee Road the Company carries on business including increases in taxes, Papua New Guinea Northgate, Queensland operating or technical difficulties in connection with mining or development activities, employee relations, availability and costs Australia associated with mining inputs and labour, the speculative nature LAWYERS Phone: +61 7 3363 9900 of exploration and development, including the risks of obtaining Allens Linklaters Fax: +61 7 3363 9999 necessary licenses and permits and diminishing quantities or grades of reserves, changes in costs and estimates associated Level 6 with the Company’s projects and the risks involved in the Mogoru Moto Building WWW.OKTEDI.COM exploration, development and mining business. There can be no Champion Parade assurance that forward-looking statements and information will prove to be accurate, as actual results and future events could Port Moresby, NCD differ materially from those anticipated in such statements. Papua New Guinea Accordingly, readers are cautioned not to place undue reliance on forward-looking statements and information due to inherent uncertainty. All forward looking statements and information made herein are qualified by this cautionary statement and speak only as at the date of issue of this Annual Review 2013. The Company disclaims any intention or obligation to publicly update, revise or review any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable laws or regulations.

This 2013 Annual Review has been printed on environmentally friendly paper stocks. The cover has been printed on Sovereign Offset, which is FSC certified and considered to be one of the most environmentally adapted products on the market. Containing fibre sourced only from responsible forestry practices, this sheet is ISO 14001 EMS accredited and made with elemental chlorine- free pulps. The text pages have been printed on Sun Offset, which is FSC certified and made with elemental chlorine-free pulps.

132 OK TEDI MINING LIMITED ANNUAL REVIEW 2013