The stock that has been waiting for thirty years

“The Directors of Bougainville Copper Limited report that there has been no production since 15 May 1989” 

It is not the kind of statement that you expect from a company worth $100m and it’s not the kind of statement you expect to send that value eight percent higher. And yet on its release on the 30^th of April 2020, Bougainville Copper (ASX: BOC) Limited rocketed higher as if the most recent quarterly production report contained significant positive surprises.

If investors were surprised by that report, they certainly should not have been, Bougainville’s production updates have communicated the exact same information for the past thirty years.

Bougainville is an island that is considered an autonomous region of Papua New Guinea. It is home to the Panguna mine, where Bougainville copper used to mine copper and gold from what was once the largest open-cut mining pit in the world. The copper and gold reserves at the site are estimated to be worth more than USD $60 billion.

However, the administrative and political situation on the island of Bougainville has been in a state of a flux since the beginning of the Bougainville civil war, which lasted for 10 years from 1988 to 1998. The mine itself was a key catalyst in sparking the civil war, which also revolved around ethnic tensions between locals and mainland Papuans.

The war has been described as the largest conflict in Oceania since World War Two and led to the deaths of up to 20,000 people, mostly civilians. There’s plenty more to add about the civil war, which nearly led to a coup in Papau New Guinea itself and embroiled BOC’s then major shareholder Rio Tinto, as well as the Australian government, in some notable scandals.

Since the end of the war, things are no clearer for the Panguna mine with a 2001 peace agreement leading to an independence referendum that was only completed last year. 98% of locals voted for independence for Bougainville, but the referendum was non-binding and the Government in Papua New Guinea appears undecided on their response so far.

However, whether Bougainville copper will be allowed to simply resume operations is less than clear, with Autonomous Government in Bougainville Vice President Raymond Masono stating that he was planning changes to mining laws in the region, that would see the Bougainville government take a 60% interest in the Panguna mine, while auctioning the remaining 40% to investors.

There are plenty of others trying to jump in and get a slice of the pie as well, but the ultimate fate of the site seems to lie with the Panguna landowner groups as well as Autonomous Bougainville Government.

This leaves Bougainville Copper Limited in a bit of a difficult position. The Autonomous Government in Bougainville (ABG) has refused to extend the exploration license at Panguna, which BCL has taken to the Papua New Guinean National Court, who are expected to rule on this matter later this year.

Even if the court rules in BCL’s favour, there is no guarantee that the ABG will respect the decision. Yet should the Autonomous Government decide on an outcome that is determinantal to the landowner’s associations, they risk undermining some of their power and potentially even kicking off further hostilities.

Some of the different landowner groups back different potential operators of the mine, so Bougainville Copper’s position looks tenuous. Bougainville Copper has done a lot of work trying to support development in the local community and in turn, hopes to receive support for its bid to restart mining. Regardless, with nothing looking certain at this point, any investment in BOC is not for the faint of heart.