Frontier comments on Australian Government's decision

Frontier's Kodu Deposit (EL 1348) in PNG, as you are probably aware, was recently refused renewal as a direct result of intervention by the Australian Government in the affairs of Papua New Guinea. 

Our corporate plan relied heavily on this main asset and in compliance with the Mining Act, Frontier spent more than K8.5million (>A$3.2million) over the last  4 years, proving the existence of a World Class copper-gold-molybdenum deposit and its potential economic viability. Frontier also forged and maintained excellent relationships with landowners. An independent Initial Environmental Assessment showed no substantive environmental, Port Moresby water supply or heritage/tourism affects.

This effective expropriation has damaged Frontier's share price and its shareholder's aspirations for now and the future. Legal proceedings have been initiated in PNG to attempt to overturn the decision or recoup sunk expenditure plus lost potential future profit (~US$3 billion). Legal options versus the Commonwealth of Australia are being investigated. 

Greg Barnes' ‘Editorial' in Gold Gazette June 2008, commented "The behaviour of both Prime Minister Kevin Rudd and his predecessor John Howard over the proposal by Frontier Resources Ltd to mine its copper, gold, molybdenum and silver deposit and- in doing so - create employment and investment in one of the poorest countries in the world has smacked of opportunism and paternalism ..." and he also highlighted Rudd's "neo-colonialist bent".

If you are as unimpressed as I, with how our/the Australian Government has arrogantly forced this outcome and intentionally damaged our investment by its actions, then please express that disapproval in writing to those who did it and those who report on it in the media.  This travesty of justice for Frontier and the local Landowners should NOT go un-stated and unvoiced in two democracies. 

Bob McNeil, wrote to Australian Foreign Minster - Hon. Steven Smith MP, expressing his views as Frontier's Chairman and it is attached. A possible shareholder form letter is also attached if you wish to sign it and mail (or fax to (02) 6273 2081 with copy to us and Mr Rudd please) or email it to Michael.Lestrange@dfat.gov.au). The form letter, plus Australian Member of Parliament, Senator and Letter to Editor email addresses have been posted to our website under the ‘Media' section as ‘this' MS Word document, and I request you please enhance it as desired, delete extraneous material, label ‘Dear Senator or Member of Parliament as appropriate AND email it on to all elected ‘representatives' by copying and pasting their addresses into your browser "BCC" address location (or "CC") and putting the generic ‘dummy' address in the "To" location.

Every individual action helps. Thank you very much for your support.

Sincerely,

FRONTIER RESOURCES LTD

P.A.McNeil, M.Sc.

MANAGING DIRECTOR

12th July 2008

Hon Stephen Smith

Minister for Foreign Affairs and Trade

R G Casey Building

John McEwen Crescent

BARTON    ACT  20221

Dear Minister,

Re: Effective Expropriation of Frontier Resources Ltd's Kodu Deposit

by the Papua New Guinea Government 

Frontier Resources Ltd is an Australian Company and I am one of approximately 3,000 Australian shareholders requesting the assistance of the Australian Government and Department of Foreign Affairs and Trade, to receive appropriate financial compensation from the Papua New Guinea Government for the unwarranted effective expropriation of the Kodu porphyry copper Deposit via the non-renewal of Exploration License 1348.

The Australian and Papua New Guinea Governments have colluded, or at the very least, the Australian Government has strongly influenced the Papua New Guinea Government to effect this outcome.  

Frontier Resources has received treatment from both governments which can only be described as shameful.  Frontier has never been consulted by either government in this matter, offered compensation or compromise and thus has been denied natural justice.

Facts are:

Mining and tourism can and should co-exist to provide development and sustained income for local PNG people, with the Kokoda Trail's heritage value preserved and enhanced with FNT's fiscal assistance (~US$3M pa for 10 years).   

The fiscal contribution that such a mine can make to the Papua New Guinea economy is enormous and easily eclipses ANY POSSIBLE Trekking income. The PNG National Government treasury could benefit by US$2.2 (K6 billion) in taxes, royalties and direct equity  over the 10 year mine life, OR MORE, assuming current metal prices.

The EL covered the newest mineral district discovered in PNG and is known to host multiple deposits. Two additional porphyry copper deposits have been drill tested by Frontier in the Kodu district 6km to 13km away from the Kokoda Track and both showed POTENTIALLY ECONOMIC drill results. Three mines are potentially being destroyed by this action, not just one. This is obscene. 

The Kokoda Track is currently operating at or over peak total Trekker number capabilities and last year it reportedly contributed ~K40million to the PNG economy - not Treasury. At that rate, it would probably take about 1,000 years to generate the same income to the government and country as the proposed mine.

Exploration and mine development provides major benefits to landowners and also other service companies, industries and the economy in general. Direct employment from Kodu alone is estimated to be more than 630, ultimately with only 4 expatriates. Trekking is the opposite and mostly benefits Australian trekking companies (~80%) and major industries such as airlines and hotels, NOT the landowners.  

Frontier is known to have made every conceivable concession to try and make this development a possibility. THE COMPANY HAD NO PLANS TO MINE THE KOKODA TRAIL, JUST NEARBY.

Frontier offered to relinquish effectively ALL of the original Kokoda Track (down from >40km or 40% when the EL was issued) An independent Initial Environmental Assessment showed conclusively there is no risk to Port Moresby's current or future water or power supplies and the Company was evaluating innovative tailings dam and metallurgical extraction techniques to minimise /manage general environmental issues.  

 ‘Moral absolution' for the renewal of the EL and responsible development of Kodu was given mid February by RSL President Maj. Gen. Bill Crews (Rtd), after discussions with Barney Jack (Landowner Spokesman) and P.McNeil (Frontier's Managing Director).

Frontier has spent >A$3.2million (>K8.5 million) exploring EL 1348 over the last 4 years, meeting and/or exceed ALL regulatory requirements under the Mining Act and has been offered no compensation or reasons for this unwarranted effective expropriation. 

Frontier has done an excellent job and increased Kodu's Resource tonnage by 225%, to 276Mt containing 1.24million tonnes of copper equivalent grading 0.45%, with very good additional potential. It is a World Class Deposit and will be mined one day.

The Conceptual Mining Study (Nov. 07) showed it could be a very profitable mine at current metal prices and was potentially economic at Benchmark metal prices.  

The exploration and proposed development in EL1348 has 100% landowner support. Frontier is a leader in Social Responsibility in Papua New Guinea and had offered a 5% interest to production to landowners in any mining, plus 2% to the Kokoda Track Authority/Koiari LLG itself. This total gift could be on the order of US$260 million or more over mine life. Landowners have stated "No Mining, then No Tourism".

It is impossible to predict what action Papua New Guinea Landowners will take in the future.  They certainly resent the actions of both their own Government and the Australian Government, and we would hope this effective expropriation does not lead to violent acts, either on the part of the Landowners or the Papua New Guinea police.  

The Australian Government was the only stakeholder at a consultative meeting in Port Moresby (Nov 2007) that stated the EL should not be renewed.

The Project had 100% PNG National Government support until Prime Ministers Rudd and Somare met in Bali in 2007. The Mining Advisory Council of the PNG Mineral Resource Authority recommended renewal to the PNG Minster for Mining.  

PNG's Sovereign Risk has been significantly increased by Australia's agenda. This issue is well known throughout the world to mining companies / fund managers/ investors and very well known to all geologists and mining companies in Australia via a sympathetic and long cover article in the prestigious Australian Institute of Mining and Metallurgy Journal.

The Kokoda Trail was ‘made' in 1904 as a mail route to the Yodda Goldfields. It supported the Mining Industry for nearly 40 years. 

The Kokoda Track itself is a looming environmental disaster - there are no effective ablution controls (toilets) for the ~16,000 annual trekkers and porters (faeces estimated at >10 tonnes last year polluting creeks). The Company's Kodu Camp water became undrinkable last year due to faeces related bacterial contamination from the Track. This is also happening to landowner water sources.

The World Heritage application is bound to fail as I have noted consistently and as noted by the Chamber of Mining and Petroleum. The Chamber is very concerned that the non-renewal of EL 1348 (Mt Bini) sets a precedent in that a tenement could be refused on grounds not related to conditions of the licence and compliance with the Mining Act but as a result of pressure from a foreign government, rasing serious legal issues which impact the entire mining industry. 

Legal proceedings have been initiated in Papua New Guinea to attempt to overturn the decision or recoup sunk expenditure plus lost potential future profit (~US$3 billion). Notice has been served on the PNG Government as required and court Proceedings will be filed on 15/7 to ask for an order of certiorari to have the decision quashed and made again under proper consideration or to lay the basis for suing the PNG Government.

Legal options against the Commonwealth of Australia are being evaluated by Frontier and shareholders.

At the very least this will keep the matter in the news for some years to come and ensure ongoing negative publicity for both Papua New Guinea and Australia.   

The Australian taxpayer contributes substantial amounts to Papua New Guinea every year, and the Department of Foreign Affairs and Trade is set up to assist in part Australian companies that invest overseas. 

Frontier has the right to expect assistance from the Australian Government to quickly resolve this matter, and the Australian Government is in the position to provide such assistance by persuading the Papua New Guinea Government to agree to either re-instate the license or provide adequate compensation for sunk costs and lost opportunity.

Barney Jack (landowner spokesman) noted his own people make up 11 clans in the village of Naoro.  "We have a very difficult life in this remote area and want development for ourselves and our children." Naoro landowners unreservedly support the renewal and possible development because of future Road links (so local people can develop a viable agricultural market for produce), Education (the remoteness of the area has seen very few children access education past primary level and none to tertiary levels), Health services (the nearest clinic is 3 - 4 days distant resulting in low population growth/high mortality rate), Job Opportunities (no full time employment previously available outside the village and no training in modern job skills) and the 7% equity ownership and also Royalty payments.  "What the Australian Government is currently doing goes against the law of our rights to our land and its resources that we lawfully possess......Mr. Rudd is trying to keep us in bush material houses forever with no development". The policy being considered by both governments leading to World Heritage Listing will result in no roads and no development for all inhabitants for perpetuity. 

It is in the best interests of all parties to resolve this matter quickly.

The consequences of this matter are that 3,000 Australian shareholders have lost the major part of their investment, Frontier's landowner partners are relegated to a ‘cultural zoo' (under a proposed World heritage area that they do not want) and the perception of Sovereign Risk for Papua New Guinea has increased markedly.  The Australian Government's actions have made it even more risky to do business with our closest neighbouring country. None of this is warranted, the best outcome and is totally unacceptable.

Papua New Guinea would be one of the world's poorest countries if not for its Mining Industry. Similarly, mining makes Australia a very rich country. There was not even a token attempt at compromise on the possible development of the Kodu Deposit by the Australian Government. It was a decision for the sovereign nation of Papua New Guinea, but it was made in Canberra and is not in the best interests of PNG, the landowners, Frontier or its 3,000 Australian shareholders.  

I look forward to your early response.

Yours sincerely,

....................................................... 

Shareholder - Frontier Resources Ltd

Address:
 
CC:       The Hon Kevin Rudd MP, Prime Minister, Parliament House, CANBERRA, ACT, 2600

Frontier Resources Ltd   08)9295 0388