Operating costs for Ramu are slated to be US$3/lb as per the excerpts which follows from an article in The Australian on 15th July 2009. Assuming this is correct then the gross profit from RAMU would amount to:
production = 31,150 metric tons = 68.5M lbs nickel
Highlands share of Gross Profit = (0.0856*409.2) = US$35M per annum
Then deduct royalties, taxes and debt servicing (HIGs net return is post debt servicing for the first 10 years as I recall - someone can check this)
In any event, if the numbers are correct, production targets are met and the nickel price holds up, then there is every reason to assume that the market will rerate Highlands once production commences and the cash starts flowing in.
The Australian 15 July 2009 article excerpts:
"... Highlands Pacific could be emerging as a rare good-news story. The company has an 8.56 per cent free carried interest in the Ramu nickel laterite mine in Papua New Guinea. Ramu is due to start commissioning at the end of the year and has an annual production target of 31,150 tonnes of nickel and 3300 tonnes of cobalt. Highlands swerved the project's $1.7bn financing hurdle by forging a joint venture in 2005 with China Metallurgical Group, which agreed to shoulder development costs in return for a majority stake."
and ...
"With projected operating costs below $US3 ($3.75) a pound after cobalt credits, Ramu has the potential to generate handsome cashflows, even at current nickel prices of $US7.20/lb."
HIG Price at posting:
14.0¢ Sentiment: LT Buy Disclosure: Held
