positive article in todays melbourne age

Apparently 4 cents gets you a stake in $A1.6billion nickel cobalt project that starts producing next year!!


The Age
(6,Mon 11 Aug 2008)

$20m a small price to pay to snuggle up to MCC and Xstrata

GARIMPEIRO - Barry Fitzgerald

If these two cannot see the value in taking Highlands out, others might.

SIXTY per cent cash backing of a share price is a comfortable starting point for investment in the mining sector. That is what is on offer with Papua New Guinea-focused Highlands Pacific (HIG). At Friday's closing price of 8 a share, its $52.2million market capitalisation compares with its cash holdings of $31.5million or 4.8 a share - the 60% cash backing. If that's all there was to Highlands, the distressed share price would be a fair cop.

But even after the sale of its only operating asset - the Kainantu goldmine - to Barrick, Highlands remains asset rich. Apart from a sizeable exploration foothold in a country with a propensity for hosting world-class mineral treasures, Highlands has an 8.56% interest in the Ramu nickel/cobalt project and a 16.4% interest in the Freida River copper/gold deposit.

Working back from Highlands' cash position, it can be said that in the current mealy-mouthed market, those interests are being valued at less than $20 million. That must come as a surprise to Highlands' partners in the projects - China Metallurgical Construction Corp (MCC) at Ramu and Xstrata at Freida River.

We know that because MCC is in full swing spending $US1.4 billion ($A1.6billion) to bring Ramu into production in late 2009 while Xstrata is spending $US25 million this year alone to confirm Freida River's status as one of the world's biggest undeveloped copper/gold deposits.

The important thing here is that in the case of Ramu, MCC is paying the bills, and in the case of Freida River, Highlands is free-carried until Xstrata completes a feasibility study into its development.

And in the case of Ramu, Highlands also gets a free ride to move to an 11.3% equity interest once MCC has recouped its debt financing of the project.

Based on plans for Ramu and Freida River, Highlands' share of annual production would be 3500 tonnes of nickel, 372 tonnes of cobalt, 31,000 tonnes of copper and 48,000 ounces of gold. That is worth about $A400 million in annual revenue at current prices.

Highlands' problem is that it has yet to get the market to value fully the Ramu and Freida River interests. Run a line through our junior copper, nickel and gold producers and it is clear that if Highlands was to commission an independent valuation of itself, the figure would be a multiple of its current share price.

It is not about to do that. The trigger for a market rerating will have to come from elsewhere.

A bounce in the nickel price would help, as would an accelerated development commitment on Freida River by Xstrata. Corporate action would also do the trick. On that point, it is worth noting that Xstrata is involved in a $A500 million shoot-out for Indophil Resources, its junior (37.5%) partner in the Tampakan copper/gold project in the Philippines.

Tampakan and Freida River are remarkably similar on many points, most notably their projected annual output of about 190,000 tonnes of copper.

And there is nothing to say that if MCC or Xstrata cannot see the value in taking Highlands out for an all-up cost of less than $20 million, others just might.

While being a minority partner does not have appeal to most mining groups, Garimpeiro reckons it would be a smart move - again for an all-up cost of less than $20 million - for any number of companies to snuggle up nice and close to the likes of MCC and Xstrata.