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HIGHLANDS PACIFIC LTD (HIG)

On September 25th, HIG announced that their board had conditionally approved the development of its Kainantu goldmine in Papua New Guinea. The project was described as being ‘robust with low cash costs and strong economics’. The announcement indicated that the development of the mine was expected to take roughly 15 months, with first production expected in early 2005. It is expected to produce approximately 115,000 ounces of gold annually and is financed on the basis of a 4.5 year mine life, although the company is confident of adding a further 6 years to the mine life.

They also stated at the time that on a gold price of US$350 per ounce, payback of the investment will be achieved after 21 months of production. Considering gold is currently trading at around US$400 per ounce, and is anticipated to trade higher, then a return on investment could be seen far sooner.

Another reason for HIG’s strength is its Ramu nickel and cobalt project, in which it has a 68.5% interest. A Chinese mining delegation appears to have taken an interest in the project, and is scheduled to visit the company’s operations. China, as the world’s fastest growing economy, has huge demand for resources and this visit by the Chinese delegation bodes well for HIG’s projects, as China’s possible involvement in developing these projects would provide the much needed financial and technical support required to establish them.

Like many projects that have sparked nickel stocks’ price runs, this project is only in its early stages and no nickel is being produced as yet. In boom times, expectations will push stocks as much as revenue, so this is just another reason to be bullish on HIG. Certainly, on gold alone, this company is cheap, but its nickel operations are the icing on the cake.

We believe HIG is still not overpriced by any stretch of the imagination, if what they say is actually there, and there is no good reason to believe any other thing about it. If you purchased HIG on our advice, you will be doing very well and we continue to recommend that you hold. If you do not own any HIG but would like exposure to a speculative but highly promising company, then we again recommend purchasing HIG at around the current price of 47.5c. Due to its highly speculative nature, please allocate no more than 2-3% of your portfolio to this one.