How a small cap miner doubled despite a weak copper price
Date
April 28, 2015
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Richard Hemming
Highlands Pacific's stock had doubled in the past month and is now up 50 per cent since the start of March.
The Ramu Nickel mine near Madang in Papua New Guinea in which Highlands Pacific has a minority position of 8.56 per cent.
The Ramu Nickel mine near Madang in Papua New Guinea in which Highlands Pacific has a minority position of 8.56 per cent.
If small cap mining companies are looking for a template for success in an environment of weaker commodity prices they should look no further than Highlands Pacific, whose stock had doubled in the past month and is now up 50 per cent since the start of March.
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The rise of the Papua New Guinea-based company's fortunes is an education on how a management team led by John Gooding has managed to squeeze value out of a number of projects in which it holds minority interests.
Patersons' mining analyst Matthew Trivett called the stock a spec buy at 5.7¢ back in February. Highlands is now trading at 9.5¢ and has a market cap of $87 million. Trivett thinks it will go further based on the company's strong financial and strategic position.
"Highlands' management has been skilful in keeping minority shareholding in key projects; dealing with Chinese partners; and generating deals that create immediate value for its shareholders," he said.
"It's not every company that can get $10 million upfront from Anglo American for one of its projects."
Demand coming from a giant manufacturer also helps. The copper price has fallen about 10 per cent this year, but it appears that Chinese interests are determined to get their hands on copper concentrate, which is still essential for electronic componentry.
Highlands Pacific's most notable minority holding is its 20 per cent stake in the PanAust-controlled Frieda River copper/gold project in PNG. This asset is the reason behind the $1.1 billion takeover offer last month from the Chinese investment company Guangdong Rising Assets Management (GRAM).
Not only does Highlands Pacific own 20 per cent of the Frieda project, it also has a minority position of 8.56 per cent in Ramu Nickel, also in PNG, which is owned and developed by Chinese interests, which have so far spent more than $2 billion. Plus, unlike most mining juniors, it secured $10 million from the mining giant Anglo American to farm into its Star Mountains copper/gold project (also, you guessed it, in PNG). Anglo will spend another $25 million to secure 51 per cent of the project.
Another resources company covered by Under the Radar whose management is delivering the goods is Sundance Energy, which is led by Eric McCrady, who worked in private equity prior to running the North American-based oil and gas fracking specialist.
Under McCrady, Sundance Energy has been able to stay well ahead of the game. Not only has it kept its balance sheet conservatively geared, but it has been able to engage is expansion because it has bought and sold assets at the right time. It sold most notably when the market was running hot and reinvested into Eagle Ford, which is the premier shale-oil producing region in the world.
Its shares have been depressed owing to the steep decline in the oil price, but we believe that McCrady will deliver big cash flow even at the current oil price of $US55 a barrel. Although, we admit that a stronger oil price would help. Even the best management teams need some luck.
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