Sydney - Monday - November 16: (RWE Aust Business News) *******************************************************
OVERVIEW ********
Sooner or later the stunning gold price of $1,119.10 oz for the February COMEX contract last Friday should have an impact on Papua New Guinea gold/copper producer Highlands Pacific Ltd (ASX:HIG). In addition the company has made some impressive discoveries which is bound to lift the company's resource total in the current year. Highlands Pacific recently reported a 978 metre deep hole from the Horse-Ivaal Trukai deposit at its Frieda River copper gold project in Papua New Guinea. This significantly extends the depth of mineralisation and highlights Frieda's potential as one of the world's top 10 emerging copper gold projects. Highlands Pacific appears to have put is previous hedging problems, which almost brought the company to ruin, behind it. Exploration drilling by Highlands's joint venture partner Xstrata Copper was designed to test the depth extension of the known Frieda mineralisation as part of geotechnical and pit design work for the pre-feasibility study due in mid-2010. An updated Mineral Resource statement for Frieda is expected by the end of 2009. The new deep hole result (hole 280XC09) has recently been assayed and returned three copper and gold intersections at a 0.2pcCu cutoff of 412 metres at 0.6pc copper, 0.2g/t gold; 10 metres of 0.2pcCu and 0.1g/t gold and 522 metres of 0.4pcCu and 0.5g/t gold, for a total hole depth of 978 metres and finishing in mineralisation. At a 0.1pc Cu cut-off the continuous intersection totals 968 metres @0.5pc Cu and 0.4g/t gold starting from 10m down hole. Managing director John Gooding said in all of his years in exploration and mining, he has never heard of such a long copper intersection in one hole. "We already knew the Frieda mineralisation extended from surface to about 600 metres, but to have mineralisation at 978 metres is simply outstanding," he said. The scoping study plans released earlier this year envisaged an open pit to a depth of about 400-600 metres, the base of the current resource model. "Whilst we note that a single deep intersection itself will not materially change the revised resource estimate, this information provides further confidence in the size of the deposit. "Suffice to say Frieda River has the potential to become a low-cost and very large open-cut copper mine," Mr Gooding said. The deep hole drilling formed part of the Frieda River project's $US36 million budgeted work program for 2009. Drilling at Frieda is currently focused on geotechnical work including in-pit studies, process plant site locations. A pre-feasibility study is due for completion in August 2010 at which time, subject to the project continuing to meet project hurdles, the project will advance to a 12-month feasibility study. This would allow the project to potentially commence construction in 2012 and production in 2016. Another encouraging project is the Ramu nickel cobalt project, located 75 kms west of the provincial capital of Madang, and will produce an annual output of 31,500 tonnes of nickel and 3,300 tonnes of cobalt contained in high-grade concentrate over a 20-year mine life. The mineral resources at Ramu have the potential to increase the mine life by a further 15-20 years. The project is currently in construction phase with commissioning due to commence by the end of 2009. Highlands has an 8.56 per cent interest in the Ramu project which will increase to 11.3 per cent at no cost to the company after repayment of the debt raised to finance the project has been completed from operating cash flow (estimated to be 10 years). From commissioning, Highlands is able to have access to its pro-rata 8.56 per cent share of Ramu's post-debt servicing net cash flow. Highlands also has an option to acquire an additional 9.25 per cent at fair market value which could increase its interest to 20.55 per cent.
SHARE PRICE MOVEMENTS *********************
Shares of Highlands Pacific barely moved above 37c last week. Rolling high for the year is 40.5c and low 4c. The company has 660.1 million shares on issue with a market cap of $244.2 million. On September 7, the company released its interim financial report for the half-year ended June 30. The result was an operating profit of $US3.3 million. The profit was attributable in large part to the gain on the sale of exploration licence 1277 to Barrick Gold Corporation (a transaction first signed in December 2007) and the gain on the sale of surplus properties in Madang. Mr Gooding said at the time that Highlands is in a strong and sound financial position with $US23.3 million of cash in the bank and no debt. "Commencement of commissioning of the $US1.4 billion Ramu nickel project is only months away and the Frieda copper gold project is progressing well through a pre-feasibility study," he said. "With the recent lift of base metal prices, the company is in a great position with two emerging world-class assets and a portfolio of exploration prospects," Mr Gooding declared. Meanwhile, Highlands Pacific has embarked on a significant new exploration campaign at the Nong River prospect adjacent to the giant Ok Tedi copper-gold mine in the western region of Papua New Guinea. Highlands has exercised its option to accelerate the development of the Nong River exploration area (EL 1312) by sole funding an exploration program over the known copper gold porphyry prospects covered by the Nong River and Tifalmin (EL 1392) area. Nong River EL is in a joint venture with Xstrata Copper while Tifalmin is 100 per cent owned by Highlands. This area is only 20 kms from the Ok Tedi mine - a mine that has been operational for 25 years and produced over 3.7 Mt of copper and 11.1 Moz of gold. The exploration program - initially $US3 million, will commence later this quarter and consist of 860 kms of airborne electromagnetic survey over both exploration licences and 2,400m of diamond drilling during 2009 and 2010. "The company is very excited by this opportunity, which has the potential to grow into a third major asset in our portfolio together with the $US1.4bn Ramu nickel and $US4bn Frieda copper gold project," said Mr Gooding. "What we already know about Nong River is the shallow copper-gold hits achieved by Kennecott's drilling in the early 1970s. "The use of modern geophysical surveys in association with previous work on the ground will be the key to pinpointing areas for drilling and revealing its full potential. "Its close proximity to Ok Tedi is of particular advantage and opportunity in terms of infrastructure, people and services," Mr Gooding said. The area covered by the Nong River exploration licence has been explored by a number of major mining companies in the past. In 1972 Kennecott (now part of Rio Tinto Plc) had the following results: DDH-1: 22m (78m to 100m) @ 0.28pc Cu and 0.3 g/t gold; DDH-2: 94m (94m to 190m) @ 0.36pc Cu and 0.6 g/t gold; DDH-3: 89m (16m to 105m) @ 0.6pc Cu and 0.4g/t gold; DH-4: 90m (24m to 107m) @ 0.66pc Cu and 0.35 g/t gold. Highlands's exploration program will follow up on known porphyry copper and skarn mineralisation identified by Kennecott and other parties. Some of the results of this previous work have grades and thicknesses that in today's terms can be potentially economic.
BACKGROUND **********
Highlands Pacific Ltd is a PNG-incorporated mineral resource company with a focus on gold and base metal prospects in Australia and the Asia Pacific region. Its objective is to create shareholder wealth through the exploration, development and operation of economic projects. Highlands Pacific listed on the ASX on June 12, 1997. Its major development assets are holdings in two of Papua New Guinea's major resource assets, the $US1.37bn Ramu nickel cobalt project and the Frieda River copper gold project, where Xstrata has spent about $US47m in the past 18 months. Highlands is also due to commence exploration on the highly prospective Nong River and Tifalmin licences about 20 kms north of Ok Tedi. The Frieda copper project is one of the world's largest undeveloped copper/gold resources. Frieda River is 170 kms northwest of the giant Porgera gold mine. The project owners are Xstrata Frieda River Ltd (76.2 per cent), Highlands (16.9 per cent) and OMRD (6.9 per cent). Highlands has a free-carried interest through to completion of a feasibility study (required to be completed by January 2012). The results of an extended scoping study were released in early 2009 and envisaged a 40Mtpa plant with production over an initial 27-year mine life averaging 200,000 tonnes of copper metal and 240,000oz per year. Xstrata's budgeted expenditure for 2009 is $US36 million, with similar annualised levels of expenditure expected for the first half of 2010 prior to a decision on a 12-month feasibility study.
HIG Price at posting:
39.0¢ Sentiment: ST Buy Disclosure: Held