the australian

Hillgrove Resources (HGO) $28.5c

CRITERION: Tim Boreham | September 10, 2009
Article from: The Australian.

SHOULD an up-and-coming miner with a windfall gain hold on to the cash to fund projects, or reward investors with some folding stuff in the here and now?

It's a classic dilemma and Hillgrove has tackled it by having a bet each way. The putative copper-gold producer yesterday unveiled a 2c-a-share maiden dividend, the direct result of selling its Eastern Star Gas stake for $171 million in July.

Post-div, Hillgrove is left with $120m in cash, worth 29c a share. Hillgrove's mainstay project is Kanmantoo near Adelaide, touted as a two million tonnes-a-year open-cut mine producing 17,000 tonne of copper and 8000 ounces of gold a year.

Hillgrove has spent $40m on the project so far and it needs another $100m. But Hillgrove chief David Archer expects the mine to be funded from other parties, with the cash earmarked for potential acquisitions and work on its West Papua tenements.

"We are in the process of offering joint-venture participation to a range of potential Chinese and other investors," Archer says.

Even before the global financial meltdown Hillgrove was trading at a discount to its Eastern Star stake, implying a negative worth for Hillgrove's other interests.

It sounds a tad dumb, to be honest, especially as Hillgrove has no debt. So we ascribe a speculative buy: the copper price has more than doubled since the start of the year, which gives Kanmantoo a fighting chance.

Archer says Hillgrove assumes a copper price of $US1.50 a pound for Kanmantoo to break even, with the metal now trading at $US2.80 a pound.