tolhurst rate hig a buy with a value at 1.02

TolhurstDailyreport Tuesday, 13 February 2007
TolhurstDailyReport 16 13/02/2007
Highlands Pacific Group (HIG)


Extension of hedge book and placement
seen as a major positive Share Price: $0.28
Recommendation: BUY (unchanged) Valuation: $1.02
Market Cap: $150m Risk Rating: High
P/E: Na Yield: 0%
By: Cathy Moises
Event
• Highlands today made the long awaited announcement on the restructure of the Kainantu forward sales
program. An added positive was announcement of a USD 20 million equity injection from Resource Capital
Funds.
Key Points
• The hedge book restructuring involves a 2 year extension to the delivery dates of the 250k ounces hedge book
which was already in place. Deliveries are now planned to occur over a 4 year period with final deliveries
scheduled for December 2010.
• Full details on the revised hedge delivery plan will be provided when PNG Central Bank approval has been
obtained, and when Highlands receives the official advices from the hedging banks involved.
• Highlands also announced a $US 20m placement to Resource Capital Fund 1V LP at a price of $0.297. As part
of the placement, RCF also receives four free option entitlements which may be exercised any time up to 3
years from the date upon which they are issued, at prices ranging from $0.50 to $0.65 (so well out of the
money).
• On completion of the placement, Mr Ian Burvill will join the Highlands Board as a representative of RCF IV.
• Commissioning of the problematic Kainantu mine is showing some improvement, with Highlands hopeful of
releasing more positive news in the March quarterly; but clearly the placement at close to market prices is a
huge vote of confidence in the asset base held.
Outcome
• We see both these announcements as a huge vote of confidence in Highlands, which doesn’t surprise us
given the asset suite held. Even excluding any valuation for Kainantu given the difficult commissioning,
Highlands is trading at a significant discount to its equity in its Ramu and Frieda River projects. In our view, all 3
projects held have the potential to be world class.
TolhurstDailyreport Tuesday, 13 February 2007