Mining

The Company

Highlands Pacific (HIG) is now arguably Papua New Guinea’s premier minerals explorer, developer and producer, advancing some of the country’s most important copper, gold and nickel assets. The PNG incorporated company, listed on the Australian Securities Exchange and the Port Moresby Stock Exchange (under the code HIG), provides investors with exposure to the country's significant mineral resource endowment. About 30% of the company’s share register is held by PNG investors and institutions. Another 30% is held by the PNG government and PNGbased funds, while the rest is held by international investors. Highlands Pacific (20%) is a joint venture partner with PanAust (PNA, 80%) in the massive Frieda River copper-gold project in East Sepik Province. The firm also has copper and gold prospects 20 km north of the Ok Tedi mine in the Star Mountains. Further, HIG has an investment in the $2.1b Ramu nickel cobalt mine near Madang, which is the largest minerals project development in PNG in the past 15 years. The mineral reserves underpin a 20-year production lifespan and resources have the potential for many decades beyond.

HIG and Glencore co-own the Nenatec Process, which is a patented process designed to treat concentrates produced from refractory base metal and precious metal ores. The process offers HIG potential access to new projects and/or royalty streams.

The Frieda River project is a tier 1 copper asset, and HIG has a potential new partner in PNA, with a vision for a $1.5bn-1.8bn copper-gold project. Once the sale of Glencore’s equity in Frieda River has been completed, the project will proceed to finalising the feasibility study (FS) and launching the development phase. The FS is currently continuing under the agreement between PNA and Glencore. Under the agreement PNA will fund all project and feasibility study costs until an application for a special mining lease. PNA’s experience in its Phu Kam copper-gold operation has supported the firm’s growth while contributing to a strong balance sheet. Since it was originally proposed, PNA has reduced the scope of the Frieda River project; however, although numbers are at a preliminary stage, PNA still envisages that ore output will reach 24m tonnes per annum to produce around 100,000 tonnes of copper and 160,000 oz of gold, at a cost of $1.25/lb after gold credits.

The Ramu Nickel project is currently producing at around 60% of capacity. From commissioning, HIG has access to a pro-rata 8.56% share of Ramu’s post-debt servicing and net cash flow. The PNG company also has an option to acquire an additional 9.5% interest in Ramu at fair market value (up to 20.55%). In 2013 HIG processed 1.25m tonnes of nickel ore and shipped 39,472 tonnes of nickel-cobalt hydroxide. The project's operator and majority owner is Hong Kong- and Shanghai-listed Metallurgical Corporation of China.

HIG has taken significant strides in developing the Star Mountain licences. The firm has 4 exploration licences (EL) covering a total of over 515 sq km. Star Mountain licences are now unencumbered and are 100%-owned by HIG after Glencore’s option on EL1312 expired in April 2014. The expiry of the option will allow HIG to further advance joint venture and farm-in discussions with international mining companies interested in the copper-gold porphyry prospects on all four tenements: Nong River EL1312, Mt Scorpion EL1781, Munbil EL2001 and Tifalmin EL1392. HIG is seeking a stage two partner to extend exploration.

Company Strategy

HIG has reached new limits with Ramu Nickel production towards end-2012, and it aims to reach nameplate capacity by end-2014. Cash flows from this will place it in a good position to further develop its other assets. Delays were experienced in Frieda River with PNA entering into an agreement with Glencore to acquire its project equity. We expect this transaction to be completed in 2014.

HIG has spent over $19m at its Star Mountain site, and drilling results have been encouraging. As of March 31, 2014, HIG had $7.61m in cash and equivalents and no debt or hedging. Positive developments may be reflected in the company’s share price appreciation.