Highlands Pacific Limited (HIG)

Frieda River Resource Upgrade
27 February 2012 - MD: John Gooding

In this Open Briefing®, Managing Director John Gooding discusses:

-  Frieda River Copper Gold Project resource upgrade
-  Feasibility study extension
-  Outlook for power supply, PNG government participation

Highlands Pacific Limited (ASX: HIG) is a mining company with emerging copper/gold and nickel/cobalt projects in Papua New Guinea with major global partners including Xstrata Copper and China Metallurgical Construction Corporation (MCC). The flagship project is the Frieda River copper/gold project (18.18% HIG, 81.82% Xstrata Copper).  HIG has an 8.56% interest in the Ramu nickel cobalt project with an option to move to 20.55%.  It also has a 100% interest, subject to a claw back by Xstrata to 72%, in the Star Mountains copper exploration project near Ok Tedi where drilling is currently underway.

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Highlands Pacific Limited (ASX: HIG) has recently announced a 14.5% increase in the mineral resources at the Frieda River Copper Gold Project (HIG 18.18%) to almost 2.8 billion tonnes of resource containing approximately 13 Mt of copper and 20 Moz of gold.  What is the significance to HIG of this resource increase?

MD John Gooding
This puts Frieda among a handful of undeveloped copper projects of this size in the world and in my view, positions it as the largest and most advanced copper project in PNG.  Frieda contains double the amount of copper extracted from Ok Tedi over the past 26 years and at a total of 80 Moz in gold equivalent terms, is equal to PNG’s more recently discovered Wafi-Golpu Project owned by Newcrest and Harmony, which holds 9 Mt of copper and 26 Moz of gold.

Our 18.18% inventory share gives us ownership of 2.3 Mt of copper, 3.6 Moz of gold and 8.9 Moz of silver.  We think this is very significant for a junior company.

Excluding our other assets such as Ramu and Star Mountains, our market capitalisation of approximately $140 million implies a value for our share of metal of 2c/lb of copper (excluding gold), which in our view undervalues us, particularly given the fact that the Horse, Ivaal, Trukai deposits within Frieda have a large portion of their deposits defined at the highest resource confidence of measured and indicated categories.

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The resource increase was due to the addition of a maiden resource for the Ekwai deposit and an updated estimate for the Koki deposit.  What are the implications of this for the development of the Frieda River Copper Gold Project?

MD John Gooding
We felt it was important to better understand the resources in the Frieda area for future planning and development options.  We therefore asked international experts Hellman and Schofield to undertake a reassessment of historical drilling at Koki and Ekwai given they’re close to the Horse, Ivaal and Trukai deposits. 

The resource increase is a reminder that these large giant copper porphyry systems often cover multiple deposits.  In Frieda’s case it now has six JORC-defined deposits within 8 to 10 km of each other.  While the Horse, Ivaal and Trukai deposits were the focus of the Frieda pre-feasibility study and are now the focus of the Frieda feasibility study, we believe that the Ekwai and Koki deposits will at some stage form part of the multi-decade mining operation at Frieda.

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Do you expect any further resource assessments to be undertaken at Frieda?

MD John Gooding
We may review the Horse, Ivaal and Trukai deposits as the current resource is a constrained resource.    By this we mean looking at the commodity pricing assumptions used in defining the economic pit shell.  It’s too early to tell whether any significant change in resource is likely, but we know the mineralisation extends below the bottom of the proposed pit shell. 

The nominal depth of the proposed pit shell as used in the pre-feasibility study is 400 to 500 metres and yet there is mineralisation present to a depth of almost 1,000 metres as evidenced from resource drilling.  Given we can see Frieda being a multi-decade mine, we feel it’s important to take a closer look at the entire resource picture of all the deposits.

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The Frieda feasibility study has been extended to December 2012 and in January this year the nearby Nena deposit was brought into the joint venture.  Will you use the extra time to consider incorporating Nena into the feasibility study?

MD John Gooding
We would like to see Nena as part of the medium to longer term picture for the entire Frieda development, but we need to do more work on the options.

Nena is in some respects a smaller version of the Wafi Golpu deposit in that it is a typical high-sulphidation, high-grade copper-gold porphyry with a resource grading 2.43% copper.  We think Nena could make an important contribution to the Frieda project.

That said, given the high-sulphidation nature of the orebody and its metallurgy it would require a modified or additional processing circuit to the Horse, Ivaal Trukai deposits. 

However for a project looking at 50 to 60 Mtpa throughput, and additional 5 Mt from Nena could contribute up to another 100,000 tonnes per annum of copper which would be significant.

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What will the extension of the feasibility study mean for the project’s development time line?

MD John Gooding
The pre-feasibility study envisaged first production in 2016 or 2017.  A key driver of that schedule was the construction schedule for a hydroelectric scheme needed to provide energy to the project.  The extension of the feasibility study to later this year and our decision to now look at other energy alternatives, could potentially be a positive in terms of construction scheduling.  That said, it’s still early days and the project team continues to review all the options available.

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What are the alternative energy options for Frieda?

MD John Gooding
The PNG gas sector looks a lot different from several years ago when the scoping study and pre-feasibility parameters for Frieda were set.

For example just last month the PNG Government announced cabinet approval for the development of the Stanley oil and gas field in the Western Province, some 70 km from Ok Tedi and a further 100 km from the Frieda River district. 

The Stanley field’s private sector partners are now looking to advance the development and sign up customers.  That is just one example in a country blessed with emerging oil, gas and liquid natural gas projects that could be considered as alternative power sources.

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What is the scheduled project budget for 2012?

MD John Gooding
In the past three years Xstrata has invested in the order of $260 million on Frieda drilling and studies.  The budget for the year ahead is still being finalised but is expected to be $15 million to $20 million, given that all the resource drilling has been completed.  Importantly for HIG, our portion of the expenditure will be covered by way of a carried loan funding arrangement from January 2012 to the lodgement of a special mining licence, which would be an obvious trigger for development.

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What role is the PNG Government expected to play in the project?

MD John Gooding
We hold regular discussions with the PNG Government and its relevant departments.  Like a number of resource projects in PNG, the Government can elect to be a 30% equity participant in the Frieda project. 

I have little doubt the PNG Government sees Frieda as one of the country’s highest priority mineral and resource projects, given Frieda is among the largest copper/gold projects in the world and its potential contribution to PNG could be very significant as the Ok Tedi mine slows down in coming years.

openbriefing.com
Thank you John.


For more information on Highlands Pacific, visit www.highlandspacific.com or call John Gooding or Craig Lennon on +61 7 3239 7800

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