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Highlands Pacific Limited (ASX: HIG) recently announced it would start commissioning in September the Basamuk treatment plant at its Ramu Nickel Project (HIG 8.56%) following the PNG Supreme Court’s dismissal of an application for an injunction to stop the project from using its Deep Sea Tailings Placement (DSTP) system and pipeline. What is the current status of the Ramu project?

MD John Gooding
The Ramu Nickel Project cost US$1.5 billion to complete and is now ready to operate. The project has two major aspects to it, a mining operation and a treatment plant connected by a 136km pipeline. The mining operation and the pipeline have had some initial ore commissioning, however the treatment plant operation had been held up as a result of the injunction application. Following the Supreme Court’s decision, there is no legal impediment to commissioning the project.

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What is involved in the commissioning process and what is the anticipated time line?

CEO John Gooding
We’ve already commenced preparatory work for the full commissioning process to begin. We anticipate the first of the three autoclaves will commence ore commissioning by late September, with the remaining two autoclaves to be brought on line thereafter. Importantly this should see first product being produced well before the end of the year, with a target for the first sales and shipments of nickel and cobalt concentrates by early in the June quarter 2012.

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Why has the DSTP been an issue of public concern?

MD John Gooding
Unfortunately fears have been raised in the local community of the Rai Coast, and Basamuk, of the potential impact of the tailings on the marine environment. What is often overlooked is that the project is fully permitted and has been so for a number of years. Advice from international experts was taken on the choice of tailings disposal and of the design of the DSTP system. The quantity of tailings to be discharged is about 6% of the annual natural sediment that flows into the Vitiaz Basin via the large number of rivers in the region. Before discharge, the tailings will be neutralised to a pH of 8.2 (similar to sea water) and will not contain any reactive chemicals such as cyanide or acid. The discharge point is 500 metres offshore and 150 metres below sea level, well below ‘upwelling depth’ mixing levels and the depths used for local and commercial fishing.

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What is Ramu’s value to Highlands Pacific?

MD John Gooding
Our stake in the project is carried on our balance sheet at $50 million however we’ve spent nearly US$100 million on Ramu. We have an 8.56% interest in the project that can move to 20.55% in the future. I think it would be fair to say the market valuation of our shares does not reflect a 10 to 20% interest in a $1.5 billion project. At the same time, the high profile of Ramu has to some extent obscured the assets we see as being significantly more valuable – the Frieda copper-gold project (HIG 18.18%) and the Star Mountains copper porphyry exploration program (HIG 100%).

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What is the status of the Frieda copper/gold project? What is left to do in 2011?

MD John Gooding
Our joint venture partner Xstrata has finished its entire field drilling at the Frieda project, including resource in-fill drilling and geotechnical drilling, and the 11 rigs that were on site for much of the past two years have now left the project area. We expect another final resource upgrade for Frieda in the coming weeks as a pre-cursor to the delivery of the Frieda Bankable Feasibility Study in January 2012.

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Given the continued rise of copper and gold prices do you expect much change from the Frieda Pre-Feasibility Study (PFS) released in November 2011 to the Bankable Feasibility Study (BFS) in January 2012?

MD John Gooding
In terms of project development, probably not. On the resource side we’ve already increased from the 1 billion tonnes in the PFS (20 years of operations) to 1.9 billion tonnes with 58% in the measured and indicated category levels, and we expect the confidence level to increase further with the new resource announcement in the coming weeks.

From an operating cash cost perspective the PFS estimated C1 cash costs at US43c/lb in the first eight years using a price for copper of US$2.50/lb and gold of US$1,000/oz. The prices for copper and gold have strengthened since the release of the PFS in November 2010 and most analysts have lifted their long term pricing assumptions. The PFS implies that with a gold price of around $1,500/oz, C1 cash costs would be close to zero; in other words the estimated 200,000 to 250,000 tpa copper production would be essentially free. Our share of the copper production is 36,000 to 45,000 tpa.

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What has been your recent progress on the Star Mountains project?
MD John Gooding
We have a rig on site completing its ninth hole with the results from the eighth hole expected in early September. Wet weather has been an issue over the last three or four months and is the major reason for the delay in these results. We should have a second rig on site drilling by the end of September, with a third later in the year. We hope to release a JORC-defined resource model on the Olgal prospect, which is just one prospect in the area, during 2012.

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The PNG government owned Ok Tedi Mining Limited would appear to be a natural partner for HIG in the Star Mountains area. Have you held discussions with Ok Tedi?

MD John Gooding
We talk with Ok Tedi quite a bit as we’re working in its backyard and getting assistance from them. The Ok Tedi mine faces challenges in the years ahead with limited expansion options and possible closure. We believe there’s a pathway forward for the development of Star Mountains that will benefit many parties.

What should also be remembered is Xstrata’s right to come back into one of the three exploration licenses in the Star Mountains area; for a 72% interest it must reimburse three times our exploration spend. We’ll have spent US$13 million on this licence by year end, so if Xstrata choose to come back into the joint venture, we’d be entitled to a payment of US$40 million.

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Thank you John.

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

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