Nong River no joke for Highlands PacificBARRY FITZGERALD
October 26, 2009
The Macquarie Dictionary tells us that ''nong'' is a shortened form of ''ning-nong'', an Australian way of saying someone is a bit of fool.
But there is nothing foolish about Highlands Pacific's (ASX:HIG) Nong River copper/gold porphyry prospect up in Papua New Guinea's rugged West Sepik province .
The talk in Port Moresby recently has it that after more than seven years of holding the prospect, Highlands is finally in a position to punch some holes in the ground to confirm the promise demonstrated by the US group Kennecott (now part of Rio Tinto) way back in 1972.
Kennecott is also the mob that earlier had confirmed the nearby Ok Tedi deposit as a big find (1969-1971), only to walk in 1975 when it could not reach agreement to develop the project. BHP, as it was then, picked up the running in 1976 and stayed around until 2002.
That little history lesson on Ok Tedi - minus all of the controversy about landslides, riverine tailings disposal and class actions - is to demonstrate why Nong River has been overlooked despite its promise.
But now Ok Tedi is coming to the end of its life, with 2013 looming as its end date unless a feasibility study next year demonstrates an extension is viable. Either way, Ok Tedi is on its last legs. That's good news for Highlands and its Nong River project which lies all of 20 kilometres from Ok Tedi and what will become its under-utilised infrastructure base.
Highlands has been itching to follow up the copper and gold hits that Kennecott returned from Nong River from the only four holes drilled on the prospect. Results included close to 90 metres grading 0.6 per cent copper and 0.4 grams a tonne gold. In comparison, Ok Tedi's production is coming from mineralisation grading 0.8 per cent copper and 1.1 grams of gold a tonne.
While it is silly to rely on the results from the Kennecott holes at Nong River as guide to what might eventually be proved up at the prospect, it is worth noting that the copper grade is just about bang on where all of the next generation of big copper projects sit, with the gold grade a little higher.
Highlands would have been on the ground earlier but for the strife in the early 2000s with its since-sold Kainantu gold project in PNG. Now it is a debt-free, cashed up ($27 million) and asset-rich PNG play.
What is not known with Nong River is whether Highlands will be sole-funding the exploration or whether the joint venture partner, Xstrata, will be contributing. Either way, the market will like the fact there is going to be some action at the prospect.
Confirmation it is adding an exploration leg to its story won't hurt Highlands' market rating, which has been on the march since Garimpeiro looked at the stock in May when it was trading at 9.4c a share. It has since motored to 28c a share, giving it a market capitalisation (less cash) of about $150 million. If Nong River was all it had, you'd be worried. But there is a lot more in the cupboard now that the unprecedented growth in metals demand that BHP and others have forecast looks increasingly real.
First there is Highland's 8.56 per cent free carried interest in the $US1.4 billion ($1.5 billion) Ramu nickel project in PNG. It is not far off starting production and its forecast cash costs of production are about half the current nickel price.
Then there is the group's 16.9 per cent-owned Frieda River copper/gold deposit in PNG, where managing partner Xstrata is funding work until completion of a feasibility study into what is shaping up as a world-class project.
All up, Highlands' equity-portioned share of the metal inside those two projects is some 2 million tonnes of copper, 2.5 million ounces of gold, 125,000 tonnes of nickel and 12,250 tonnes of cobalt. Based on recent copper deals, Highlands' copper ''share'' alone is worth twice its current market capitalisation.
In a research note in October, Cathy Moises from Evans & Partners valued Highlands at 32c a share. Including a net present valuation on Highlands' share of Frieda River and Ramu, the upside valuation was put at $1.20 a share.