Frieda Copper Gold Project Update Among Asia Pacific s Tier 1 copper/gold projects with a multi decade open pit mine life

Transcription

1 24 December 2012 Frieda Copper Gold Project Update Among Asia Pacific s Tier 1 copper/gold projects with a multi decade open pit mine life 304ktpa copper & 451k ozpa gold in first 5 years at C1 cash cost US71 c/lb copper* Life of Mine 204ktpa copper & 305k ozpa gold at C1 cash cost US111 c/lb copper* Capex of 5.6bn based on 50 60Mpta plant and 1.29:1 strip ratio Capital Intensity of 13,700/t of copper equivalent # Payback of capital only 3.2 years at recent commodity prices of 3.50/lb copper and 1,750/oz gold Further discussions anticipated between Frieda River Joint Venture Participants and PNG Government in 2013 to determine equity ownership, partnering, permitting and development timeline Highlands Pacific Limited (ASX:HIG) advises that Xstrata Copper has delivered a Feasibility Study together with the Extended 2012 Study for the Frieda Copper Gold Project Papua New Guinea s largest undeveloped open pit copper gold project. The Extended 2012 Study outlines a project with an estimated initial capital requirement of 5.6bn, with a 20 year open pit mine life capable of producing on average an estimated 304,000 tpa of copper and 451,000 ozpa of gold in its first five years and with an estimated life of mine (LOM) average output of 204,000 tpa of copper and 305,000 ozpa of gold. Potential exists to extend the mine life with deeper drilling. The estimated project capital expenditure reflects a number of changes since the Pre Feasibility Study was released in November 2010, most notably the substitution of a proposed hydro electric power supply scheme with gas generated electricity sourced from PNG s Stanley gas field 180km away. The work done by Xstrata Copper and Highlands during 2012 also identified the potential for additional capital savings in relation to waste disposal which will require further work but could reduce the initial capital spend to an estimated 5.0bn. The information presented in this announcement is based on the documents that have been delivered to Highlands by Xstrata Copper. Xstrata Copper earned 72% in the Frieda Project in January 2012 and a further 9.82% was contingent on delivery of the Feasibility Study and the Extended 2012 Study. Highlands and its technical consultants, Behre Dolbear Australia, will now review the documents in more detail for the purposes of the relevant obligations of Xstrata Copper under the Frieda Project joint venture agreements which were varied in November The change in power supply is responsible for an estimated US38.5c/lb of copper increase in LOM production C1 cash cost to US111 c/lb of copper* which is broadly in line with the world average for new copper mining projects. However, the estimated C1 cash cost is significantly lower at US71/lb of copper* for the first 5 years of production and would be even lower if current commodity prices were used in the estimation. *Based on Highlands commodity price assumptions of 3.00/lb copper and 1,500/oz gold # Copper equivalent, in terms of estimating the Capital Intensity, is based on commodity prices of 3.00/lb copper and 1,500/oz gold (i.e 500 lb s of copper equates to 1 oz of gold). 1 P age

2 In Highlands view the steps to be undertaken to make a final investment decision (FID) for the project include: (i) further discussion between the Frieda River Joint Venture Participants and the PNG Government as to the government s intentions to be involved in the project including any equity, (ii) further work and finalisation of some aspects of the execution model, (iii) renewal of exploration licences due in May and November 2013, and (iv) further discussions with government and other stakeholders on the necessary environmental and regulatory approvals. Highlands has been free carried on Xstrata Copper s 300m (approximately) investment in the project and continues to be carried in respect of costs incurred through an arrangement whereby Highlands share of expenditure from January 2012 to the lodgement of Special Mining Licence (SML) application is to be repaid in the future from project cashflows when Frieda is in production. Xstrata Copper has proposed a work program and budget of 20m for Managing Director of Highlands Pacific Mr John Gooding said today: Frieda is a great project and vital to the future of a growing PNG economy, given Ok Tedi mine s declining production and the delay anticipated with new emerging projects, like Wafi Golpu that are unlikely to be into full production until later next decade. Frieda s upfront capital spend is reflective of a greenfield start up and also of the major depreciation in value of the US dollar in the past 3 5 years which has seen new projects worldwide increase in US dollar cost terms. The estimated life of mine C1 cash cost of US111 c/lb of copper* is on a par with both current world production and also with new greenfield developments. However, in Highland s view this underplays Frieda s low cost profile and cash flow in its important early years, particularly given the 356,000 tonnes of copper and 554,000 ounces of gold in the second full year of the proposed mine schedule. The commodity price assumptions used by Highlands for the Frieda Project, of 3.00/lb copper and 1,500/oz gold, are comparable with the $3.10/lb copper and $1,250/oz gold used in the Pre Feasibility Study for another great emerging PNG project Wafi Golpu, which has an estimated payback period of 16 years compared with Frieda s 4.8 years*. The project will produce substantial cashflows at the forecast metal prices for almost 20 years on the current resource, with potential to increase the mine s life further with additional resources both at depth and along strike given appropriate economic conditions at that time. Highlands believes the investment case for Frieda is compelling, given that copper remains one of the few global commodities that almost all analysts agree is facing a long term and structural supply deficit and given the flight to gold in the past decade as a safe haven. Projects of Frieda s scale and resource quality are rare due to its low strip ratio, clean concentrate produced and its multi decade open pit operation which lowers its risk profile. Rare also because it is in a jurisdiction with a stable foreign investment climate, clear rules of law and a new supportive and motivated national government that has the best interests for its people by pursuing a pro mining and investment strategy for the growth of the nation. *Based on Highlands commodity price assumptions of 3.00/lb copper and 1,500/oz gold # Copper equivalent, in terms of estimating the Capital Intensity, is based on commodity prices of 3.00/lb copper and 1,500/oz gold (i.e 500 lb s of copper equates to 1 oz of gold). 2 P age

3 During 2013 we will hold discussions with all parties, including the PNG Government, to determine the project s development path and the desire of the PNG Government to take up to a direct 30% equity stake in the project. Subject to such discussions and future applications and approvals in 2013/2014, we believe Frieda s development could commence mid decade with first production later this decade. 3D Block Model showing Horse/Ivaal/Trukai pit shell from the Feasibility Study and significant drill intercepts from some of the adjacent copper gold targets *Based on Highlands commodity price assumptions of 3.00/lb copper and 1,500/oz gold # Copper equivalent, in terms of estimating the Capital Intensity, is based on commodity prices of 3.00/lb copper and 1,500/oz gold (i.e 500 lb s of copper equates to 1 oz of gold). 3 P age

4 The work since the completion of the Pre feasibility Study in November 2010, has detailed the following in terms of project economics and execution models. These financial outcomes of all the Studies detailed below are using Highlands commodity price assumptions. Xstrata Copper has used commodity price assumptions for the 2012 Study based on some market consensus long term forecasts which produce a substantial negative net present value. The prices used in the Studies are not necessarily Xstrata Copper s view on commodity prices. PFS FS 2012 ES Potential Mine Life (years) Strip Ratio 1:1 1.29:1 1.29:1 1.28:1 Power Source Hydro Electric Dam Hydro Electric Dam 3 rd Party Provided Gas Powered 3 rd Party Provided Gas Powered Mill Recoveries 85% Cu & 72% Au 84% Cu & 72% Au 88% Cu & 76% Au 88% Cu & 76% Au LOM 1 st 8 yrs LOM 1 st 5 yrs LOM 1 st 5 yrs LOM 1 st 5 yrs Mill rate 50Mtpa 60Mtpa 52Mtpa 64Mtpa 52Mtpa 64Mtpa 52Mtpa 64Mtpa Concentrate 716ktpa 930ktpa 634ktpa 925ktpa 845ktpa 1,254ktpa 883ktpa 1,282ktpa (dry) Production 190ktpa 284kozs 246ktpa 379kozs 195ktpa 287kozs 291ktpa 424kozs 204ktpa 305kozs 304ktpa 451kozs 214ktpa 308kozs 311ktpa 450kozs C1 Cash Operating Costs Operating Costs (per tonne ore treated) Free Cash Flow (per annum) US58 US43 US64 US27 US111 US71 US122 US m 933m 696m 1,360m 556m 1,111m 594m 1,187m Capital Cost 5.292bn 7.503b 5.561bn 4.987bn Capital Intensity (copper equiv)# 21.9/t 16.8/t 27.8/t 20.2/t 20.0/t 13.7/t 17.6/t 12.1/t Construction time (years) Net Present 293m / 11.5% (778)m / 7.6% (256)m / 8.9% 372m / 11.6% 10% / Internal Rate return Payback (years) Metal price Assumptions* 2.50/lb copper; 1,000/oz gold 3.00/lb copper; 1,500/oz gold 3.00/lb copper; 1,500/oz gold 3.00/lb copper; 1,500/oz gold PFS Pre Feasibility Study; FS Feasibility Study; 2012 ES 2012 Extended Study; Potential identified during 2012 that could be pursued further, including during *Based on Highlands commodity price assumptions of 3.00/lb copper and 1,500/oz gold # Copper equivalent, in terms of estimating the Capital Intensity, is based on commodity prices of 3.00/lb copper and 1,500/oz gold (i.e 500 lb s of copper equates to 1 oz of gold). 4 P age

5 Other elements of the execution model going forward include: Conventional copper concentrator; Concentrate piped 113km to Sepik River port; Thickener, filter plant, concentrate storage and stevedoring and bulk storage facilities for incoming freight at river port; Concentrate transported 580km by 3,000t barges to silo ship in Bismarck Sea; and Co disposal of waste rock and tailings adjacent to each other in an engineered structure in the Ok Binai Valley. Waste rock is conveyed to the waste disposal site. Project features include: Capital intensity has the potential to reduce to 12,075/t # of copper equivalent which compares very favourably with the average for projects presently being considered for development elsewhere in the world. Competitive operating fundamentals Life of mine (LOM) estimated average C1 cash cost has increased, with a large part being the change from hydro to gas generated electricity power supply. This estimated projected cost will compare very favourably with projects being considered for development. Potential for throughput increases As with the PFS the first 5 years are expected to see a plant throughput of 64Mtpa before reducing as the material characteristics change to harder rock. Highlands believes that in time there is the potential for plant modifications to be investigated that could result in throughput remaining around the 60Mtpa level. Highly marketable concentrate Clean marketable concentrate containing 24.2% copper and 11.2g/t gold with no penalty elements expected. Highlands 18.18% share At a milling rate of 60Mtpa, Highlands 18.18% share of production in the first 5 years will be 55,000tpa of copper and 82,000ozs pa of gold in concentrate. Cash flow generation Using recent pricing of 3.50/lb for copper and 1,750/oz for gold the cash flows above for the 2012 Extended Study and the Potential case rise to 1,517 m and 1,600m per annum respectively of free cash flow before financing in its first 5 years of operation Highlands share being 276m and 291m per annum respectively. *Based on Highlands commodity price assumptions of 3.00/lb copper and 1,500/oz gold # Copper equivalent, in terms of estimating the Capital Intensity, is based on commodity prices of 3.00/lb copper and 1,500/oz gold (i.e 500 lb s of copper equates to 1 oz of gold). 5 P age

6 Horse Ivaal Trukai Mineral Resources at 0.20% Cu cut off Category MT Cu(%) Au(g/t) Ag(g/t) Measured Indicated Inferred Total Notes for Horse Ivaal Trukai Mineral Resources: The Horse Ivaal Trukai Mineral Resources are constrained by topography and an economic pit calculated with Measured, Indicated and Inferred resources. Numbers may not be exact as they are rounded for tabulation. Competent Person Statement: The information in the report that relates to Horse Ivaal Trukai Mineral Resources is based on information compiled by Mr Raúl Roco, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Roco is a full time employee of an Xstrata Copper entity. Mr Roco has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the estimation of Mineral Resources to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Roco consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Koki and Ekwai Mineral Resources at 0.2% Cu cut off Deposit Category MT Cu(%) Au(g/t) Cu k Tonnes Au Koz Koki Inferred ,700 Ekwai Inferred ,300 Total ,320 4,900 Notes for Koki and Ekwai Mineral Resources: The Koki deposit has been intersected by 30 drill holes on a nominal 150 m x 250 m grid, producing 3,626 4m composited data points with copper and gold values. The Ekwai deposit has been intersected by 31 drill holes on a nominal 100 m x 100 m grid, with 1,385 4m composited data points with copper and gold values. The drill holes used in this estimate were drilled as part of several different drill campaigns between 1971 and Bulk density measurements are not available for these deposits so an average bulk density of 2.57t/m 3 was used for both deposits. No top cut was applied to the copper or gold assays and the data was modeled unconstrained. Grade estimation was done by Ordinary Kriging using a single domain for each deposit. Maximum search distance was m and each block was informed by a minimum of eight composite samples. Competent Person Statement: The database information used for the Koki and Ekwai resource estimate was complied and verified as suitable for this estimate by Lawrence Queen. The Mineral Resource Estimate information for Koki and Ekwai is based on information compiled by Simon Tear. Mr. Tear is a full time employee of Hellman & Schofield and a Member of The Australasian Institute of Mining and Metallurgy. Mr. Queen is a full time employee of Highlands Pacific and a Member of The Australasian Institute of Mining and Metallurgy. Both Mr. Queen and Mr. Tear have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Queen and Mr Tear consent to the inclusion in the report of the matters based on his information in the form and context in which it appears. 6 P age

7 Nena Mineral Resources at 0.5% Cu cut off Category MT Cu(%) Au(g/t) As(%) Sb ppm Indicated Inferred Total Notes for Nena Mineral Resources: (i) Copper resource lower cut off grade 0.5% copper. (ii) Mineral Resources stated herein are based on the Nena 2008 Conceptual Stage Resource Model. (iii) These figures are constrained by topography; no economic pit has been applied to constrain the estimate. Numbers have been rounded for tabulation. Competent Person Statement: The information in the report that relates to Nena Mineral Resources is based on information compiled by Mr Raúl Roco, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Roco is a full time employee of an Xstrata Copper entity. Mr Roco has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the estimation of Mineral Resources to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Roco consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The information in the report to which this statement is attached that relates to the Frieda Copper Gold Project Proposed Mine Schedule is based on information compiled or verified by Mr Raul Roco, who is a Member of The Australasian Institute of Mining and Metallurgy and is an employee of Xstrata Copper. Mr. Roco has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr. Roco consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The proposed mine schedule includes only material that is classified as either Measured or Indicated in the Horse/Ivaal/Trukai Mineral Resource. The following statements apply to the Frieda exploration results: (i) Mineralised intersections are quoted as down hole widths. The porphyry mineralisation occurs as disseminations and vein stockworks. (ii) Collar locations are in UTM Zone 54 co ordinates using the PNG94 horizontal datum. (iii) Drill core is PQ, HQ or NQ size. (iv) Assays were carried out on half sawn core. The half core is crushed and pulverized to ~ 180 mesh on site. 200 gram samples are despatched for assay. QAQC control samples make up approximately 10% of each batch sent for analysis. The unused half core is stored on site. (v) Samples were analysed at ALS Chemex in Townsville. Gold is by 50g fire assay and copper by ICP AES on an aqua regia digest. Samples assaying greater than 0.5% Cu are re assayed using an ore grade method suitable for higher grade samples. (vi) Hole positions are based on surveys of the drill pad. Actual collars are within 10m of stated locations. Competent Persons Statement: The exploration results reported here are based on information compiled by Mr L.D. Queen who is a member of the Australian Institute of Mining and Metallurgy, and who is employed by Highlands Pacific Limited. Mr Queen has sufficient experience relevant to the style of mineralisation and the type of deposit under consideration, and to the activity which he is undertaking, to qualify as a Competent Person as defined in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code 2004 Edition. He consents to the inclusion in the report of the matters based on the information compiled by him in the form and context in which it appears. 7 P age

8 ASX Code: HIG PoMSox Code: HIG Shares on Issue: 789 million Options on Issue: 19.9 million Performance Rights: 7.6 million Market Capitalisation ~ A$120m Cash on Hand (30/09/12) A$18m Directors Ken MacDonald, Chairman John Gooding, Managing Director Mike Carroll Dan Wood Drew Simonsen Bart Philemon Ross Garnaut Management Craig Lennon, CFO &Co.Sec Larry Queen, Chief Geologist Peter Jolly, GM Projects Ron Gawi, GM Port Moresby For further information, please contact: John Gooding or Craig Lennon Highlands Pacific Media Enquiries to: Simon Jemison Collins St Media About Highlands Pacific Limited Highlands Pacific is a PNG incorporated and registered mining and exploration company listed on the ASX and PoMSoX exchanges. Its major development assets are the 1.5bn Ramu nickel cobalt project and the Frieda copper gold project; with exploration in progress on the Star Mountains (Nong River, Mt Scorpion and Tifalmin) licenses approximately 20km north of the Ok Tedi mine. Highlands also has exploration tenements in the Wau/Bulolo area, close to the new Hidden Valley and Wafi gold projects. Star Mountains Prospects* The Star Mountains exploration tenements, which include Nong River EL1312, Mt Scorpion EL1781 and Tifalmin EL 1392, are located approximately 20km north of the Ok Tedi mine, in Western Province, PNG. They lie within the highly prospective New Guinean Orogenic Belt, which hosts the Grasberg, Ok Tedi, Porgera and Hidden Valley mines, as well as the Frieda deposit. An exploratory drilling program is underway at Star Mountains. Ramu Nickel Cobalt Mine The Ramu nickel mine is located 75km west of the provincial capital of Madang, PNG. The mine is currently being commissioned with the first shipment of product having been completed in November Highlands 8.56% interest in Ramu will increase to 11.3% at no cost to Highlands after repayment of the project debt (estimated to take 8 years). From commissioning, Highlands has access to its pro rata 8.56% share of Ramu s post debt servicing, net cash flow. Highlands also has an option to acquire an additional 9.25 interest in Ramu at fair market value, which could increase the company s interest in the mine to 20.55%, if the option is exercised. Frieda Copper/Gold Project* The Frieda copper gold project is located 175kms north west of the Porgera gold mine and 75km north east of the Ok Tedi mine. The project owners are Xstrata (manager) and Highlands. * Subject to the right of the Independent State of Papua New Guinea to acquire up to a 30% equity interest in any mining development in the country. Website: 8 P age