Barrick snaps up Kainantu from beleagured Highlands Pacific

Highlands Pacific is selling its Kainantu gold mine and surrounding Exploration Licences in Papua New Guinea to Barrick Gold. Highlands Pacific Chairman, Bob Bryan said that the transaction heralds a new beginning for Highlands which has suffered through a gold hedge book which had ballooned to $93 million due to the recently escalating gold price.

Bryan said that the quality of Highlands’ gold mining and exploration portfolio in the Kainantu Goldfield which will be sold to Barrick, underpinned the transaction. “While the Kainantu mine had been a difficult operation for Highlands, the recent improvements in performance at the mine and Barrick’s capacity to provide the necessary financial support, meant that there was now an excellent prospect of turning Kainantu into a commercial success. This would in turn ensure employment opportunities and security for local landowners and add to the general level of prosperity in PNG”.

Settlement with Barrick will take place on December 11. Proceeds from the sale will be used to immediately pay down the debt of the $19.8 million loan facility and the $93 million gold hedging loan which was monetised when the sale was agreed with Barrick.

A sum of $7 million of the agreed $141.5 million purchase price attributable to EL1277 and EL1399 will be withheld, pending the renewal and transfer of the two titles. It is anticipated that both these EL’s will be approved for renewal and transfer in January 2008 at which time Barrick will transfer the remaining $7 million to Highlands.

Bryan said that with Highlands debt free and the $23 million in the bank – to be increased to $30 million after the two titles are transferred – a number of opportunities presented themselves to Highlands in both PNG and elsewhere. “Highlands has two world-class assets in the Ramu nickel/cobalt joint venture with the MCC, and the Frieda River copper/gold joint venture with Xstrata; and there is also the largely untested gold prospect at Wau to be explored.

“However, Managing Director John Gooding would also be looking at new gold and base metal prospects in Australia and the Asia Pacific region to reduce country risk and broaden the minerals portfolio,” Bryan said. “Given the success Gooding and the team has achieved in straightening out the company’s affairs at Kainantu and corporately, I believe that there is every reason to believe that they will make a real success of the new Highlands.”

Kainantu is located in the Eastern Highlands Province of PNG, the project comprising a Mining Lease, two Mining Easements and three Exploration Licences. In total the Highlands held around 3,000 km2 of highly prospective ground, including the high-grade Kainantu goldfield.

The total geological resource at Kainantu (Irumafimpa mine area and Kora) is 3.1 Mt grading 20.2 g/t Au containing 2 Moz of gold. The Irumafimpa ore reserve is 1.3 Mt grading 16.0 g/t Au containing 655,700 oz of gold. The Kora mineral resource is estimated at 900,000 t at 29.0 g/t Au containing 820,000 oz of gold. Processing operations commenced in late January 2006 and mine stoping operations early in February 2006.

Once fully ramped up on the basis of Highlands mine plan, it was estimated that the mine would produce around 110,000 oz/y of gold over a mine life in excess of six years. Highlands proposed the mine life could increase to nine years on the basis of the current ore reserve estimate, “if in the future the Inferred resource can be converted to reserves.

It is an underground mine designed to recover ore from narrow, steeply dipping gold bearing veins using traditional hand held methods and, where applicable, simple mechanised techniques. Ore is trucked from the lower portal to an ore stockpile next to the primary crusher located at the process plant. Following crushing, ore is ground in a ball mill and the sulphide bearing material separated from the tailing material by flotation. A concentrate containing between 10-12% of the ore material is recovered as a gold bearing concentrate. Currently, the concentrate is dried, loaded into containers and trucked to the port of Lae, where it is shipped to Nippon Mining and Metals Saganoseki smelter and refinery on the island of Kyushu, Japan.

Looking forward, once the mine was ramped up, Highlands anticipated that exploration at Kainantu would focus in three main areas; in mine (immediate/near term potential), near mine (intermediate potential) and Greater Kainantu area (long term potential). The targets within the mine area include the extension of the Irumafimpa (mine) lodes; untested potential beneath the Kora resource; and the expansion of the Kora resource. Near mine targets include the Karempa vein (parallel to the Irumafimpa vein and 400 m to the west); the Mati/Meseon vein (1,600 m to east of Irumafimpa mine development); the Judd vein (200 m east and parallel to the Irumafimpa lodes); the Arokompa lode system (4 km to the north east of the Irumafimpa resource area); and Maniape lode system (3 km to the north east of the Irumafimpa resource area).