For personal use only · 2013. 3. 14. · 63.4% interest in the Ok Tedi mine. Key features of the...

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14 March 2013

2012 Financial Statements

Carrying Value of Project Assets US$87 million Investment in Exploration and Development US$11 million Net Loss After Tax of US$16.6 million (2011: US$16.6 million)

Cash at Bank US$14.6m (2011: US$6.5 million)

Highlands Pacific Limited (ASX: HIG) today reports its audited financial statements for the year ended 31 December 2012. The loss of US$16.6 million (2011: US$16.6 million loss) reflects the Company’s continued investment in exploration, development and commercial activities related to its Star Mountains and Ramu projects in Papua New Guinea. The Company is hedge and debt free and its cash at bank as at 31 December 2012 was US$14.6m (2011: US$6.5 million) having increased during the year with a US$15 million share placement to the US$1.4bn PNG Sustainable Development Program Limited which now owns a 13.04% interest in Highlands and owns a 63.4% interest in the Ok Tedi mine. Key features of the 2012 financial result include:

Ramu ‐ No change to the historic US$50 million carrying value of Highland’s 8.56% interest in the US$1.5 billion project which sold its first concentrate in late 2012.

Frieda ‐ A decrease (US$6.6 million) in the carrying value bringing Highlands’ share of this world class copper asset to US$37.2 million (2011: US$43.8 million). The lower carrying value reflects the adjustment to the carrying value related to the receipt of US$10.8 million from Xstrata Copper for the exercise of the Nena option, bringing this previously excluded deposit into the Frieda River Joint Venture; offset by (a) US$3.6 million accrued as a future liability as Highlands share of 2012 project expenditure carried by Xstrata Copper which Highlands will repay in the future from Frieda’s production and cash flow, and (b) direct commercial and management costs in 2012 incurred by Highlands.

Star Mountain ‐ In 2012 the Company spent US$10.9 million on its Star Mountains exploration program. One of the four Star Mountains leases (EL 1312 Nong River) is subject to a joint venture agreement whereby Xstrata Copper can re‐enter the EL 1312 Nong River joint venture when Highlands presents a pre‐feasibility study and earn a 72% interest by reimbursing Highlands three times Highland’s spend. To date Highlands has spent over US$25 million on its Star Mountain tenements.

Managing Director of Highlands Mr John Gooding said today: “2012 saw major advancements in Highlands’s three key assets, with the first commercial sales from Ramu, the delivery of project studies regarding Frieda, and the highly encouraging copper assays at Star Mountains. With cash at bank and a supportive cornerstone investor such as PNG SDP we look forward to the year ahead. ” For further information, please contact: John Gooding or Craig Lennon Highlands Pacific ‐ 07 3239 7800

Media Enquiries to: Simon Jemison Collins St Media ‐ 03 9224 5319

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2 | P a g e

ASX Code: HIG PoMSox Code: HIG Shares on Issue: 789 million Options on Issue: 16.8 million Performance Rights: 7.6 million Market Capitalisation ~ A$105m Cash on Hand (31/12/12) A$14.5m Directors Ken MacDonald, Chairman John Gooding, Managing Director Mike Carroll Dan Wood Drew Simonsen Bart Philemon 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 ‐ 07 3239 7800 Media Enquiries to: Simon Jemison Collins St Media ‐ 03 9224 5319 Website: www.highlandspacific.com

About Highlands Pacific LimitedHighlands Pacific is a PNG incorporated and registered mining and exploration company listed on the ASX and PoMSoX exchanges. Its major development assets are the US$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 2012. 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.

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Diversified Mineral Resource Company

A N N U A L R E P O R T 2 0 1 2

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2 Highlands Pacific

AbOUT HigHLANDs PACifiC LiMiTEDHighlands Pacific is a Papua New guinea incorporated and registered mining and exploration company listed on the AsX and POMsoX exchanges, under the share code Hig. its major assets include the Us$1.5bn Ramu nickel cobalt mine near Madang, the frieda copper gold project in PNg’s East sepik province, and exploration on the highly prospective star Mountains (Nong River and Tifalmin) leases in the Western Province approximately 20 kms north of the Ok Tedi mine. Highlands also holds ground in the Wau/bulolo region close to the new Hidden Valley and Wafi gold projects.

ANNUAL gENERAL MEETiNgDate: 16th May 2013Time: 10.00am (AEsT)Vanue: grand Papua Hotel, Mary street, Port Moresby, PNg

Diversified Mineral Resource Company

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Annual Report 2012 3

04 Corporate Profile

06 Chairman’s and Managing Director’s Report

08 star Mountains Copper-gold Exploration

12 frieda River Copper-gold Project

16 Ramu Nickel-Cobalt Mine

21 Exploration

22 Our Commitment

24 board of Directors

26 Corporate governance

32 Directors’ Report to shareholders

38 financial statements

75 Directors’ Declaration

76 stock Exchange information

78 Corporate Directory

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4 Highlands Pacific

HigHLANDs iN PNg fOR +25 yEARsHighlands Pacific has explored, developed and worked in PNg for a quarter of a century. it was spun out of Mt isa Mines (MiM) in the early 1990’s and listed on the AsX as Highlands Pacific in 1997. its ownership and exploration roots to the Ramu nickel project and the frieda copper project date back 30 plus years as part of Mt isa Mines (MiM) and Highlands gold.

AbOUT PAPUA NEW gUiNEA With a population of 7 million people, PNg is one of the most culturally diverse countries in the world with more than 800 languages stretched across remote highland tropics and coastal archipelago. PNg gained its independence from Australia in 1975 and has a robust parliamentary democracy with Port Moresby its capital. PNg is home to a range of world class copper and gold Project such as Ok Tedi, frieda River, Hidden Valley, Porgera, Mt Kare, emerging projects like Wafi golpu and oil and gas exploration, all providing resources wealth to the country.

Papua New guinea’s rugged mountains, complex geology and substantial mineral resources all result from its position on the Pacific “Rim of fire”, the interactive tectonic boundary between the continental crust of the Australian Plate to the south and the oceanic Pacific Plate to the north. The country has long been cited as a classic setting for porphyry copper-gold and epithermal gold-silver mineralization associated with continent-island arc collision. The resource sector has been the mainstay of the PNg economy since independence and is presently enjoying tremendous sustained growth.

PAPUA NEW gUiNEA sUsTAiNAbLE DEVELOPMENT PROgRAM LiMiTEDin July 2012, The Us$1.4bn PNg sustainable Development Program Limited (PNgsDP) became Highlands Pacific’s cornerstone investor and largest single shareholder with 13% in a relationship that could lead to further co-operation and collaboration in developing the country’s human and resource wealth.

The PNgsDP was established in 2002, when bHP billiton divested its 52% shareholding in the Ok Tedi Mine (OTML) and this has since grown to 63.4% with the exit in 2011 of inmet Mining. PNgsDP’s and other PNg government holdings means OTML is now 100% owned by the people of PNg.

Two of the Highlands Pacific’s assets - the star Mountains tenements and the frieda copper gold project potentially have large synergies with PNgsDP’s interests in the future of OTML and various proposed North fly gas developments.

With the investment by the PNgsDP, Highlands has further broadened its investment links in the country with a number of similar funds, including the National superannuation fund, Mineral Resources Development Co., independent Public business Corporation and Kina funds Management also holding interests in Highlands.

CORPORATE PROfiLE

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Low

ALTITUDE

High

Vanimo

Wewak

Madang

PortMoresby

Lae

FRIEDAFRIEDA

APPOO APORGERATK TTOOOK TEDI

AR MOUNTAOMOSTAR MOUNTAINS

ARAMU

PAF OLLLWAFI GOLPU

HIDDENVALLEY

SIMBERI

LIHIR

PANGUNA

Frieda Copper Gold Project: frieda is 175kms north west of the giant Porgera gold mine and 75kms north east of the Ok Tedi copper gold mine.

How big is Frieda? frieda is among the world’s largest undeveloped copper gold projects, and PNg’s largest copper gold deposit, 2.5 times more copper than Panguna bougainville, and three times as much contained copper as all the copper extracted from Ok Tedi in the past 25 years.

Ramu Nickel Mine: The Us$1.5bn Ramu nickel cobalt mine is 75kms west of the provincial capital of Madang. Ramu commenced commissioning in 2012 and will eventually ramp up to 31,150 tonnes of nickel and 3,300 tonnes of cobalt per annum.

How big is Ramu? Ramu is the largest minerals project development in PNg in the past 15 years. The mineral reserves underpin a 20 year mine and the resources have the potential for many decades beyond.

Star Mountains Project: The star Mountains district is approximately 20 kilometres to the north east of the Ok Tedi mine or approximately 25 kms from the support town of Tabubil.

How big is Star Mountains: Until Highlands began drilling in 2010 no modern exploration had been undertaken in almost 40 years. Highlands had identified an initial 17 copper-gold targets within a porphyry cluster and tested six targets many of which have encountered intersections of anomalous copper.

PAPUA NEW gUiNEA

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6 Highlands Pacific

CHAiRMAN’s AND MANAgiNg DiRECTOR’s REPORT

Dear fellow shareholder,

The past year has been both exciting and challenging as Highlands has achieved success on a number of fronts while the general climate in the resource sector has been adversely affected by global financial and market turbulence.

your board has persisted with the strategy of continuing with exploration in a very prospective geological setting with further success in sight, while ensuring that shareholder’s interests in the fully constructed Us$1.5b Ramu nickel cobalt mine and the frieda River copper gold project are maximised.

The success that we are having in the star Mountains with our exploration program is providing exciting further confirmation of a new copper gold porphyry province close to the Ok Tedi Mine and its great infrastructure. Highlands is the first company in almost 40 years to drill in this isolated area of the sandaun (West sepik) Province since Kennecott Copper drilled 5 shallow holes at two targets in 1971 before discovering the Ok Tedi Mine.

With our new exploration base at the small village of Tifalmin now completed and with good communication tools, we have been able to increase the drilling metres this year while getting better utilisation of the helicopter. Previously the helicopter had to travel far greater distances from Tabubil to service the drill rigs and crews working at up to 3,000 metres above sea level. The people in the Tifalmin area have been very helpful and supportive. The camp and our presence has meant that a number of local people have received wages for the first time in their lives. Highlands has assisted with medical and educational support and we maintain regular contact with the villages in

the area through our community affairs and geological staff. We source our fresh vegetables from the local area to support the community and have provided regular freight charters by air to Tabubil, enabling the Tabubil community to benefit from the excellent produce grown in Tifalmin. On occasions throughout the year our helicopter has been used for emergency flights to the hospital in Tabubil resulting in positive outcomes for people we transported, where the alternative would have been dire had we not been in the region.

All this work has been achieved with a good safety record that was marred by only one LTi being recorded for the year. This LTi was for a hand injury to an employee of our drilling contractor.

in 2012 we completed 5,600 metres of diamond drilling after some availability issues early in the year were resolved. Of particular note is the fact that out of the 5 targets drilled during the year all but one has intersected copper and gold mineralisation. During 2012 we recorded the best intersection so far at Olgal, which was 596 metres @ 0.61% copper and 0.85g/t gold starting just 24 metres below the surface. At the end of the year some very good intersections were achieved from the Kum Kom prospect with the best intersections being 68 metres @ 0.97% copper and 0.37g/t gold from 280 metres and 22m at 1.42% copper and 0.57 g/t gold. This target is just 5km north of the Olgal deposit where we have now drilled 14 holes with all but two producing copper and gold mineralisation. Our 2012 strategy after drilling the 14 holes at Olgal has been to drill one or two holes into a number of the other sixteen targets that we currently have identified in the region. This is to ensure that we are maximising our resources toward the best

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targets before we focus drilling to prove up a maiden resource. The exploration success at Olgal during the year crystallised the potential benefits for the Ok Tedi Mine when its 63.4% owner, PNg sustainability Development Program Limited (PNgsDP), became a cornerstone investor in Highlands. PNgsDP invested Us$15m in July 2012 to obtain a 13% interest in the company. While Highlands is a PNg registered company with many PNg shareholders, we welcome the involvement of PNgsDP and look forward to the benefits flowing through to all the stakeholders as strategic milestones are met.

Commissioning began at the Ramu nickel cobalt mine in the first quarter of 2012 after approval from the PNg supreme Court was granted in December 2011. The commissioning has been the culmination of five years of construction, and prior to that some 40 years of exploration and studies. Our Joint Venture partner and operator / manager MCC Ramu NiCo Ltd have overcome some very challenging geographical and cultural issues during the construction phase; however the PNg government’s interest, held by Mineral Resources Development Company and Highlands are continually involved and assist when required. The first shipment of product in November 2012 was therefore a very special occasion and was celebrated in December 2012 at the official opening by the Prime Minister of PNg the Right Honourable Peter O’Neill. Two of the three autoclaves are now load commissioned, with the third autoclave circuit being commissioned now. While production is at approximately 30% of the nameplate 31,150 tonnes of nickel metal and 3,300 tonnes of cobalt at present, we are expecting full production to be achieved by the end of 2013. With a reserve mine life of 20 years and with the potential to extend that life further with resource upgrades; this mine will have a significant impact on the lives of the local people, who are represented by the four landowner groups that are signatories to agreements, the people of PNg and to the shareholders of Highlands when production achieves steady state.

shareholders will recall that the frieda River feasibility study was to be originally completed in January 2012 by our joint venture partner Xstrata frieda River Limited (a subsidiary of the Xstrata group), was extended to December 2012 so that a number of options that may optimise the study could be incorporated. These included the option of using local natural gas to power a large electricity generator, built and owned by a third party, rather than the more capital intensive and complex hydroelectric scheme originally proposed. A number of issues were outlined for investigation during the year which included further waste rock characterisation test work, waste placement alternatives (including methods used elsewhere for placement into engineered containment facilities), a review of the capital and operating costs without the hydro dam and power station, concentrator costs and optimal concentrate grades, owners’ costs and the resulting environmental and social impacts and reduction in workforce and camps, as a result of all the changes.

Midway through 2012 Xstrata announced they were reviewing a number of their copper gold projects worldwide and assessing the market for potential purchasers of their interest in the frieda

project. To date we have not been informed of any potential for a sale by Xstrata but recent media statements suggest their preference for not developing greenfields projects. Highlands has a pre-emptive right at the project level and we believe that greenfield projects are a critical part to the copper supply chain, both at present and in the future in order to meet anticipated demand from the urbanisation of China and other Asian countries, and the improving UsA economy.

On 24 December 2012 Xstrata delivered documentation for the extended study and proposed that further work be undertaken during 2013. Highlands’ technical people with the assistance of our mining engineering consultants have been reviewing the documentation, and at the time of writing this report we are in discussions with Xstrata and the PNg government regarding the next steps for the project.

Highlands believes that the frieda River project, which is one of the largest undeveloped copper resources in the world, would be a great asset for PNg. it has the potential for a life of over 20 years, and in the first 5 years producing in excess of 300,000 tonnes of copper and 450,000 ounces of gold per annum. While greenfield projects are being severely curtailed by some of the major mining companies at present the fundamentals for copper are excellent and history shows that once these giant mines are constructed the cashflow and long-term benefits for all stakeholders can be enormous. The old adage of ‘’straw hats in winter’’ together with a new and invigorated PNg government with a mandate to develop the country via resource development projects, seems to provide the ideal climate to continue to explore all options towards frieda’s development.

While some of Highlands’ projects have been decades in the making, they are finally coming to fruition. shareholders should now look forward to enjoying the exploration success at star Mountains, operation of the Ramu nickel cobalt mine and 18.18% interest in the free carried of the Us$270 million that XfRL has spent on the frieda project studies to date. sadly the recognition of all this good work has not been reflected by an increase in the share price. We believe this is due in part to the overhang of Xstrata’s possible sale of frieda and the merger with glencore. On a positive note though, the PNg government is fully supportive of the project and that must count as a very good omen for our shareholders who have travelled the journey with us.

We farewelled fiu Williame -igara during the year who retired after seven years as a Non-Executive Director and also Professor Ross garnaut, while welcoming bart Philemon who has had an esteemed career in PNg politics and business. We are also thankful for the support of our new and old shareholders and you should be comforted to know that the board and management are continuing to strive to realise the huge unlocked potential that Highlands represents to the astute investor. We are continuing to combat the ever frequent obstacles that seem to challenge the industry’s eventual sweet smell of success.

Ken MacDonald and John Gooding

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8 Highlands Pacific

S TA R M O U N TA I N S

sTAR MOUNTAiNs COPPER-gOLD EXPLORATiON

FRIEDAFRIEDA

PORGERAPORGERAOK TOK TEDI

AR MOUNTASTAR MOUNTAINS

ARAMU

AFIGOLPWAFI GOLFIGOLPFWAFI GOLPU

HIDDENVALLEYVALLEY

Location: The star Mountains are located in far west PNg near the border with indonesia. The star Mountains prospects (the exploration leases Nong River EL 1312, Tiflamin EL 1392, Mt scorpion EL 1781 and Munbil EL 2001) are approximately 20kms to the north of the Ok Tedi mine and approximately 25 kms from the support town of Tabubil. Tabubil is accessible via a 2 hour plane trip from Port Moresby. Highlands Pacific has established an exploration support camp at Tifalmin which supports the transport of drilling equipment and consumables via fixed wing cargo flights from Tabubil. The star Mountains prospects are at elevations of between 2,200 - 3,000 metres, compared to the 2,000 metre high Mt fubilan / Ok Tedi mine.

History: fifty years ago, government patrols made first contact with the Min people of the star Mountains. shortly thereafter, Kennecott Copper began following up on reports of copper mineralisation in a number of areas of Western Province and the star Mountains Range. by 1968-69 testing of a number of regional prospects had led to the discovery of the Mt fubilan copper gold deposit (now called Ok Tedi) and the porphyry copper gold prospects in the Tifalmin area. in 1971 two of the Tifalmin prospects (Olgal and futik) were tested by scout holes with positive results but by then the focus of exploration efforts

had become firmly fixed on Mt fubilan. Low level exploration would continue off and on in the star Mountains until Highlands recommenced a drilling program in 2010.

Ownership: Exploration and study work on the star Mountains leases is currently being sole funded by Highlands. The Tifalmin lease (EL 1392), Mt scorpion (EL 1781) and Munbil (EL 2001) are 100% owned by Highlands while the Nong River lease (EL 1312) is subject to a joint venture agreement with Xstrata frieda River Limited (“XfRL”) where XfRL have the ability to earn a 72% interest in the joint venture by producing a feasibility

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study by January 2019. XfRL has the right to reclaim a 72% interest by paying Highlands three (3) times the exploration expenditure incurred by Highlands at the time Highlands presents a Pre-feasibility study (Pfs). There are no deadlines by which Highlands must produce a Pfs. To date Highlands has spent approximately Us$25m on the Nong River lease. based on the Us$25m spent to date, XfRL would need to pay Highlands approximately Us$75m to earn back in if a Pre-feasibility study was presented by Highlands today.

2012 Work Programme: During 2010 and 2011, Highlands Pacific undertook the first drilling in the star Mountains in nearly 40 years – in some cases on the same drill pads created by Kennecott Copper. The initial focus was on the Olgal prospect where 4,800 metres of core has been drilled to date. Of the 14 holes at Olgal, 12 holes returned significant broad widths of copper-gold mineralisation. An example of its potential was revealed in the first two hole assays with 474m @ 0.42% copper and 0.24g/t gold, and 210m @ 0.50% copper and 0.37g/t gold, whilst the last hole returned an impressive intersection of 596m @ 0.61% copper and 0.85g/t gold from 24m downhole from surface.

in 2012 Highlands invested $11m in exploration activities and related project evaluation work in the star Mountains with the chief aim of preliminary testing of multiple targets. scout holes were drilled at futik, Tuk, Pad48, Rattatat and Kum Kom to gain a better understanding of the geology and mineral potential of these prospects.

2013 Focus: Drilling in the remote locations of the star Mountains provides a mix of challenges, and whilst two rigs were in the field in 2012, their production was limited, due to contractor performance issues. Those issues appeared to be largely resolved by the last quarter of 2012 and the aim in 2013 is to maintain a minimum of two rigs in the field, and maintain drilling productivity.

Of 17 copper-gold targets identified through years of soil, stream, rock and gravity survey work, the company has so far tested six prospects (Olgal, futik, Pad 48, Ratatat, Kumkom, Tuk). The majority of prospects and holes drilled so far have produced shows of porphyry style copper-gold mineralisation. As to be expected in any reconnaissance drilling program, some prospects will prove barren and some holes have not reached target depth due to ground failure at the drill pad or hole collapse while drilling.

subject to ongoing success, or new discoveries, the company is planning to continue to test prospects such as Kum Kom, Unfin, bumtin and some targets on the 100% owned Tifalmin lease (EL1392).

Of the 500 sq km of tenements under licence, Highlands has only tested an area of approximately 25 sq km across the six prospects drilled to date.

OK TEDiThe Ok Tedi copper gold mine is 100% owned by the People of PNg (through indirect ownership of PNg sustainability Development Program Limited and the PNg government itself) and since first production in 1987 has been the backbone of PNg’s mining industry and contributed more than a quarter of export earnings.

in calendar year 2012, Ok Tedi processed 22.6Mt of ore at a grade of 0.66% copper and 0.77 g/t gold. This saw it produce 121,000 tonnes of copper and 395,000 ounces of gold. Ok Tedi’s ‘Mine Life Extension’ proposal is subject to PNg government approval. Under the plan, rather than close in 2013, mining would continue to 2022 with two underground mines and one open pit mine but at approximately half the mine’s current processes capacity.

for more information see www.oktedi.com

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10 Highlands Pacific


10 Highlands Pacific10 Highlands Pacific

sUMMARy Of sTAR MOUNTAiN ACTiViTy1. Olgal Prospect: Drilling commenced in 2010 and the

14th diamond drill hole completed in March 2012. Of the 14 drill holes, 12 hit copper-gold mineralisation.

2. Futik Prospect: futik is 2km from Olgal and at 2,100 metres above sea level. four holes were drilled in 2011. The first hole reported low grade mineralisation and the third hole was not assayed, however the second hole intersected 153 metres at 0.16% copper and 0.13g/t gold.

3. Pad48 Prospect: Pad48 is 2.5kms from Olgal. Three holes were drilled, the first two holes intersected limestone and third hole (to a depth of 601 metres) also encountered limestone and anomalous lead zinc mineralisation at the limestone-intrusive contact but no significant copper-gold mineralisation.

4. Tuk Prospect: The Tuk prospect is 2kms from Olgal. Three holes were drilled in 2012 and a forth to be completed in early 2013.

5. Rattatat Prospect: Rattatat is 3kms from Olgal. Two holes were completed in 2012. The first hole reached a target depth of 550 meters and encountered narrow zones of both porphyry and skarn type copper-gold mineralisation. The second hole reached the target depth of 600 metres, but turned up only low level copper-gold mineralisation.

6. Kum Kom Prospect: Kum Kom is 2kms on from Rattatat and is at 2,900 metres above sea level. The first hole encountered a significant intercept of skarn type mineralisation with 68 metres grade 0.97% copper and 0.37g/t gold and 22 metres grading 1.42% copper

and 0.57g/t gold.

sTAR MOUNTAiNs CONCEPT sTUDyHighlands’ work in the star Mountains is focused on a discovery of small scale deposits that could be easily and quickly developed to supplement the operation at the Ok Tedi mine, its underutilised mill and its experienced and skilled work force. Highlands has retained resource evaluation experts and engineer consulting groups for the purpose of preliminary desk top work on the star Mountains opportunity. A preliminary route for a 20km aerial conveyor system has been selected, and further discoveries will allow a review of potential options for the delivering of sorted and crushed primary ore to the Ok Tedi mine.

EL 1312-Nong Currently 100% Highlands but subject to an earnback provision with Xstrata. Would reimburse three times spend. Us$25m spent to date.

EL 1392 - Tifalmin 100% Highlands

EL 1781 - Scorpion 100% Highlands

EL 2001 - Munbil 100% Highlands

LOCATiON - sTAR MOUNTAiNs LEAsEs - 4 ELs - 515 KM2

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Annual Report 2012 11Annual Report 2012 11

Disclaimer: The following statements apply to the star Mountains exploration results and exploration targets: (1) Mineralised intersections are quoted as down hole widths. The porphyry mineralisation occurs as disseminations and vein stockworks. Drill intersections described in this report are based on core lengths and may not reflect the true width of mineralisation. (2) Collar locations are in UTM Zone 54 co-ordinates using the AMg66 horizontal datum. Azimuths are given relative to grid north. (3) Drill core is PQ, HQ or NQ size. (4) Assays were carried out on half sawn core. The half core is crushed and pulverized to ~ 180 mesh. 200 gram samples are used for assay. QAQC control samples make up approximately 10% of each batch sent for analysis. The unused half core is stored on site. (5) 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. (6) Hole positions are based on surveys of the drill pad. Actual collars are within 10m of stated locations.

The Potential quantity and grade related to Exploration Targets in this report is conceptual in nature as there has been insufficient exploration to define a Mineral Resource. it is uncertain if further exploration will result in the determination of a Mineral Resource. These exploration target tonnes and grade ranges are considered realistic because they are well within the typical size and grade ranges expected for porphyry copper deposits in this and other south west Pacific island arcs, and are consistent with data for the known porphyry copper deposits already located in Highlands’ star Mountains tenements.

Competent Persons Statement: The exploration results and exploration targets reported here are based on information compiled by Mr L.D. Queen who is a member of the Australasian 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.

Metres

0 1,000

UNFINUNFIN

BUMTINBUMTIN

TUK

UNNAMED INTRUSIVE

PAD 48PAD 48

KUM KOMKUM KOM

FUTIKFUTIK

OLGALOLGAL

RATTATATRATTATAT

22m @ 1.42% Cu & 0.57g/t Au10m @ 0.68% Cu & 0.21g/t Au68m @ 0.97% Cu & 0.37g/t Au

596m @ 0.61% Cu & 0.85g/t Au

LEGEND

Drillhole

Tifalmin intrusives

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F R I E D A

About Frieda: The frieda copper gold project is PNg’s largest undeveloped copper gold project and one of the top 10 undeveloped open pit copper mines in the world. With a resource inventory of 13Mt of copper, 20Moz of gold and 49Moz of silver, frieda has three times the in ground metal content of all the copper extracted in the past 25 years from PNg’s Ok Tedi copper mine. The frieda district inventory of 13Mt of copper is more than 2.5 times the 5.3Mt of contained copper at the Panguna deposit in bougainville (1,800Mt of indicated and inferred resources at 0.30% copper) and more than Newcrest Harmony’s proposed underground Wafi golpu project which contains 9Mt of copper and 28Moz of gold.

Owners: The project partners are Xstrata frieda River Limited (“XfRL”) (a company within the Xstrata group) and Highlands. in January 2012 XfRL elected to exercise an option to include the high grade Nena deposit into the frieda River Joint Venture.

PNG Government Participation: The PNg government has the right to acquire up to 30% equity interest in any mining development in the country. During 2013, XfRL and Highlands will be holding discussions with the PNg government on a range of matters including the governments intentions with regard to involvement in the project whether by way of equity investment and/or infrastructure assistance.

fRiEDA RiVER COPPER-gOLD PROJECT

China

Frieda RiverProject

Telefomin

AmbuntiSEPIK RIVER

FRIEDARIVER

Wewak

BISMARCK SEAVanimo

SANDUAN (WEST SEPIK)PROVINCE

EAST SEPIK PROVINCE

Location: The frieda copper gold project is 70kms south of the sepik River on the border of the sanduan and East sepik Provinces of Papua New guinea some 500kms upriver from the coast.

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Free Carry: Highlands has been free carried on the project from 2002 until January 2012. in November 2011, XfRL and Highlands reached agreement whereby Highlands share of expenditure from January 2012 to the lodgment of a special Mining Lease will be carried by way of a carried funding loan arrangement to be repaid when the project is in production.

Licence Status: The frieda River Joint Venture holds exploration licence EL 58 and EL 1212, both of which are due for renewal in 2013 subject to government consent. Environmental studies have been undertaken but are yet to be finalized as an Environment impact statement. This will occur when a formal development application is lodged to seek government approvals and conversion of the exploration licences to a special Mining Lease (sML) which is a pre-cursor for funding, finance and development. it is at the time of a sML that the joint venture partners would arrange project finance and the PNg government can elect to take a 30% direct equity interest in the project.

Highlands Pacific Share: in aggregate the district resources at frieda from six currently defined deposits - Nena, Koki, Ekwai, Horse-ivaal-Trukai (HiT) - total 13Mt copper, 20Moz of gold and 49Moz of silver. based on an 18.18% interest, Highland’s share of resource is 2.3Mt of copper (5,200Mlb’s of copper), 3.7Moz of gold and 8.9Moz of silver.

Project Studies: initial exploration work and development studies in the 1990s focused the high grade and metallurgically complex Nena deposit. in January 2002, Highlands Pacific granted an option to a company within the Noranda group to study the development of the frieda River area, focusing mainly on the Horse-ivaal-Trukia area. Noranda was subsequently merged with the falconbridge group and was ultimately acquired by the Xtrata group in 2006. XfRL exercised the option in 2007 and a joint venture was formed between Highlands, XfRL and OMRD. OMRD subsequently withdrew from the project in 2010 leaving Highlands and XfRL as the joint venture participants.

As manager XfRL completed an extended scoping study in December 2008 followed by an 18-month Pre-feasibility study in November 2010. Delivery of the feasibility study was extended by agreement between Highlands and XfRL in 2011 until December 2012 to allow more time to consider alternative power and development scenarios. The feasibility study and Extended 2012 study was delivered by XfRL in December 2012 and outlined the options and alternative scenarios for a potential Us$5-6bn project focused on the Horse-ivaal-Trukai deposits. The potential exists also for later stage development of Nena deposit.

Study Spend: since its involvement in the project, XfRL has spent approximately Us$270m on exploration drilling, community consultation and project study work. XfRL’s project spend in 2010 was Us$79.3m and Us$104m in 2011 and Us$18m in 2012.

Feasibility and 2012 Extended Study: The feasibility study and 2012 Extended study delivered in December 2012 to Highlands by XfRL outlines the potential for a multi-decade project with 60Mtpa throughput for the first five years (50Mtpa life-of-mine) with a 20 year life-of-mine average output of 204,000tpa of copper and 305,000ozpa of gold. However production in the first five years would average 304,000tpa of copper and 451,000ozpa of gold and would make the project amongst the largest open pit copper-gold producers in the world.

Development Features: The frieda studies envisage a minimum 20 year open pit copper gold mine using conventional copper gold extraction. Approximately 140Mt would be mined a year to enable an ore processing rate of up to 64Mtpa in the first five years through a two line concentrator (each line comprises 1 by 12.2m sAg mills feeding 2 by 7.9m ball mills). Mill throughput is estimated to moderate towards approximately 50Mtpa as the initial shallow softer ore is extracted and the primary ore is then extracted. The copper-gold concentrate would be piped 126km to sepik River port and then be filtered, stored and transported 580km by 3,000t barges to silo ships in the bismarck sea. Waste rock and tailings would be conveyed 3-4kms and disposed adjacent to the tailings in special purpose engineered waste/tailings facilities in the Ok binai Valley.

Energy Options: initial scoping study and pre-feasibility work on frieda focused on the development of a Us$1bn hydroelectric scheme. in the past five years and in particular the past 2 years, PNg’s significant oil and gas resources have come to the attention of global energy companies with a number of liquid natural gas (LNg) projects being investigated and in development. gas from PNg’s Western Province which is 80kms south east of the Ok Tedi Mine and 140kms from frieda could potentially transform the region.

Replacing the hydroelectric sheme, with a gas powered electricity solution could significally reduce the frieda mine footprint and the studies delivered in December 2012 highlight the trade-offs between the savings in the upfront capital cost of hydro offset by higher operating costs. The use of gas increases the life-of-mine operating costs by approximately Us38.5c/lb to Us$1.11/lb. Nevertheless this is very competitive in world terms and operating costs in the first five years, when copper and gold production are at their highest, is close to Us71c/lb (based on Highlands commodity assumptions of Us$3.00/lb copper and Us$1,500/oz gold).

Capital intensity: On the basis of the feasibility study and Extended 2012 study the estimated capital expenditure of Us$5.6bn equates to Us$20,000/t of life of mine copper equivalent annual production.# This is about average for the world’s major undeveloped copper projects. On the basis of the first five years of output when production is some 50% higher at 304,000 tpa of copper and 451,000 ozpa of gold the capital intensity is a very competitive Us$12,075/t.#

# Copper equivalent in terms of calculating the Capital Intensity number is based on the commodity pricing of US$3.00/lb of copper and US$1,500/oz of gold.

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The table below details the outcomes of the Extended 2012 study and a further Potential case scenario that could further lower development costs, as delivered by XfRL and being reviewed by Highlands.

2012 EXTENDED STUDY POTENTIAL

Mine Life Minimum 20 years Minimum 20 years

Capital Cost Us$5.561 bn Us$4.987 bn

Construction 4.5 years 4.5 yearsPower Source 3rd Party Provided gas Powered

Mill Recoveries 88% Cu & 76% Au

LOM 1st 5 yrs LOM 1st 5 yrs

Strip Ratio 1.3:1

Mill rate 52Mtpa 64Mtpa 52Mtpa 64MtpaConcentrate (dry) 845ktpa 1,254ktpa 883ktpa 1,282ktpa

Copper Production 204ktpa 304ktpa 214ktpa 311ktpa

Gold Production 305kozs 451kozs 308kozs 450kozs

C1 Costs cents/lbs Us111c Us71c Us122c Us85c

Costs/t ore treated Us$16.02 Us$13.91 Us$17.47 Us$15.38

Free Cash Flow (pa) Us$556m Us$1.1bn Us$ 594m Us$ 1.18bn

2012 EXTENDED STUDY POTENTIAL

Capital Intensity (copper equiv)#

Us$20,000 /tonne

Us$13,700 /tonne

Us$17,600 /tonne

Us$12,100 /tonne

NPV @ 10% Us$(256)m Us$372mInternal Rate Return 8.9% 11.6%

Payback 4.8 years 3.9 years

Metal price Assumptions*

Us$3.00/lb copper; Us$1,500/oz gold

Us$3.00/lb copper; Us$1,500/oz gold

*Based on Highlands’ commodity price assumptions of US$3.00/lb copper and US$1,500/oz gold. # Copper equivalent, in terms of estimating the Capital Intensity, is based on commodity prices of US$3.00/lb copper and US$1,500/oz gold (i.e 500 lb’s of copper equates to 1 oz of gold).

Sustainability: The frieda Project is committed to the highest standards of sustainable development. The project, through the operator and manager XfRL produces an annual sustainability Report outlining the economic, social and environmental performance of the project. This report is available at www.friedariver.com.

The project maintains active, transparent and culturally appropriate engagement with our local communities and other stakeholders to establish mutually beneficial relationships, and work with the provincial administrations to align the project’s development plans with those of the provinces relating to provision of social projects and infrastructure.

The frieda project’s medical team provides professional medical services to employees, contractors and consultants at the project. These services include regular education sessions to promote a healthy workforce, the provision of individual

health consulting, the treatment of tropical illnesses, and treatment of low-consequence (first aid) injuries and minor illness. A comprehensive medical service is also provided to communities in the frieda River Project area as part of the project’s commitment to achieve improved health outcomes in the region.

Resources: As at february 2013, the district inventory for the frieda joint venture, encompassing six JORC-defined deposits, stood at 2,800Mt of ore containing 13Mt of copper and 20Moz of gold. The main deposits are within a radius of 6kms of the main Horse, ivaal, and Trukai deposits. Exploration and geotechnical drilling ceased in 2011 after more than 140kms of drilling and at its peak of exploration activity 11 rigs were on site.

in september 2011 a resource upgrade was announced for the Horse-ivaal-Trukai deposits. Using a cut-off grade of 0.20% copper, the HiT deposit is estimated to contain 2,090Mt of copper mineralisation at a grade of 0.45% copper, 0.22g/t gold and 0.70g/t silver. This equates to 9.4Mt of contained copper, 14.8Moz of gold and 49Moz of silver. in february 2012, Highlands announced an updated resource for the Koki deposit and a maiden resource for the Ekwai deposit which are - both within 1-2km of the Horse-ivaal-Trukai pit - but which do not form part of the current feasibility study mine plan.

Horse-Ivaal-Trukai Mineral Resources at 0.20% Cu cut off

Category MT Cu(%) Au(g/t) Ag(g/t)

Measured 780 0.51 0.28 0.79

indicated 410 0.44 0.20 0.72

inferred 900 0.4 0.2 0.7

Total 2090 0.45 0.22 0.70

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.


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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 450 0.37 0.25 1660 3,700

Ekwai inferred 170 0.38 0.23 660 1,300

Total 620 0.37 0.25 2,320 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 2007. bulk density measurements are not available for these deposits so an average bulk density of 2.57t/m3 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 162.5 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.

Nena Mineral Resources at 0.5% Cu cut off

Category MT Cu(%) Au(g/t) As(%) Sb ppm

indicated 37 2.67 0.63 0.21 143

inferred 14 1.80 0.42 0.13 86

Total 51 2.43 0.57 0.19 127

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.


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R A M U

RAMU NiCKEL-CObALT MiNE

China

BasamukPlant

RAMU RIVER Madang

BISMARCK SEA

MADANGPROVINCE

Kilometres0 150

KurumbukariMine

Location: The Kurumbukari nickel and cobalt laterite mine is connected by a 135km pipeline from the Kurumbukari plateau, near the Ramu river, to the basamuk process plant which is 75km west of the provincial capital of Madang, along the Rai Coast.

RAMU NiCKEL A LONg LifE AssET The Us$1.5bn Ramu nickel cobalt mine in Madang is the single largest minerals processing investment in PNg in the past decade, before the recent investment in the country’s Liquid Natural gas (LNg) industry. fifty years since its discovery and seven years after the first construction crews arrived, commissioning commenced in 2012 at Ramu for what will be a multi-decade operation.

History: first discovered in 1962, Highlands gold Limited in 1992 assumed the management of the current joint venture. An intensive period of geological exploration and engineering

led to a Prefeasibility study and in 1996 the establishment of the Ramu Nickel Joint Venture to prepare a bankable feasibility study. in 2000 the project was granted its special Mining License and in 2005 Metallurgical Corporation of China Limited (formerly China Metallurgical Construction (group) Corporation) joined the joint venture and was responsible for financing and construction of the project.

Ownership: The Ramu project comprising of the Kurumbukari mine, basamuk process plant and the 135km slurry pipeline is a joint venture between Highlands, the PNg government and Landowners and a consortium of Chinese partners led by Hong Kong and shanghai listed Metallurgical Corporation of China

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Limited (MCC). Highlands has an 8.56% interest in the project which will increase to 11.3% at no cost after internal project debt has been repaid from operating cash flow. Highlands also has an option to acquire an additional 9.25% at fair market value which could increase its interest to 20.55%.

Operatorship: The project’s operator and majority owner is Hong Kong and shanghai listed Metallurgical Corporation of China Limited (MCC). MCC ultimately holds a 61% interest in MCC Ramu NiCo Limited which holds an 85% interest in the Project, with a number of other Chinese end user entities holding the remaining 39% of MCC Ramu Nico Limited.

Free Carry: The Ramu project debt funding is non-recourse to Highlands with Highlands’ equity interest free carried. from commencement of production, Highlands is able to have access to its pro-rata 8.56% share of Ramu’s post-debt servicing net cash flow and control of the product.

Official Opening: On the 6th December 2012, The Prime Minister of Papua New guinea, the Honorable Peter O’Neill officially opened the Ramu nickel mine. The ceremony was attended by official dignitaries including former Prime Minister sir Michael somare, various Ministers of PNg government Departments, the Chinese Ambassador to PNg and executives of MCC and Highlands.

Mining and Beneficiation Plant: The Kurumbukari nickel cobalt deposit is a low strip ratio, free digging open pit mine. face shovels and backhoe configured excavators mine the average 12 metre thick ore-body and load into trucks for delivery to the washing plant and then by a short pipeline to the beneficiation plant. The beneficiation plant removes the chromite and creates a correctly sized and consistent slurry feed for overland pipeline transport to the basamuk process plant. Trial mining began in 2009 and mining operations commenced at Kurumbukari in late 2011. in calendar year 2012, 1.54 million (wet) tonnes of

“ “ Ramu is the largest minerals projectdevelopment in PNg in the past 15YEARS

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ore was delivered to the beneficiation plant. in the December quarter 735,000 (wet) tonnes were mined and delivered to the beneficiation plant.

Slurry Pipeline: A 135km slurry pipeline runs from the Kurumbukari mine/beneficiation plant to the basamuk process plant, with a drop in elevation of about 680m. The majority of the pipeline has been buried. Ore treated and transported down the slurry pipeline for the year was 647,000 (dry) tonnes with 298,000 (dry) tonnes in the December quarter - approximately 35% of the proposed annualized rate of 3.3Mtpa.

Basamuk Process Plant: The basamuk process plant is designed to treat 3.3Mpta (dry) feed with metal contents of typically 1.04% nickel and 0.11% cobalt.

The basamuk process plant incorporates three High Pressure Acid Leach (HPAL) trains (autoclaves). in treating 3.3Mtpa approximately 78,000 tonnes (dry) of mixed hydroxide product containing 31,150 tonnes per annum of nickel and 3,300 tonnes per annum of cobalt is produced.

in December 2011, PNg’s Chief inspector of Mines (CiM) gave ‘load commissioning approval’ to allow the mine to commence operation and in early 2012 the first of three autoclaves was operated. As part of the staged ramp-up of the plant, various autoclaves were operated and then shut down for inspection during 2012.

Production in 2012 was 13,777 tonnes (dry) of mixed nickel cobalt hydroxide intermediate product containing approximately 5,283 tonnes of nickel and 469 tonnes of cobalt.

Exports and Sales: The maiden export shipment occurred in November of 576 tonnes (dry) of mixed nickel cobalt hydroxide intermediate product containing 217 tonnes of nickel and 19 tonnes of cobalt.

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During 2013, production ramp up will see all three autoclaves operate in unison as the plant moves towards its name plate capacity of 31,150 tonnes of nickel and 3,300 cobalt per annum.

Landowner Support: The Ramu project enjoys strong support from local landowners and all levels of the PNg government. At various times in the past 50 years since Ramu’s discovery a range of anthropological, genealogy and landowners studies were undertaken to ensure appropriate landowner representation. The special Mining Licence granted to develop the project also facilitates the establishment of the four traditional landowner associations to represent the four impact project areas.

Environment and Deep Sea Tailings: The Ramu Environmental Plan (EP) was first approved in March 2000 by the Minister for Environment and Conservation and then gained formal and final environmental permit approval in November 2007

for construction and operating phase. international experts selected the disposal of tailings into the 1500 metre deep sea canyons as the most appropriate and safe method of disposal. This is because the area has among the highest rainfalls in the region, and land based tailing storage could be disturbed in a highly active volcanic and high-rainfall region while impinging on agriculture or landhold customary land. An important distinction between Ramu and a number of other tailings disposal systems in PNg is that at the Kurumbukari mine minimal waste rock is needed to be disposed of. Due to the free-dig, low-strip, minimal-waste nature of the Kurumbukari ore body, the topsoil at the mine is stored for rehabilitation and re-vegetation.

for more information on Ramu review the website - www.ramunico.com

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REsOURCE/REsERVEResource: The Ramu resource is estimated at 143Mt at 1.01% nickel (Ni) and 0.10% cobalt (Co). The resource report is shown in the Table below:

Ramu Mineral Resources (excluding +2mm internal rocky material)

Resource Mt Ni (%) Co (%)

Measured 42.4 0.93 0.11

indicated 29.8 1.07 0.11

inferred 71.0 1.04 0.10

Total 143.2 1.01 0.10

Notes for Ramu Mineral Resources: (1) No upper cut off used. Maximum grade (lithology composite) is 3.44% Ni and 0.91% Co. (2) Lower cut off of 0.5% Ni used to define the down-hole limit of the overburden. (3) The lower boundary of the rocky saprolite is determined by either the first 1.5 metre boulder intersected or a 3 metre intersection of greater than 50% of the volume of the intercept being rock. (4) 1,139 HQ and NQ diamond drill holes totaling 22,363 metres, with an average depth of 19.6 metres per hole. (5) Most drilling on a nominal 100 metre by 100 metre grid, with select areas closed down to 25 metres by 25 metres to establish geostatistical variability. (6) 22,145 drill samples were assayed for Ni, Co and Mg. selected samples and composites were analysed for Mn, Al, si, fe and Cr. (7) bulk density measurement from 1,550 drill core samples and 12 insitu tests. (8) face sampling and mapping from two trial mining pits. (9) 60 line kilometers of ground penetrating radar (gPR) survey to map the depth profile of the laterite development between drill holes. (10) in addition to the 143Mt of Mineral Resources, the Ramu laterite contains oversize material grading below the lower cut off of 0.5% Ni. This material is easy to remove by simple screening.

Competent Persons Statement: The information in this report that relates to Ramu Mineral Resources is based on information compiled by Lawrence Queen, who is a Member of The Australasian institute of Mining and Metallurgy. Mr Queen is a full-time employee of Highlands Pacific and has sufficient experience which is relevant to the style of mineralization 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 Queen consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

ORE REsERVEsThe Ramu ore reserve was designated from part of the mineral resource, reported above, during the feasibility study and has subsequently been reviewed and confirmed by sRK Consulting.

Category Mt Ni(%) Co (%)

Proved 39.7 0.88 0.10

Probable 36.0 0.94 0.09

Total 75.7 0.91 0.10

Competent Persons Statement: The information in this report that relates to Ore Reserves is based on information compiled by Dr brian White, who is a fellow of The Australasian institute of Mining and Metallurgy. Dr. White is employed by brian White Mining services and has sufficient experience which is relevant to the style of mineralization 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.’ Dr. White consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The ore reserve calculation includes low-grade rocks and rock fragments, which are present at the base of the ore body. These rocks and rock fragments, which are considered as internal waste, along with chromite will be removed at the mine site in the beneficiation plant. The resulting autoclave feed grade will be 1.01% nickel and 0.11% cobalt.

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EXPLORATiON

China

RAMU RIVER

Kilometres0 150

EL 1761SEWA BAY NORMANBY

ISLAND

ALOTAU

EL 1761 sewa bayHighlands Pacific was granted EL 1761 in March of 2012. The tenement covers the western portion of Norman island in the D’Entrecasteaux group of islands, Milne bay Province, Papua New guinea. The ground was taken up to allow Highlands to explore the potential of the known nickeliferous laterite that has developed over exposures of Cretaceous Ultramafic rocks (largely dunites and pyroxenites). Limited work in the 1960’s by the Australian bureau of Mineral Resources suggests the laterite could have economically interesting grades and thickness. A scout soil auger program is planned for the first half of 2013.

China

EL 1340BULOLO

LAE

EL 1340 bULOLOin 2012, Highlands investigated a new area being worked by artisanal miners near the Kobiak prospect. The local miners began working the area in the last couple of years after a landslip. Highlands’ geologists spent several weeks mapping and sampling the area but the results failed to indicate any significant gold mineralization.

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OUR COMMiTMENT

Highlands takes its commitment to health and safety issues, community relationships and the environment very seriously. Also, in addition to our own operations we encourage and take a keen interest in the performance of our joint venture partners in these important areas.

The managers of Highlands’ two joint venture interests, the Ramu and frieda projects are committed to maintaining very high standards in respect to workplace health and safety, community health programs, environmental management and landowner and community relations.

WORKPLACE HEALTH AND sAfETyHighlands is committed to providing a safe and healthy working environment for its employees and contractors. Our standards, as set out in the Corporate Occupational Health & safety Policy, commit our employees to the highest level of occupational health and safety. These standards are maintained for all employees, contractors and visitors at project sites, by our health and safety representatives.

Highlands remains committed to minimising the number of work related injuries by implementing safe work practices, providing appropriate personal protective equipment and conducting safety training sessions and workshops on a regular basis, while conforming to the relevant safety and health legislations.

Table A details the statistics for the operations run by Highlands.

Table A – Highlands OperationsAccident Statistics

Number of: 2012 2011 2010 2009

fatalities 0 0 0 0

Lost time injuries 1 0 0 0

Average no. of employees

70 50 35 18

Table B – Ramu Project (not operated by Highlands)Accident Statistics

Number of: 2012 2011 2010 2009

fatalities 0 1 3 1



1,184 1,668 2,500 2,580

Table C – Frieda Project (not operated by Highlands) Accident Statistics

Number of: 2012 2011 2010 2009

fatalities 0 0 0 0



148 154 220 250

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HEALTH PROgRAMin most parts of Papua New guinea, the poor availability of health services to the rural communities is an area of concern. Highlands and its Joint Venture partners assist these communities by providing medical supplies and regular health extension visits by company community health workers. These programs address pressing health issues including HiV/AiDs, malaria, tuberculosis, typhoid and other diseases.

ENViRONMENTAL MANAgEMENTHighlands is committed to minimising any negative impact of exploration, mining and mineral processing on the environment by integrating environmental considerations with community interests when planning its activities.

Extensive studies have been conducted at the Ramu and frieda projects by specialist environmental consultants. The findings of these studies have been incorporated into the development strategies of each project. in the case of our star Mountains project we have an approved environmental management plan and hold all relevant permits from the PNg Department of Environment and Conservation (DEC) to undertake an exploration program

No significant environmental incidents or accidents were reported during the year by either Highlands or our Joint Venture partners at the Ramu or frieda projects.

LANDOWNER AND COMMUNiTy RELATiONsThe Highlands’ approach to landowner and community relations is to work closely with local communities and government institutions to establish itself as a reliable and credible partner.

Open and transparent communication with all stakeholders, but in particular the communities impacted by Highlands operations, is the foundation of its programs. This requires a continuous process of the highest standard in open communication, consultation and participative decision-making. Highlands has been operating in PNg for many years and has an excellent record in this area.

The Principles of our community relations approach are embodied in the Tok Pisin word “OLgETA” meaning “all together”. Each of the letters in this word represents a Principle we want to convey in our approach;

O Open and honest communication

L Long term view

G grateful for each other

E Expectations realistic also Environmental responsibility

T Trust is important

A Agreements honoured.

We have a corporate brochure on our website that spells our approach to community relations.

bUsiNEss DEVELOPMENTHighlands is committed to building the capacity of the local communities to enable them to continue to support the Company’s operations, through the provision of necessary training and assistance, as well as working with the communities to identify new and innovative business opportunities. During our exploration activities we make a point of hiring as much local labour as possible and also provide opportunities to the local communities to provide food, timber and other useful products at market rates.

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bOARD Of DiRECTORs

KEN MACDONALD

Chairman independent, Non-Executive directorAppointed: 1 february 2008

Ken MacDonald has over 40 years experience in corporate law, with particular emphasis on the energy and natural resources sector as a partner with Allens Arthur Robinson and its predecessors where he headed the firm’s Energy, Resources and infrastructure Department and had responsibility for its Port Moresby office. He retired as partner on 31 December 2007 but remains an active consultant to the firm. He has advised the Queensland government in many significant transactions, from leading the Queensland government legal team for the suncorp Metway merger and subsequent privatisation, through to the sale of the Queensland retail energy business. He regularly advises on mergers and acquisitions, corporate governance issues, joint ventures, capital raisings and business regulation. He has long experience as a listed company director. in addition to his present role with Highlands Pacific, Mr MacDonald is currently the Deputy Chairman of QiC, and Deputy Chancellor of bond University Limited.

Mr MacDonald is Chairman of the board’s Nomination Committee and Remuneration Committee.

JOHN gOODiNg

Managing DirectorAppointed: 21 May 2007

John Gooding is the Managing Director and Chief Executive Officer of Highlands Pacific Limited. He is a Mining Engineer with over 40 years experience in the resources industry. He has held executive management positions with CRA, Normandy Mining, MiM, Xstrata, Ok Tedi Mining and Roche Mining. He holds a Mine Managers Certificate (Qld, NsW & NT) and is a fellow of the institute of Engineers, the Australasian institute of Mining & Metallurgy and a member of the Australian institute of Company Directors. Mr gooding is a board Member of the PNg Chamber of Mines and Energy and a Director of Hillgrove Resources Limited.

Mr gooding is a member of the board’s Nominations Committee and PNg issues Committee.

Photo caption from left to right: Ken MacDonald, John Gooding, Drew Simonsen, Dan Wood, Mike Carroll, Bartholomew Philemon

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DREW siMONsEN

independent, Non-Executive Director Appointed: 1 January 2010

Drew Simonsen was most recently Managing Director and Chief Executive Officer of Hillgrove Resources Limited, an AsX listed company, until July 2012. Prior to Hillgrove, he had over 30 years of investment banking, banking and advisory experience, firstly with bank of America in sydney, san francisco and Hong Kong, and subsequently with Westpac banking Corporation in sydney and Melbourne. He has been directly involved with many resource and infrastructure related financings and advisory roles, including those involving export and import lines of credit from multi-lateral agencies to support major projects in developing countries, including PNg. He originally graduated as a mining engineer, and worked in engineering and operational roles with CRA Ltd (now Rio Tinto) in broken Hill, NsW. Mr simonsen has a special affinity for PNg, having previously lived there.

Mr simonsen is a member of the board’s Audit Committee and Remuneration Committee.

MiKE CARROLL

independent, Non-Executive DirectorAppointed: 1 April 2008

Mike Carroll is a fellow of Certified Practising Accountants with over 35 years experience in a broad range of industries (in all states of Australia). These include mining, petroleum, building and construction, property and a number of service industries. Mr Carroll has held executive management positions with brambles industries Limited, James Hardie and Comalco and is currently Chief Executive Officer of Neumann Associate Companies. He has extensive experience in acquisitions (including integration), government and semi-government relationships, business development, profit growth and Corporate governance. Mr Carroll is a member of the Australian institute of Directors.

Mr Carroll is a member of the board’s Audit Committee (Chair), Remuneration Committee and Nominations Committee.

bARTHOLOMEW PHiLEMON

independent, Non-Executive directorAppointed: 21 september 2012

Bartholomew Philemon brings to the board extensive experience in PNg government affairs and economic development issues at the national and pacific regional levels having served with great distinction as member for the Lae Open seat from 1992 until 2012. Mr Philemon has, among many appointments, been Chairman of Air Niugini, a Director of Oil search Limited from 1986 to 1993, and has held a number of Ministerial posts in PNg governments including Minister of foreign Affairs and Minister for finance and Treasury. in October 2012 Mr Philemon was appointed a Non-Executive Director of Oil search Limited.

Mr Philemon is a member of the board’s PNg issues Committee.

DAN WOOD

independent, Non-Executive DirectorAppointed: 28 May 2010

Dan Wood is an exploration geologist with a long and distinguished record in the mining industry. He retired from mineral exploration in late 2008 after 24 years with bHP and almost 18 years with Newcrest Mining Limited, exploring for a range of mineral resources in Australia, sE Asia/sW Pacific and the Americas. During his career he led exploration teams that were associated with coal, gold, gold-copper and copper-molybdenum discoveries in Australia, indonesia and Peru. Mr Wood joined Newcrest Mining at its formation in 1990 and from the mid-1990s, as Executive general Manager Exploration, led its highly successful exploration team, judged by the Metals Economics group of Canada to have been the world’s most successful gold explorer, 1992-2005. Mr Wood has extensive experience and an international reputation in mineral exploration and discovery, and was jointly awarded the Joe Harms Medal by the geological society of Australia for discovering the Cadia gold-copper deposits in NsW.

Mr Wood is an Advisory board member of the WH bryan Mining and geology Research Centre at the University of Queensland, where he is also an Adjunct Professor, and is a fellow of the society of Economic geologists in the UsA, which appointed him as its Distinguished Lecturer for 2012. in early 2013 he was awarded the Robert M. Dreyer Award by the society for Mining, Metallurgy & Exploration in the UsA, and the Thayer Lindsley Award by the Prospectors & Developers Association of Canada.

Mr Wood is a member of the board’s Audit Committee.

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CORPORATE gOVERNANCE

in compiling this report the directors have referred to the Australian securities Exchange (AsX) Corporate governance Council’s “Corporate governance Principles and Recommendations”, 2nd edition.

The Highlands Pacific board has adopted the principles and recommendations and complies with them all, except as identified below.

A summary of the following Highlands’ Corporate governance policies can be obtained from the Company’s website:

•BoardCharter;•CodeofConduct;•AuditCommitteeCharter;•NominationCommitteeCharter;•RemunerationCommitteeCharter;•RiskManagementPolicy;•SecuritiesTradingPolicy;•Disclosure;•Shareholdercommunications;and•DiversityandInclusionPolicy.

bOARD Of DiRECTORs

Role & Responsibility of the boardThe board has a formal board Charter which sets out the responsibilities, structure and composition of the board. it provides that the board’s broad function is to:

•definetheCompany’sstrategicdirection;•establishgoals formanagementandregularly reviewing

management performance;•reviewtheoperationalandfinancialperformanceof the

Company’s activities;•establish procedures to identify andmanage areas of

business risk;•undertakesuccessionplanning, includingappointmentof

the Managing Director;•set the overall Company remuneration policy which

incorporates appropriate performance hurdles;•ensure shareholders are informed of all significant

developments affecting the Company’s state of affairs; and•formulategeneralcorporategovernancestatements.

The board of Highlands Pacific is fully committed to the principle of best practice in corporate governance. The Company can ensure transparency and fair dealings with all stakeholders. Highlands takes an integrated approach to corporate governance to comply with the regulatory obligations associated with the two principal stock exchange listings in PNg and Australia.

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The board has delegated to management the responsibility for implementing corporate strategies and managing the day-to-day operations of the Company in accordance with the guidelines set down by the board.

Composition of the boardThe board is to be constituted with a majority of Non-Executive Directors, including a Chairman who is independent.

The Company’s constitution provides that the number of Directors from time to time shall be the number determined by the board, being a number not less than three, nor more than nine.

The board should comprise Directors with an appropriate range of skills, experience and qualifications to enable it to perform its role to a high standard.

The board currently comprises six Directors including five independent Non-Executive Directors and the Managing Director. The board’s intention is to maintain a blend of qualifications, skills and experience of Directors, appropriate for the size and activities of the Company. The Chairman is a Non-Executive and independent member of the board.

The Company’s constitution requires one-third of the Directors (rounded up to a whole number) to retire by rotation at each Annual general Meeting and no Director may be in office for more than three years without standing for re-election. Also a Director appointed during the year must stand for re-election at the next Annual general Meeting. Retiring Directors may offer themselves for re-election.

it is a policy of the Company that any Director over 72 years of age submits him or herself for re-election by the shareholders at each Annual general Meeting. subject to maintaining the continuity of board experience, a Non-Executive Director may not serve for more than 12 years.

The Nomination Committee is responsible for reviewing the board’s membership and oversees the nomination of new Directors.

it is the view of the board that the role of the Chairman and the Managing Director should be separate. The Managing Director is responsible for implementing corporate strategies and policies.

independence of DirectorsThe board recognise all Directors must act in the best interests of the Company and its shareholders as whole.

Directors of the board are considered to be independent if:

•theydonot representanymajorshareholderorgroupofshareholders;

•aperiodof threeyearshaselapsedsince theyheldamanagement position with the Company; or

•theyhavenotbeenanadviserorprincipalofafirmorcompanyso retained by the Company.

Directors’ access to professional adviceAll Directors have the right to seek independent professional advice in regard to their duties. The Company will bear the expense of such advice, subject to the approval of the Chairman, which will not be unreasonably withheld. Any advice received by a Director is shared by all Directors.

bOARD COMMiTTEEsThe board operates through a number of sub committees in addition to those committees set up specifically to oversee special matters or transactions.

Audit CommitteeThe board, as part of its program to achieve and maintain high standards of corporate governance, has established an Audit Committee to ensure the maintenance of an effective and efficient audit program and the effectiveness and reliability of the Company’s internal control and financial risk management system.

The Audit Committee is to comprise of at least three members with the majority of members being independent Non-Executive Directors. The Chair of the Audit Committee must be an independent Non-Executive Director and not Chair of the board.

The role of the Audit Committee is documented in a charter approved by the board and covers the following:

•ensurethateffectivemeasuresare inplacetodescribe,communicate and implement the standards of integrity required by the Company of its Directors, managers and employees in relation to financial control and financial reporting;

•satisfy itself that effective systems of accounting andinternal control are established and maintained to manage financial risk;

•satisfy itself as regards the integrity and prudence ofmanagement internal and financial control systems, including the review of policies and procedures;

•ensuretheBoardisawareofanymattersthatmighthavea material impact on the financial condition or affairs of the Company;

•reviewandassesstheadequacyofmanagementreportingto the board;

•review the quarterly, half-yearly and annual financialstatements and other information released to the public;

•recommendtotheBoardtheappointmentoftheinternaland external auditors. The appointment of external auditors is to be reviewed every five years and the lead audit partner must be rotated every five years;

•reviewtheefficiencyandeffectivenessoftheinternalandexternal auditors in relation to their respective accountabilities;

•ensurethat therehasbeennounjustifiedrestrictionsorlimitations imposed on the auditors from within the Company;

•ensurethatthescopeoftheaudits(internalandexternal)is adequate;

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CORPORATE gOVERNANCE

•review and assess the findings of the internal andexternal auditors;

•reportanymatter identifiedduring thecourseofcarryingout its duties that the audit committee considers should be brought to the attention of the board; and

•performorundertakeonbehalfoftheBoardsuchothertasksor actions as the board may from time to time instruct.

Current members of the Audit Committee are Mr M Carroll (Chairman - fCPA, MAiCD); Mr D simonsen (bE geoscience gAiCD); and Mr D Wood (bsc (Hons), Msc); all of whom are independent Non-Executive Directors. Ms f Williame-igara resigned as a Director during the year and Mr Wood replaced her on the Audit Committee. There were seven meetings held during the year and all members attended meetings they were eligible to attend with the exception of Ms f Williame-igara who missed one meeting.

Remuneration CommitteeThe purpose of the Remuneration Committee is documented in a charter approved by the board and covers the following:

•assessingtheperformanceofmanagementinconjunctionwith the Managing Director (senior executives have annual reviews with the Managing Director to discuss their role description in the context of the strategic plan of the Company and their performance against their role, with the Managing Director documenting and managing the process and reporting to the Remuneration Committee);

•recommendingtotheBoardtheremunerationoftheManagingDirector and senior executive staff, after considering the Managing Directors own recommendations; and

•determiningtheremunerationforNon-ExecutiveDirectorssubject to the Directors’ aggregate compensation not exceeding the maximum annual sum approved by shareholders.

The Remuneration Committee is to comprise of at least three members with the majority of members being independent Non-Executive Directors. The Chair of the Remuneration Committee must be an independent Non-Executive Director and can be the Chair of the board.

The Remuneration Committee meets once a year or more frequently if required in special circumstances. The Committee may obtain advice from external consultants regarding the appropriate level of remuneration for the senior executives and Non-Executive Directors.

An assessment of the performance of management in conjunction with the Managing Director did take place during the reporting year in accordance with the process detailed above.

Current members of the Remuneration Committee are Mr K MacDonald (Chairman), Mr D simonsen and Mr M Carroll. There were two meetings held during the year and all members attended meetings they were eligible to attend.

The Directors’ Report to shareholders details the structure of fees and payments to Non-Executive Directors and the Managing Director while the audited accounts further detail specific payments made during the year. The Non-Executive Directors are not entitled to any schemes for retirement benefits other than superannuation.

Nomination CommitteeThe role of the Nomination Committee is documented in a charter approved by the board and covers the following:

•assessingperiodically theskillset required todischargecompetently the board’s duties, having regard to the strategic direction of the group, and assessing the skills currently represented on the board;

•regularlyreviewingandmakingrecommendationstotheBoardregarding the structure, size and composition (including the balance of skills, knowledge and experience) of the board and the effectiveness of the board as a whole, and keeping under review the leadership needs of the group, both executive and non-executive;

•preparingadescriptionoftheroleandcapabilitiesrequiredfor a particular appointment;

•identifyingsuitablecandidates(executiveandnon-executive)to fill board vacancies as and when they arise and nominating candidates for the approval of the board (this will include any subsequent decisions to extend an appointment);

•ensuringthat,onappointment,Directors: •shallreceiveaformalletterofappointment,settingout

the time commitment and responsibility envisaged in the appointment including any responsibilities with respect to board Committees or in acting in a capacity other than as a Director (e.g. as Chair or as a lead independent Director);

•havetheopportunitytoparticipateinaGroupinductionprogram to gain an understanding of:

- the group’s financial, strategic, operational and risk management

For personal use only · 2013. 3. 14. · 63.4% interest in the Ok Tedi mine. Key features of the...

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Transcript of For personal use only · 2013. 3. 14. · 63.4% interest in the Ok Tedi mine. Key features of the...