HIGHLANDS Pacific announced it has conditionally exercised its right to begin receiving its share of the cash operating surpluses commencing 1 January 2015 from the Ramu nickel project.

Highlands hold an 8.56 per cent interest in the project, located in Papua New Guinea.

Highlands’ decision to participate in the operating results of Ramu comes after the operator, Metallurgical Corporation of China (MCC), revealed that the project achieved its first annual operating surplus of about US$67 million in 2014 (unaudited), after capital expenditure of US$23 million – creating a net cash surplus of $44 million.

Highlands said the project generated a surplus while continuing to ramp up to full capacity, achieving a production rate of approximately 67% of nameplate for the full year and 72% in the December quarter.

Output is forecast to reach 83% of nameplate in the current year, rising to full capacity in 2016, Highlands said in a statement.

During 2014, the project produced 20,987 tonnes of nickel and 2,134 tonnes of cobalt at an average production cost of about US$10,800 per tonne of nickel (before cobalt credits).

Highlands said at full annual production of 31,150 tonnes of nickel and 3,300 tonnes of cobalt, the operation is forecast to have a production cost of approximately $10,000 per tonne of nickel (before cobalt credits).

Under the joint venture agreement, Highlands was entitled to nominate, at a date of its choosing, when it wished to begin participating in the operating results, effectively shielding it from losses incurred during the commissioning stage.

Highlands’ nomination is conditional on MCC completing audited joint venture accounts for the 2014 year, confirming the operation has moved to profitability, the
company said.

Following its decision to participate, Highlands’ will begin receiving its pro-rata share of operating surpluses, and will continue to contribute its share of on-going capital expenditure requirements, the company said.

Of the funds to be distributed to Highlands, commencing in the June quarter 2015, 80% initially will be applied to repay its 8.56% share of a capped Ramu capital cost.

The remaining 20% will be available to Highlands for other purposes, the company said in a statement.

Highlands also holds a further option to acquire an additional 9.25% interest in the project at fair market value, increasing its interest to 20.55%.

Highlands Pacific managing director John Gooding said the decision to nominate was great news for Highlands, providing the company with access to cash flow from the project, which is expected to generate significant returns for its shareholders and for the State of Papua New Guinea over the next 30 years.

“We are obviously delighted to see the project reach profitability. First discovered in 1962, it has taken great technical skill and dedication from the many participants in the project over the past 50 years to reach this development milestone,” Mr Gooding said.

“Our hard work is now beginning to be rewarded, and the cashflows we expect to receive from the project in the future will underpin our further development plans at Frieda River and Star Mountains, providing the potential to generate significant returns to our shareholders,” he said.

The Ramu project is held in a joint venture, the participants include Highlands (8.56%), MCC Ramu NiCo (85%), and the PNG Government and local landowners through the Mineral Resource Development Company (6.44%) .

The project involves mining ore at the Kurumbukari open pit mine, with the ore then converted to a slurry for transport 135 kilometres by pipeline to the Basamuk process plant near Madang on the north coast of PNG.

The Basamuk process plant incorporates three High Pressure Acid Leach (HPAL) trains (autoclaves) and is designed to produce 31,150 tonnes of nickel and 3,300 tonnes of cobalt per annum.