Half Year Results · 2012-09-07 · drilling program is underway with some significant copper gold ... Highlands Pacific Limited and Subsidiary Companies ... Exploration, evaluation

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7th September, 2012

Financial Report for half year 30 June 2012 Continued Investment in Exploration $8-10m pa

Cash at Bank $US20m (as at 31 August) Highlands Pacific (ASX: HIG) has released its interim financial report for the half-year ended 30 June 2012. The result for the half-year is a net operating loss of US$7.9 million which reflects continued investment in exploration and development of US$5.5 million, in particular a $8-10m exploration commitment to the Star Mountains project near, Ok Tedi in Papua New Guinea. Cash at bank at 30 June was US$7.6m and has subsequently increased to US$20m as at 31 August with the receipt of funds from cornerstone investor PNG Sustainable Development Program Limited. Managing Director of Highlands Pacific Mr John Gooding said today: “Highlands is in a strong and sound financial position. We are debt and hedge free with US$20m in cash and long term assets in Ramu and Frieda, with Ramu nearing cash flow, and exciting exploration potential with Star Mountains.” The full financial results are attached. For further information, contact: Media Enquiries to: John Gooding or Craig Lennon Simon Jemison Highlands Pacific - 07 32397800 Collins Street Media - 03 9224 5319

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ASX Code: HIG PoMSox Code: HIG Shares on Issue: 789 million Options on Issue: 20.4 million Performance Rights: 7.6 million Market Capitalisation ~ A$130m Cash on Hand (31/08/12) A$20m Directors Ken MacDonald, Chairman John Gooding, Managing Director Mike Carroll Dan Wood Drew Simonsen Fiu Williame-lgara 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 Limited Highlands Pacific is a PNG incorporated and registered mining and exploration company listed on the ASX and PoMSox exchanges. Its major development assets include the US$1.5bn Ramu nickel cobalt project, the Frieda River copper gold project and exploration on the highly prospective Star Mountains (Nong River, Mt Scorpion and Tifalmin) licenses approximately 20km north of the Ok Tedi mine. Highlands also holds exploration ground in the Wau/Bulolo close to the new Hidden Valley and Wafi gold projects.

Star Mountains Prospects* Star Mountains leases, 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. These prospects lie within the highly prospective New Guinean Orogenic Belt, home to deposits like Grasberg, Ok Tedi, Frieda, Porgera and Hidden Valley. A drilling program is underway with some significant copper gold intersections reported.

Ramu Nickel Cobalt Mine The Ramu nickel mine is located 75km west of the provincial capital of Madang, PNG and will produce an annual output of 31,150 tonnes of nickel and 3,300 tonnes of cobalt contained in high grade concentrate over a 20 year mine life. The mine is currently being commissioned and the mineral resources at Ramu have the potential to increase the mine life by a further 15-20 years. Highlands 8.56% interest in Ramu will increase to 11.3% at no cost after repayment of the project debt (estimated to be 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% at fair market value which could increase its interest to 20.55%.

Frieda Copper/Gold Project* The Frieda copper gold project is one of the Asia-Pacific’s largest undeveloped copper/ gold resources. The Project is 175kms north-west of the giant Porgera gold mine and 75km north-east of the Ok Tedi mine. The project owners are Xstrata (81.82% and manager) and Highlands (18.18%). The pre-feasibility study released in November 2010 indicated a 60Mtpa throughput for the first eight years with output averaging 246,000tpa of copper and 379,000 ozpa of gold. The multi-decade life mine will have an average throughput of 50Mtpa. * 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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http://www.highlandspacific.com/

For the Half-year Ended 30 June 2012

Consolidated Interim Financial Report

HIGHLANDS PACIFIC LIMITED AND SuBSIDIARy COMPANIES

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Director’s Report ..................................................................................................................1

Interim Financial ReportCondensed Consolidated Statements of Comprehensive Income .........2Condensed Consolidated Statements of Changes in Equity......................3Condensed Consolidated Statements of Financial Position .......................4Condensed Consolidated Statements of Cash Flows ....................................5Notes to the Condensed Consolidated Financial Statements ..........6-10Directors’ Declaration ....................................................................................................10

Independent Auditor’s Review Report to Members ......................................11

Frieda River

Index to Consolidated Interim Financial ReportFor the Half-year Ended 30 June 2012

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2012 Consolidated Interim Financial Report 1

your Directors present their report on the consolidated entity consisting of Highlands Pacific Limited and its subsidiaries (the “Group”) for the half-year ended 30 June 2012.

This report should be read in conjunction with the Annual Report.

DirectorsThe following persons were Directors of Highlands Pacific Limited during the whole of the half-year and up to the date of this report:

John Gooding (Managing Director) Ken MacDonald (Chairman) Fiu Williame-Igara Mike Carroll Drew Simonsen Dan Wood

Results and Dividends The net loss from ordinary activities after income tax by the Group for the half-year is uS$7.9 million. The loss includes expenditure of uS$5.5 million that is associated with the exploration and development of our projects.

There is no dividend paid or recommended.

Review of OperationsDuring the half-year the Group’s principal activities were exploring for minerals and carrying out feasibility studies on prospective mineral deposits either in their own right or in joint ventures, and developing mining operations in joint ventures.

This report is made in accordance with a resolution of Directors.

John Gooding Managing Director

7 September 2012

Directors’ Report

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2 Highlands Pacific Limited and Subsidiary Companies

The above condensed consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.

Condensed Consolidated Statements of Comprehensive IncomeFor the Half-year Ended 30 June 2012

June 2012 June 2011

Notes US$000 US$000

Finance Income 54 244

Other revenue 11 22

Total Operating Income 65 266

Labour costs 1,164 1,372

Consultants and services costs 611 525

General and administration costs 633 812

Exploration and development costs 5,497 4,093

Depreciation and amortisation 2 44 35

Net foreign exchange (gain) losses (5) (219)

Total Operating Costs 7,944 6,618

Loss from operations before income tax (7,879) (6,352)

Income tax (expense) benefit - -

Net loss for the period (7,879) (6,352)

Other comprehensive income:

Exchange differences on translating foreign operations - (8)

Other comprehensive income profit/(loss) for the period - (8)

Total comprehensive loss for the period (7,879) (6,360)

Basic earnings per share

From continued operations (0.012) (0.010)

Diluted earnings per share

From continued operations (0.012) (0.010)

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2012 Consolidated Interim Financial Report 32 Highlands Pacific Limited and Subsidiary Companies

The above condensed consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

Condensed Consolidated Statements of Changes in EquityFor the Half-year Ended 30 June 2012

Share CapitalFair Value and

Other ReservesRetained Earnings Total

US$000 US$000 US$000 US$000

Half-year ended 30 June 2012

Balance as at 1 January 2012 280,176 (6,472) (175,832) 97,872

Net losses - - (7,879) (7,879)

Issue of share based payments - 33 - 33

Balance as at 30 June 2012 280,176 (6,439) (183,711) 90,026

Half-year ended 30 June 2011

Balance as at 1 January 2011 280,046 (7,177) (159,255) 113,614

Net losses - - (6,352) (6,352)

Other comprehensive income for the period - (8) - (8)

Issue of share capital 130 - - 130

Issue of share based payments - 522 - 522

Balance as at 30 June 2011 280,176 (6,663) (165,607) 107,906

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The above condensed consolidated statements of financial position should be read in conjunction with the accompanying notes.

June 2012 December 2011

Notes US$000 US$000

Current Assets

Cash and cash equivalents 7,604 6,576

Receivables 30 50

7,634 6,626

Non-current Assets

Receivables 466 464

Property, plant and equipment 2 275 318

Exploration and evaluation expenditure 3 34,802 43,817

Investment in Ramu Project 4 50,000 50,000

85,543 94,599

Total Assets 93,177 101,225

Current Liabilities

Trade and other payables 5 1,162 2,897

Provisions 171 194

1,333 3,091

Non-current Liabilities

Trade and other payables 5 1,737 206

Provisions 81 56

1,818 262

Total Liabilities 3,151 3,353

Net Assets 90,026 97,872

Shareholders’ Equity

Contributed equity 6 280,176 280,176

Reserves (6,439) (6,472)

Retained earnings (losses) (183,711) (175,832)

Total Shareholders’ Equity 90,026 97,872

Condensed Consolidated Statements of Financial PositionAs at 30 June 2012

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The above condensed consolidated statements of cash flows should be read in conjunction with the accompanying notes.

June 2012 June 2011

US$000 US$000

Cash Flow from Operating Activities

Receipt from other operations 11 21

Interest from investments 63 367

Income tax (paid) - (1)

Payments to suppliers and employees (3,278) (1,314)

Net cash (outflow) from operating activities (3,204) (927)

Cash Flow from Investing Activities

Proceeds received from sale of Nena Option EL58 10,800 -

Exploration, evaluation and development (6,572) (4,400)

Purchase of property, plant and equipment (1) (5)

Net cash inflow/(outflow) from investing activities (4,227) (4,405)

Cash Flow from Financing Activities

Proceeds from issue of ordinary shares - 130

Net cash inflow from financing activities - 130

Net increase/(decrease) in Cash and Cash Equivalents 1,023 (5,202)

Cash and cash equivalents at the beginning of the half-year 6,576 20,887

Effects of exchange rate changes on cash and cash equivalents 5 219

Cash and cash equivalents at end of the half-year 7,604 15,904

Reconciliation of Net (Loss) after Taxation to Cash Flow from Operating Activities

Reported Net Loss after Taxation (7,879) (6,352)

Add/(less) non-cash items:

Depreciation 44 35

Provision for exploration, evaluation and development costs 5,497 4,093

Fair value of share based payments 33 522

Effects of exchange rate changes on cash and cash equivalents (5) (219)

5,569 4,431

Add/(less) movements in working capital items:

Decrease in debtors and prepayments 18 141

(Decrease)/increase in creditors and provisions (912) 853

(894) 944

Net cash flow from operating activities (3,204) (927)

Condensed Consolidated Statements of Cash FlowsFor the Half-year Ended 30 June 2012

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Notes to the Condensed Consolidated Financial StatementsFor the Half-year Ended 30 June 2012

1. Statement of Accounting PoliciesHighlands Pacific Limited and its subsidiaries (“together the Group”) carry out exploration and development activities. All of the Group’s activities are carried out in Papua New Guinea, where the Company is incorporated and domiciled. The registered office is in Port Moresby, Papua New Guinea.

The Company is listed on both the Australian Securities Exchange and the Port Moresby Stock Exchange.

This condensed consolidated interim financial report for the half-year reporting period ended 30 June 2012 has been prepared in accordance with International Accounting Standard IAS 34: Interim Financial Reporting.

This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2011 and any public announcements made by Highlands Pacific Limited during the interim reporting period in accordance with the continuous disclosure requirements.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

2. Property, Plant and Equipment Land and Buildings Plant and Equipment Total

US$000 US$000 US$000

Consolidated - 30 June 2012

Cost

Balance at 1 January 2012 232 356 588

Additions - 1 1

Cost 30 June 2012 232 357 589

Depreciation

Balance at 1 January 2012 60 210 270

Charge for the year 9 35 44

Depreciation carried forward 69 245 314

Net book value at 30 June 2012 163 112 275

3. Exploration and Evaluation ExpenditureFrieda Other Total

US$000 US$000 US$000

Balance 1 January 2012 43,817 - 43,817

Capitalised during the period 1,785 5,218 7,003

Less provisions for exploration costs - (5,218) (5,218)

Proceeds from sale of Nena Option EL58 (10,800) - (10,800)

Balance 30 June 2012 34,802 - 34,802

The carrying value of the Group’s interest in the Frieda project has decreased by uS$9.0 million for the period. This net decrease is made up of an increase of uS$1.8 million and a decrease of uS$10.8 million. The increase of uS$1.8 million represents Highlands direct holding costs in relation to overseeing it’s interest in the Frieda joint venture and Highlands share of project expenditure carried out by Xstrata Frieda River Limited (refer note 5).

Also on 23 January 2012, Xstrata exercised its option over the Nena copper/gold deposit in Papua New Guinea paying Highlands uS$10.8 million and as a result the deposit now forms part of the Frieda River joint venture. This has resulted in a reduction in the carrying value of the interest in the Frieda project by uS$10.8 million during the period.

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Notes to the Condensed Consolidated Financial Statements (continued)For the Half-year Ended 30 June 2012

During the period the Frieda project continued along its development path with a further resource increase announced in February 2012. The project is currently in the feasibility study stage, having completed an 18 month pre-feasibility study in November 2010. The feasibility study deadline was extended in November 2011 from January 2012 to December 2012 to allow for a number of potential electrical power options to be considered which presented late in the study timeframe.

Highlands has been free-carried by its joint venture partner on its share of project expenditure to January 2012, however, from this time until the lodgement of a Special Mining Lease, a carried funding loan arrangement to be repaid during production is in effect, (refer note 5).

In assessing the carrying value of the Frieda project, the Directors have considered the value of the resource inventory, which continues to grow, with reference to a range of multiples applied by the market. They have also taken into consideration that to January 2012, the operator / manager had expended over uS$260m on drilling and studies with Highlands’ share being free-carried. The value by reference to the present value of the expected future cash flows at a real discount rate of 10%, to be generated by the asset assuming its ultimate successful development; and potential current realisable value by reference to comparable transactions and farm-in arrangements has also been considered. Other critical assumptions used in arriving at the present value of the future cash flows include long term commodity prices for copper of uS$2.60/lb and gold uS$1,100/oz.

The Group’s expenditure to date on the Frieda project is uS$35 million, hence the Group is carrying the value of the project at the maximum level allowed.

4. Investment in Ramu ProjectConsolidated

30 June 2012

US$000

Ramu

Balance 1 January 2012 50,000

Capitalised during the period 279

Less provisions for exploration costs (279)

Balance 30 June 2012 50,000

The carrying value of the Group’s interest in the Ramu project has been maintained at uS$50 million. The amount capitalised during the year and ultimately provided against, represents Highlands’ direct holding costs relative to overseeing its investment in the Ramu project.

The bulk of construction on the project commenced in the 2008 year and continued to the end of 2010. The project undertook commissioning where possible, in the 2010 and 2011 years however, an injunction preventing the operation of the Deep Sea Tailings Placement system since March 2010 has prevented the project operating fully. This injunction and associated legal appeals were finally removed in December 2011 and the project now has no legal impediments to commence production. The project has been ore commissioning since early March 2012 and it is expected that ramp-up to full production rates will continue for a further 12-18 month period.

In assessing the carrying value of the Ramu project, the Directors have considered the value by reference to the present value of the expected future cash flows (at a risk adjusted equity real discount rate of 10%) to be generated by the asset assuming its ultimate successful development. Other critical assumptions used in arriving at the present value of the future cash flows include long term commodity prices for nickel of uS$9.00/lb and cobalt uS$13.75/lb. A 10% movement in the price assumptions for nickel results in a movement in the present value of future cash flows of uS$20 million.

The Group’s expenditure to date on the Ramu project is approximately uS$95 million; the Group is still holding an impairment charge of approximately uS$45 million on the project.

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5. Trade and Other PayablesConsolidated Consolidated

June 2012 December 2011

US$000 US$000

Current

Trade creditors 10 268

Accruals and other creditors 1,152 2,629

1,162 2,897

Non-Current

Other creditors* 258 206

Carried funding loan** 1,479 -

1,737 206

*During 1999, Highlands Pacific entered into an agreement with Eastern Pacific Mines Limited (“Eastern”) to purchase Eastern’s 10% interest in the Ramu joint venture. The terms of payment due to Eastern under this agreement were varied by a further agreement executed on the 1st February 2010 reducing the total amount payable from Au$1.5 million to Au$1.0 million. During 2010 PGK1.7 million was paid to Eastern with the balance of Au$272,140 (uS$258,698) to be paid to Eastern when the Ramu project commences commercial production. This amount has been booked as a non-current other creditor during the 2012 half year and discounted from the estimated date of payment to the balance date using the Long Term Bond rate of 3.54%.

**The Carried Funding Loan represents the amount owing to Xstrata Frieda River Limited (“XFRL”) as at 30 June 2012 as the result of XFRL carrying the Group’s share of expenditure on the Frieda project from 23 January 2012 up until the date an application for a Special Mining Lease is made. The Carried Funding Loan has been classified as a financial liability is in accordance with IAS32 Financial Liability. Interest on the loan has been accrued and capitalised into the exploration evaluation expenditure balance, in accordance with IAS23 Borrowing costs.

6. Contributed EquityJune 2012 December 2011 June 2012 December 2011

Paid Up Capital US$000 US$000 Shares 000’s Shares 000’s

Balance brought forward 280,176 280,046 686,082 685,582

Issued during the period - 132 120 500

Less costs associated with issue - (2) - -

Balance carried forward 280,176 280,176 686,202 686,082

The total number of shares issued as at 30 June 2012 was 686,202,481. In accordance with the Papua New Guinea Companies Act 1997 the Company’s shares are fully paid, have no par value and there is no authorised capital level.


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7. Segment Reporting Exploration Frieda Ramu Corporate Group

US$000 US$000 US$000 US$000 US$000

30 June 2012

Segment revenue - - - 65 65

Segment result (5,218) - (279) (2,382) (7,879)

Net Profit / (Loss) (5,218) - (279) (2,382) (7,879)

Segment assets - 34,802 50,000 8,375 93,177

Segment liabilities (508) (1,567) (273) (803) (3,151)

Acquisition of segment assets - 1,785 - 1 1,786

Segment depreciation and amortisation - - - (44) (44)

30 June 2011

Segment revenue - - - 266 266

Segment result (3,859) - (234) (2,259) (6,352)

Net Profit / (Loss) (3,859) - (234) (2,259) (6,352)

Segment assets - 43,437 50,000 16,763 110,200

Segment liabilities (550) - (303) (1,441) (2,294)

Acquisition of segment assets - 307 - 5 312

Segment depreciation and amortisation - - - (35) (35)

31 December 2011

Segment assets - 43,817 50,000 7,408 101,225


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8. Events Occurring after Balance DateOn 9 July 2012 a uS$15 million placement with PNG Sustainable Development Program Limited (“PNG SDP”) was announced. In accordance with the Placement Agreement Highlands has issued 102,930,373 fully paid shares to PNG SDP which represents an issue price of approximately A14.5c per share.

Directors’ Declaration

In the Directors’ opinion:

(a) the financial statements and notes set out on pages 2 to 10 are in accordance with:

i) International Financial Reporting Standard IAS34: Interim Financial Reporting and other mandatory professional reporting requirements; and

ii) give a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance, as represented by the results of its operations, changes in equity and its cash flows, for the half-year ended on that date; and

(b) there are reasonable grounds to believe that Highlands Pacific Limited will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of Directors.

John E Gooding Managing Director

7 September 2012


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Report on the Half-year Financial Report We have reviewed the accompanying half-year financial report of Highlands Pacific Limited Group (the consolidated entity) which comprises the condensed statement of financial position as at 30 June 2012, the condensed statements of comprehensive income, changes in equity and cash flows for the half-year ended on that date, and other selected explanatory notes for the consolidated entity. The consolidated entity comprises Highlands Pacific Limited (the Company) and the entities it controlled during that half-year.

Directors’ responsibility for the half-year financial report The directors of Highlands Pacific Limited are responsible for the preparation and presentation of the half-year financial report that presents fairly in accordance with International Financial Reporting Standards (including generally accepted accounting practices in Papua New Guinea) and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with International Standard on Review Engagements ISRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that causes us believe that the financial report is not presented fairly, in all material respects, in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. As the auditor of Highlands Pacific Limited, ISRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Highlands Pacific Limited does not present fairly, in all material respects, the consolidated entity’s financial position as at 30 June 2012 and of its performance for the half-year ended on that date; and compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting and generally accepted accounting practices in Papua New Guinea.

Other mattersThis report, including the review conclusion, has been prepared for and only for the company’s shareholders as a body and for no other purpose. We do not, in giving this review conclusion, accept or assume responsibility for any other purpose or to any other person whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers

By: Grant E Burns Jonathan Seeto Engagement Leader Partner Registered under the

Accountants Act 1996

Port Moresby 7 September 2012

Independent auditor’s review report to the members of Highlands Pacific Limited

PricewaterhouseCoopers, 6th Floor Credit House, Cuthbertson StreetPO Box 484, Port Moresby, Papua New GuineaT: +675 321 1500, F:+675 321 1428, www.pwc.com/pg

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Australia

Level 4, 167 Eagle Street Brisbane Qld 4000 (GPO Box 3086, Brisbane Qld 4001) Australia

Telephone: (617) 3239 7800 Facsimile: (617) 3221 6727

Papua New Guinea

Level 1, Allotment 6, Section 58 Sir Hubert Murray Highway Boroko NCD (PO Box 1486 Port Moresby, NCD 121) Papua New Guinea

Telephone: (675) 323 5966 Facsimile: (675) 323 5990

www.highlandspacific.com

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Documents

Half Year Results · 2012-09-07 · drilling program is underway with some significant copper gold ... Highlands Pacific Limited and Subsidiary Companies ... Exploration, evaluation