How a small cap miner doubled despite a weak copper price29.04.2015

Small Cap Stock Success

If small cap mining companies are looking for a template for success in an environment of weaker commodity prices they should look no further than Highlands Pacific (HIG), whose stock had doubled in the past month and is now up 50% since the start of March.

The rise of the Papua New Guinea based company’s fortunes is an education on how a management team led by John Gooding has managed to squeeze value out of a number of projects in which it holds minority interests.

Highlands is now trading at 9.1 cents and has a market cap of $84m and could go up further due to its strong financial and strategic position. It’s not any company that can extract $10m upfront as a payment from a resources giant like Anglo American!

Copper fallen 10% but it's essential for electronic componentry

More about that in a second, but demand coming from the biggest manufacturer the world has ever seen has been the key. The copper price has fallen about 10% this year, but it appears that Chinese interests are determined to get their hands on copper concentrate, which is still essential for electronic componentry.

Highlands Pacific’s most notable minority holding is its 20% stake in the PanAust (PNA) controlled Frieda River copper/gold project in PNG. This asset is the reason behind the $1.1bn takeover offer last month from the Chinese investment company Guangdong Rising Assets Management (GRAM).

Not only does Highlands Pacific own 20% of the PanAust controlled Frieda project, it also has a minority position of 8.56% in Ramu Nickel, also in PNG, which is owned and developed by Chinese interests, which have so far spent over $2bn. Plus, unlike most mining juniors, it secured $10m from the mining giant Anglo American to farm into its Star Mountains copper/gold project (also, you guessed it, in PNG). Anglo will spend another $25m to secure 51% of the project.

Sundance Energy: Resources Small Cap that is ahead of the game

Another resources company covered by Under the Radar Report whose management is delivering the goods is Sundance Energy (SEA), which is led by Eric McCrady, who worked in private equity prior to running the North American based oil and gas fraccing specialist.

Under McCrady, Sundance Energy has been able to stay well ahead of the game.  Not only has it kept its balance sheet conservatively geared, but it has been able to engage in expansion because it has bought and sold assets at the right time. It sold most notably when the market was running hot and re-invested into Eagle Ford, which is the premier shale oil producing region in the world.

Its shares have been depressed owing to the steep decline in the oil price, but we believe that McCrady will deliver big cash flow even at the current oil price of US$55 a barrel. Although, we admit that a stronger oil price would help. Even the best management teams need some luck.

Good Oil Small Cap Report

Read our most recent Under the Radar Report issue now for all the Good Oil and why there oil price has been bouncing.

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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