Lihir banks on PNG

LIHIR Gold (LGL) achieved a record half year gold output of 612,000 ounces in the last half of the 2008/09 financial year, on the back of a strong June quarter for its Papua New Guinean, Côte d’Ivoire and Queensland operations.

Managing director Arthur Hood, says the LGL is now reaping the benefits of a diversified portfolio of producing mines, particularly the Equigold acquisition in Côte d’Ivoire.

“Moving into the second half of 2009, LGL is debt-free, with a strong cash balance and a growing production profile. Following the closure of the company’s hedge book in early July, the LGL group is once again completely unhedged, maximising gold price leverage for our shareholders,” says Hood.

“I’m confident in our ability to deliver further operating and financial improvements as the year progresses.”

The company will receive a boost to liquidity after deciding to sell its Ballarat gold mine in Victoria following a review of the project.

The project is unlikely to achieve the scale required to fit within the LGL portfolio. A re-assessment of historical mining records and more recent experience has determined that the project will not sustain large scale bulk mining techniques, with production unlikely to exceed 100,000 ounces per year.

Total staff numbers will be reduced by 200 to around 100 in order to maintain operations during a transition to new ownership. This follows a further 200 that were sacked in May after its gold resource had been over estimated.
The sell-off represents a write off of about $350 million for the company.

Hood says LGL has received expressions of interest from a number of potential acquirers, which will be further pursued in coming weeks. The sale process is expected to be completed early in the New Year.

“The Ballarat project unfortunately will not fit our preferred investment criteria. The disposal of the asset will enable management to focus on growth opportunities being developed in West Africa and at our Lihir Island operations in PNG,” he says.

Total production at Ballarat in the current year is expected to be up to 20,000 ounces and the interim profit results will include an impairment charge associated with the Ballarat assets in the range of US$250-350 million after tax.

Overall expected LGL group gold production in the current year remains unchanged at between 1 million and 1.2 million ounces.

The company will release is half year financial results on August 26.

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