Lihir Gold Ltd (LHG) Update

Lihir Gold (LHG) have a maintained Hold rating from Citigroup Investment Research (CIR). Post completion of the LHG/BGF merger, the analyst is incorporating the Ballarat gold mine into their LHG model. Dilution from new stock issued meant that the transaction was NPV destructive; however, their Hold recommendation remains due to the potential for greater things from Lihir Island. NPAT for FY07E and FY08E has changed by -5% and +4%,respectively. Lihir Gold's risk profile has increased; The company previously trading at a discount to its peers due to its single PNG mine status, however, the resource/reserve uncertainty at Ballarat has actually increased the risk profile. The nature of the mineralisation at Ballarat makes production forecasts unreliable thus increasing the risks of LHG missing production guidance targets. Company guidance for Ballarat suggests that the mine will produce 100koz in CY08 ramping up to +200koz in CY09 and 250koz in CY10. CIR are forecasting 65koz, 180koz and 200koz respectively. It is worth remembering that production was supposed to have commenced a year ago. To put the blue sky into context, the project currently has 1.4Moz in resource, of which 1.2Moz are in the lowest confidence inferred category, and no reserves. The LHG acquisition is based on a mining plan that produces 4.8Moz over a 20-year mine life at cash costs below US$220/oz. The company now has several fronts to focus on. The first milestone is the commissioning of the flotation plant (due to commence in April). This will be followed by commercial production at Ballarat (early 2008). Whilst in the background, progress on the Lihir Island expansion to +1Mozpa will be measured against the time frame and costs given in January.

Lihir Gold Limited is listed on the Australian Stock Exchange (ASX) under stock code LHG. You can view their investor website here. Ross Garnaut is the Chairman of Lihir Gold and the CEO is Arthur Hood. LHG was listed on the ASX on 9 October, 1995. Lihir Gold is involved in mining and production of Gold on Lihir Island in Papua New Guinea (PNG). Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade LHG. Check your charts and good luck with your share trading!