Lihir Gold Limited Update

Submitted by Craig Strzelecki on 18 April, 2007 - 18:53

Lihir Gold Limited (LHG) has a Neutral 2 broker call and a share price target of $3.60 from sharemarket analyst UBS. The gold miner has had a Financial restructure to leave Lihir free of debt and hedging. The company is raising of A$1.2b via entitlement offer and placement: Lihir is to raise A$1.2b in new equity through a 1 for 3 rights offer at $2.30, a 26% discount to the theoretical ex-rights price, and an additional placement, to close out its hedge book, repay its gold loan and other debt, and fund future expansions. The transaction is value dilutive on UBS gold price forecasts: the benefit of the transaction is the creation of a fully leveraged gold play. The trend among global gold majors has been to de-hedge, and as metal prices have continued to surprise on the upside, lower hedging has been popular with the market. However closing out the hedgebook when gold has hit US$690/oz, compared to the UBS forecasts which see gold back below this level by year end is dilutive. Lihir Gold Limited requires US$500-550m for the proposed expansion to >1Moz. We estimate only US$200m may be available following this transaction for the project, leaving further funding requirements outstanding. The analyst's valuation for Lihir Gold Limited falls from $1.62 to $1.24. Lihir was previously trading at a premium of 2x our NPV which was attractive compared to global majors trading at 2.5x. The theoretical ex-rights price of $3.09 is a 2.4x multiple to our adjusted valuation, making Lihir less attractive.

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!