Lihir Gold (LGL) Update

Submitted by Jim Thesiger on 2 May, 2008 - 01:58

Lihir Gold (LGL) has a price target of $1.95 from Australian stock analyst UBS.

Lihir Gold (LGL) has production below expectations with higher costs for March 08 quarter

Event: 139koz gold production for the quarter:

Gold production for the quarter was 139koz at cash cost of US$722/oz. This was 8% below our estimate of 150koz and well above our cost estimate of US$537/oz. Costs were impacted by higher fuel charges, adverse FX movements, the total plant shut and unexpected one off costs.

Impact: Higher costs cuts earnings estimates by 10+%:

Cash costs for the quarter at Lihir Island were US$100m and while US$10m were one off in nature, we expect a similar amount now for the remainder of 2008 as higher energy prices persist. As a result we have downgraded FY08/09/10 earnings (pre ab) by 16%/13%/16%, respectively.

Action: Maintain Buy rating. Price target lowered to $4.50:

Our valuation has reduced to $1.95 per share on the back of lower earnings. We have lowered our price target multiple to 2.3x NPV (previously 2.4x) to reflect our assumed higher cost base which has resulted in our price target being lowered to $4.50 from $5.00. We believe the recent share price weakness reflects the declining gold price and caution post the proposed Equigold merger. With Lihir now trading at only a 50% premium to NPV we see good value and maintain our Buy rating given Lihir has historically traded above 2x NPV.

Valuation: $1.95 (DCF, 10% d.r)

Our valuation is $1.95 based on a long term gold price of US$650/oz.