Company Briefing: Lihir Gold

The company’s growth and diversification strategy has seen it deliver three consecutive years of record gold production, and in 2009, LGL is on track for its fourth.
Once a single-mine company grappling with performance issues, LGL now has three mines in production in three countries, producing at a combined rate of more than one million ounces of gold per year, with extensive growth opportunities in the pipeline. The company has established its position among the ranks of the world’s largest gold producers, with a portfolio of low cost operations and an enviable growth profile.
There have been several important developments in LGL’s transformation journey, including major process plant and geothermal expansions at Lihir Island, successful mergers with Equigold and Ballarat Goldfields, a comprehensive financial restructure exposing LGL to a rising gold price and the Million Ounce Plant Upgrade project.
Under the leadership of Arthur Hood, who took the helm as the company’s first independent CEO in late 2005, LGL has pursued a strategy to maximise the full potential of the rich Lihir Island gold deposit in Papua New Guinea, and then use that platform to build an internationally-competitive, diversified gold producer.
The first step in that process was a series of operational changes at Lihir Island aimed at lifting output and performance. These initiatives delivered immediate results, with record gold production achieved at the operation in 2006, 2007 and 2008. The next step for LGL was a merger with Ballarat Goldfields in 2007, which provided the company with important geographic diversity and new avenues for growth.
In 2008, LGL achieved major progress with its diversification strategy through a merger with mid-tier producer Equigold NL. The merger brought two new projects to the LGL group - Mount Rawdon in Queensland, and Bonikro in Cte d’Ivoire - as well as more than 20,000 square kilometres of exploration potential in parts of West Africa’s highly prospective but relatively under-explored Birimian greenstone belt.
Since the acquisition was completed, the Bonikro mine has been successfully brought into production, and the Mt Rawdon operation has continued its reliable track record of consistent delivery. Together, these mines will lift LGL’s annual gold production by approximately 240,000 ounces per year, at highly competitive cash costs.
The merit behind the company’s strategy has been reinforced by a favourable reaction from the global investment community, which is most apparent by the surge in the company’s market capitalization from A$1.9 billion when Hood joined to its current level of around A$7 billion. This makes LGL Australia’s largest publicly listed gold miner after Newcrest Mining Limited, and positions it comfortably within the S&P/ASX 50.
According to Hood, LGL has considerable organic growth opportunities ahead of it, including the Million Ounce Plant Upgrade (MOPU) Project at Lihir Island.
“MOPU is arguably the most momentous step in the development of LGL. It will provide the impetus for the next stage of the company’s growth over the coming years, and lift the Lihir Island operation to an appropriate scale to extract full value from the current 22 million ounce reserve,” he said.
The project will see annual gold production at Lihir Island rise to approximately one million ounces on average from 2012, following the installation of an additional autoclave of twice the capacity of each of the three existing autoclaves, as well as additional crushing, grinding, thickening, oxygen, and leach plant facilities.
“It will enable us to process much more of the ore that we mine, reduce stockpiling and recover an additional million ounces than would otherwise have been the case with the existing plant,” Hood said.
“The economic benefits of the project are compelling. It will require a capital investment of US$700 million, which will boost gold output by an average of 240,000 ounces per year and reduce costs by approximately $80 per ounce over the remaining life of the operation.”
Last year Hood led LGL through a major financial overhaul, raising A$1.2 billion in new equity through an entitlements offer and institutional placement. The funds were predominantly used to close out the company’s hedge book, repay its gold loan facility and retire outstanding debt.
The company’s overall financial position was further strengthened in the first quarter of 2009 through a share placement and share purchase plan, which together raised approximately US$340 million.
“The major financial restructure of 2008 opened the company to the gold price, which has increased our attractiveness to global investors. We also have the financial flexibility to fund growth initiatives at our operations,” Hood said.
According to Hood, LGL is now taking its place on the world stage as a gold company with strong drive and clearly defined growth plans.
“We are debt free, with significant cash resources, rising cashflows, minimal hedging and a strong growth profile. We are ideally positioned to produce consistent and reliable returns for shareholders, at a lower overall risk,” he said.
“We still have work to do and challenges ahead of us, but we have a robust strategy that we are executing to plan. I am very optimistic about what the future holds for this great gold company.”