Vengold reduces interest in Lihir — Sale enables company to shed US$11m in outstanding debt.

Shaky year-end results and a US$178.1-million debt load prodded Vengold (VEN-T) to cut its interest in the Lihir gold mine in Papua New Guinea.

Vengold sold 5.9 million shares of Australian-based Niugini Mining and reduced its direct and indirect interest in the Lihir gold mine to 18.5% from 19.3%. The proceeds were used to reduce the company’s outstanding debt by about US$11 million.

“This reduction in indebtedness was a decision of the board of directors and is the first step in the refinancing of Vengold’s debt,” says President Ian Telfer.

At the end of 1998, Vengold had US$178.9 million in long-term debt. The figure includes two loans, from the ING Bank and the ANZ Investment Bank, totalling US$72.8 million. The loans are due Aug. 4, 1999, and Vengold is seeking to refinance them loans for longer terms. The company has no intention of further reducing its interest in the mine.

In 1998, Vengold incurred a loss of US$14.4 million (or 11 cents per share) on revenue of US$28.5 million, compared with a loss of US$12.5 million (17 cents per share) on US$5.9 million in the previous year.

For the fourth quarter of 1998, the company reported a loss of US$7.6 million (5 cents per share) on US$9.8 million in revenue, compared with a year-ago loss of US$8.8 million (U12 cents per share) on US$5.9 million.

Fourth-quarter revenue from gold sales was enhanced by Lihir’s hedging program, which contributed US$64 per oz.

Last year, Lihir produced 6.8 million tonnes grading 6.94 grams gold per tonne. At a gold recovery rate of 95.1%, the operation cranked out 520,000 oz.

The mine sold 515,000 oz., with Vengold’s share totalling 80,000 oz. at a total cash production cost of US$224 per oz.

At the end of 1997, the mine was estimated to have minable reserves of 101.8 million tonnes grading 4.39 grams gold per tonne, equivalent to 14.2 million contained ounces at a stripping ratio of 3.1-to-1. These estimates were based on a gold price of US$365 per oz. and a cutoff grade of 2 grams.

In 1998, Vengold spent US$1.5 million on exploration, compared with US$2.9 million in 1997. Last year’s expenditures were applied to six properties in Nevada and one in Argentina. Drilling on the Nevada properties is expected to begin in the second quarter of 1999.

The Lihir mine is expected to produce 700,000 oz. gold this year, of which Vengold’s share will amount to about 135,000 ounces. Cash costs are expected to decline towards US$210 per oz. once repairs to an autoclave have been made.

The mine is owned by Papua New Guinea-based Lihir Gold (LIHRY-Q), whose stakeholders include Rio Tinto (RTP-N) and Niugini Mining, each of which has about a 17% share, and Battle Mountain Gold (BMG-N), which owns 50.5% of Niugini.

The open-pit mine is managed by a subsidiary of Rio Tinto under a long-term contract.

Placer Dome (PDG-T) holds a 16.5% interest in Vengold.