Mining lease issued for Lihir

The government of Papua New Guinea (PNG) has granted a special mining lease for the Lihir gold project, clearing the way for construction to begin during the second quarter. The project, on Lihir Island, 370 miles northeast of the PNG mainland, is one of the world’s largest undeveloped gold deposits.

“The special mining lease is the final approval stage which allows the mining group the right to start (building) a mine,” says Les Van Dyke, spokesman for Battle Mountain Gold (NYSE). The company holds 51% of Niugini Mining, which made the original discovery and which has a 30% stake in Lihir. Lengthy negotiations with government officials and local landowners had held up final approval of the project for several years. But recent political changes in PNG contributed toward an agreement between the mining companies, government and landowners which provides for the compensation and social well-being of the original owners of the land.

The ownership of the project, at this point, stands at Niugini with 30%, a subsidiary of RTZ (NYSE) with 40%, and the PNG government and landowners with the remaining 30%.

Vengold (TSE) has an agreement with RTZ for a 10% interest in Lihir, which will be accomplished by Vengold’s purchase of a 25% share in the RTZ subsidiary for US$50 million. Vengold President Ian Telfer expects to close a financing for this deal during the second quarter.

The various parties will pool their interests into a company called Lihir Gold, which is to be formed for the purpose of developing and operating the project. Financing for the US$670 million Lihir mine will be through bank loans and an initial public offering of shares in Lihir Gold. Conditions on Lihir Island are considered primitive, and infrastructure requirements include a town site, 54-MW power station, airstrip and wharf facilities. To date, some US$155 million has been spent delineating the deposit and carrying out mine planning and environmental assessments. Lihir is situated at sea level, not far from the coast, within a young, breached caldera. Much of the proposed open pit (the depth of which is projected at 985 ft.) will be below sea level, and so a “king-size dewatering program” will be required, Van Dyke says. Groundwater within the caldera is also well above normal temperatures, though rain water is expected to cool the rock as the digging proceeds.

Reserves are estimated at 114.4 million tons grading 0.13 oz. per ton (at a cutoff of 0.06 oz.), for a contained resource of 14.6 million oz. (With lower cutoff grades, these figures are greater.) The mine is expected to yield 620,000 oz. per year at a cash cost (during the first 15 years) of US$211 per oz.

The 9,350-ton-per-day open-pit operation will utilize autoclaving followed by carbon-in-leach processing. Expansion plans involve doubling mill throughput to 18,700 tons per day.

The life of the mine is expected to exceed 30 years.