Vengold boosts stake in Lihir gold mine

Vengold (VEN-T) has purchased a further 6.5% stake in the Lihir gold mine in Papua New Guinea. The $133.5-million acquisition raises its interest to 19%, making it the largest of Lihir’s stakeholders.

The mine is owned by Papua New Guinean-based Lihir Gold (LIHRY-Q), whose other shareholders include Rio Tinto (RTP-N) and Australian-based 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 being managed by a subsidiary of Rio Tinto under a long-term contract.

Over the past year, Vengold completed a series of transactions involving open market purchases and share swaps to increase its stake in Lihir Gold to 12.4% from 5.7%. The latest purchase was acquired from Australian-listed Orogen Minerals, which is 51%-owned by the government of Papua New Guinea.

Vengold paid A$67.5 million cash and a non-interest-bearing note payable in the amount of A$78.2 million due Dec. 31, 1999. Financing for the A$67.5 million was provided by ANZ Investment Bank in the form of a bank loan due Aug. 4, 1999. Placer Dome (PDG-T) holds a 16.5% interest in Vengold.

In the second quarter of 1998, the Lihir mine produced 122,564 oz. at a cash cost of US$204 per oz. Production in the first six months totalled 262,089 oz. at an average cash cost of US$191 per oz. An average gold price of US$346 per oz. was realized.

Production was adversely affected during the second quarter and first half by various unrelated equipment constraints, principally in the oxidation circuit. As a result, overall production was 11% below forecast.

At the end of 1997, minable reserves were estimated at 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. The estimates were based on a gold price of US$365 per oz. and a cutoff grade of 2 grams. During the second half of the year, Lihir will assess the need to recalculate the reserves using a lower gold price.

A revised forecast for the Lihir mine calls for 600,000 oz. to be produced this year at a cash cost of US$190 per oz.

Open-pit mining is expected to be carried out over a 15-year period, during which time the higher-grade ore will be fed directly into the processing plant. The lower-grade ore will be stockpiled and processed during the next 21 years, resulting in a total projected lifespan of 36 years.

The Lihir mine recently satisfied the technical and financial objectives of a US$300-million debt facility arranged by the syndicate banks by the Papua New Guinean government, Rio Tinto and Niugini.

For the first six months of 1998, Lihir Gold recorded an after-tax profit of US$4.1 million on revenue of US$90.9 million.