Vengold buying 20% stake in RTZ’s Lihir gold deposit

The stage is set for Venezuelan Goldfields (VSE) to acquire a 19.99% interest in the Lihir Island gold deposit in Papua New Guinea.

Widely considered to be the world’s largest undeveloped gold resource, Lihir is estimated to have proven and probable reserves of more than 16 million oz. gold which includes a minable reserve of 13.7 million oz. The acquisition is still subject to final documentation and approvals by regulators and the PNG government. But once those are in hand, the project would be owned 30% by Niugini Mining (which discovered the deposit in 1983) and 30% by the PNG government. The remaining 40% would belong to a holding company owned 50.1% by RTZ (NYSE) and 49.9% by Vengold.

RTZ, which originally owned 80% of Lihir, would continue to operate the project. The major has already spent more than US$100 million proving up the reserve and completing a feasibility study. Production is projected to average 620,000 oz. gold per year during the first 12 years, with a review in the fifth year to double production to 1.3 million oz. annually. Cash costs are expected to be US$185 per oz.

Niugini Mining, owned 56.5% by Battle Mountain Gold (NYSE), currently holds a 20% interest in Lihir. This will be reduced to 14% once the PNG government completes its purchase of 30% of the project.

Niugini agreed to buy a further 16% interest from RTZ for US$48 million to bring its total interest to 30%. These transactions will also result in Battle Mountain’s equity position in Niugini Mining being reduced to below 50%.

“Lihir represents a great resource and a great opportunity to combine an advanced project with our existing exploration projects in Venezuela,” said Vengold President Ian Telfer.

The company became interested in Lihir upon learning that RTZ was looking to reduce its interest because of pressure from the PNG government to bring in a third investor.

In his previous post as head of TVX Gold, Telfer was involved in a joint venture with RTZ on a gold project in Brazil. That relationship, and a willingness to take on a more advanced project in a foreign country, prompted Vengold to pursue an interest in the mega project.

But Telfer told The Northern Miner that Venezuela will remain “front and centre” for the expanded technical team which now includes Robert Gallagher as vice-president of operations and Greg Moseley as vice-president of exploration. Gallagher’s experience includes a stint at Placer Dome’s La Coipa gold mine in Chile whereas Moseley previously worked in Latin America as a senior geologist for General Mining of South Africa.

“The proceeds of our recent $48-million private placement will be used to continue work in Venezuela, a country we remain very excited about,” Telfer said. “We intend to raise the $60 million required for the new acquisition plus our share of capital costs through a combination of equity and project financing.”

The company has until the first quarter of 1994 to raise the $60 million needed to acquire Lihir, as the funds are not required until the mining lease is issued early next year. “We have a long lead time and will wait for the right moment to raise those funds,” Telfer added.

Vengold will also be responsible for its share of capital costs. The original estimate was US$767 million, though a revised projection, due at the end of August, is expected to total US$600-650 million.

Construction is projected to last 28 months and will start once the mining lease is received from the PNG government. The mine would be designed, built and operated by RTZ.