Battle Mountain writes off stake in Lihir — More gold produced at Golden Giant, Kori Kollo

To fund development projects in the U.S., Battle Mountain Gold (BMG-N) will dispose of its interest in the Lihir gold mine in Papua New Guinea.

The company holds an 8.65% interest in the mine’s owner, Lihir Gold (LIHRY-Q), through its 50.5%-held subsidiary, Niugini Mining.

Battle Mountain plans to liquidate the asset through the sale of Australian-listed Niugini. Niugini, with a market value of US$100 million, has a 17% stake in Lihir, which is its major asset. Proceeds from the sale would be used by Battle Mountain to develop either of two gold projects: Phoenix in Nevada, or Crown Jewel in Washington state.

In the fourth quarter of 1998, Battle Mountain wrote down US$90 million against the value of Lihir. Other writedowns included US$49.9 million for the Kori Kollo gold mine in western Bolivia, US$40.3 million for Crown Jewel and US$10.8 million for the Reona project in Nevada.

The writedowns totalled US$216.8 million (or 94 cents per share), resulting in a fourth-quarter loss of US$224.6 million (98 cents per share), compared with a loss of US$20.8 million (9 cents per share) in the corresponding period of 1997. For all of 1998, the company incurred a loss of US$248.8 million ($1.08 per share), compared with a year-ago loss, including non-recurring items, of US$16.3 million (7 cents per share).

Battle Mountain President Ian Bayer says the writedowns are a reflection of low gold prices but added that the company intends to expand production to 1 million oz. by 2002 and double reserves by 2005.

In 1998, Battle Mountain produced 889,000 oz. gold at a cash cost of US$161 per oz., with higher output reported at two mines. Golden Giant, near Marathon, Ont., produced 366,000 oz. gold at US$122 per oz., compared with 362,000 oz. in 1997 at $134 per oz., while Kori Kollo cranked out 295,000 oz. at US$175 per oz., compared with 280,000 oz. at $193 per oz. in the previous year.

At the end of 1998, the company had 9.1 million oz. in proven and probable reserves calculated at a gold price of US$325 per oz, compared with 8.9 million oz. in 1997, based on US$350 per oz.

Battle Mountain added 1 million oz. of reserves to the Phoenix project, bringing the total there to 3.5 million oz. within 81.7 million tons grading 0.043 oz. per ton. The company submitted an expanded plan of operations to the Bureau of Land Management, and a draft environmental impact statement is expected by mid-year. A feasibility study is expected in the third quarter, by which time the company hopes to add another million ounces through 145,000 ft. of drilling.

Farther afield, at the Vera-Nancy mine in Queensland, Australia, drilling has boosted reserves by 560,000 oz. Battle Mountain’s 50% share of the reserves amounts to 400,000 oz. within 1 million tons grading 0.39 oz. per ton.

Drilling is planned, as well, for the El Castillo discovery in central northwestern Mexico, where reserves could be updated by year-end. At last report, the grassroots property contained a resource of 68.6 million tons grading 0.018 oz. per ton, equivalent to 1.25 million oz. gold. Included in the estimate are 37.5 million tons of oxide material at 0.024 oz. per ton.

Battle Mountain expects to spend US$25 million on exploration in 1999, including US$16 million in North and South America.

Production for the year is projected at 720,000 oz., down 12% from 1998, though cash costs will likely remain low, at US$175 per oz.

In the meantime, Battle Mountain is moving ahead with development of Crown Jewel, with startup scheduled for the second half of 2001.