Lihir Gold expands namesake mine

A review of the resource model by Australia’s Lihir Gold (LIHRY-Q) has upped reserves by 25% at the company’s namesake mine on Lihir Island, northeast of mainland Papua New Guinea.

The island, a volcanic mount rising steeply to 600 metres above sea level, measures 22 km from north to south and stretches 14.5 km from east to west at its widest points.

Situated on the east coast of the island, the Luise Caldera hosts all of Lihir’s known deposits. Principal among the adjacent and partly overlapping mineral deposits are Lienetz, Minifie, Coastal and Kapit. Most of the known gold mineralization is in the Minifie and Lienetz deposits.

Since the last model review in 2000, Lihir has sunk a total of 180 holes on the North East Minifie and Borefields/ROM zones and in the eastern half of the Lienetz deposit. This latest review does not include holes sunk on the northwestern extension of Lienetz or those completed during the fourth quarter of 2001. It does include drilling on new extensions to the Lienetz and Borefields zones. The review is based on an assumed life-of-mine gold price of US$300 per oz.

At the end of 2001, Lihir’s measured, indicated and inferred resources, including reserves, amounted to 353.8 million tonnes averaging 3.04 grams of gold per tonne or 34.6 million contained ounces.

Proven reserves stand at 10.3 million tonnes grading 4.55 grams gold (1.5 million contained ounces), while probable reserves amount to 90.2 million tonnes running 4.05 grams gold (11.8 million oz.).

Another 20.4 million tonnes of stockpiled material grades 2.87 grams gold, equivalent to 1.9 million contained ounces.

All told, reserves amount to 120.8 million tonnes of 3.9 grams gold, or 15.1 million contained ounces.

At an assumed gold price of US$280 per oz., reserves slip 2.2% to 115.2 million tonnes running 4 grams gold or 14.8 million contained ounces.

Lihir estimates it can recover 13.6 million oz., or about 90% of the gold, from the reserves.

Total resources in 2000 were pegged at 429 million tonnes of 2.69 grams (or 37.1 million ounces), including reserves of 108.8 million tonnes averaging 3.65 grams. The figures are based on a long-term gold price of US$300 per oz.

The latest reserve calculation employs a cutoff grade of 1.6 grams gold for the first 6.5 years of mining operations (that is, until the end of 2003), and this increases to 2.1 grams for the remainder of the mine’s life (until 2014).

Lihir has begun engineering studies to test the economic potential of a substantial tonnage of indicated resource identified at a moderate depth in the Northern Lienetz area.

Drilling is ongoing on the central and western flanks of Lienetz and plans are to test target areas to the west of Minifie.

A further reserve update, based on 38 holes totalling 11,000 metres drilled during the past quarter, is planned for mid-2002.

During the fourth quarter of 2001, Lihir churned out 123,387 oz. gold, bringing the year’s production to a record 647,942 oz.

As expected, fourth-quarter production suffered as a result of a 2-week shutdown while two autoclave heat-recovery units were added. As a result, total cash costs rose to US$289 per oz. for the quarter, compared with US$221 per oz. for the whole year.

The company realized an average of US$385 per oz. for its quarterly production and US$355 per oz. for the year.

During the quarter, Lihir placed 100,000 oz. gold into its hedge book, with most of the forwards dated in 2005 to 2006. At the end of 2001, the company’s hedge book amounted to 2.6 million oz., or 17% of reserves. The hedge book’s mark-to-market value was US$59.7 million in the good.

There is ongoing speculation that shareholder Rio Tinto (rtp-n), with its focus on base metals, may sell its 17% stake to gold giant Newmont Mining (NEM-N), which currently has only a 9.8% interest in Lihir.