Newmont drops stake in Lihir for US$84m

In a surprise move, Denver-based Newmont Mining (NEM-N) has sold its 9.7% equity holding in Papua New Guinea miner Lihir Gold (LIHRY-Q) via a block trade to Australian-based Macquarie Equity Capital Markets.

There had been wide speculation that base metal miner Rio Tinto (RTP-N) would sell its 17% stake to Newmont, which would then seek control of Lihir and its namesake mine in Papua New Guinea.

The sale is part of Newmont’s plan to sell off non-core assets to focus on larger, durable operations. The plan was put into action after Newmont absorbed Normandy Mining and merged with Franco-Nevada Mining to become the world’s largest gold producer and reserve holder. So far, the company has realized about US$210 million from the sales.

“This sale puts us well in reach of our first-year target of realizing US$250 million to US$300 million in proceeds from the sale of non-core assets,” says Newmont President Pierre Lassonde. “We decided that this investment was not the best strategic fit for Newmont, given our commitment to focus on district consolidation opportunities within our existing portfolio, as well as our wholly owned development projects.”

Newmont acquired its 111.3 million shares of Lihir as a result of taking over of Battle Mountain Gold in early 2001.

Earlier this year, a review of the resource model at the Lihir mine on the island of the same name boosted reserves by 25%.

Based on an assumed life-of-mine gold price of US$300 per oz., Lihir’s measured, indicated and inferred resources, including reserves, amount to 353.8 million tonnes averaging 3.04 grams 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), whereas probable reserves are estimated to be 90.2 million tonnes running 4.05 grams gold, or 11.8 million oz. An additional 20.4 million tonnes of stockpiled material grade 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 oz.

The calculation is based on a cutoff grade of 1.6 grams gold per tonne for the first 6.5 years of mining (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 figures it can recover 13.6 million oz., or about 90% of the gold, from the reserves.

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

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

Meanwhile, in Spain, Newmont has decided to drop the Lomero-Poyatos polymetallic project.

Last April, the major inked a deal to acquire the project from U.K.-based junior Cambridge Mineral Resources. Under the agreement, Newmont was responsible for an initial program of 2,500 metres of drilling plus metallurgical work, followed by the expenditure of at least US$8 million on exploration over five years. Newmont also had the option to buy the property outright at any time during the agreement. The deal also called for Newmont to subscribe to a US$500,000 private placement in return for 1.25 million shares of Cambridge.

Newmont completed the drilling program, metallurgical work and private placement.

Cambridge plans to continue development of the project and conduct a full bankable feasibility study, slated to begin by year-end.

Situated in the Iberian pyrite belt of southern Spain, the property contains a resource of 14.4 million tonnes averaging 3.4 grams gold and 90 grams silver per tonne, plus 1.4% copper, 4% zinc and 1.2% lead. The mineralization has complex metallurgy which will require extra processing.

Significant drill results include 20.6 metres grading 4.9 grams gold, 32 grams silver, 1.9% copper, 0.2% lead and 0.48% zinc, plus 14.7 metres running 8.5 grams gold, 58 grams silver, 0.42% copper, 1.15% lead and 8.8% zinc. The deposit remains open along strike and downdip.