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speedybure (< 20)

A Great Turnaround Story In the Making: Lihir gold



April 09, 2009 – Comments (5) | RELATED TICKERS: LIHR.DL

Lihir has been a frustrating story in the past, despite their gem mine, which the company is named after. The management has finally cleaned up their act just in time for coming bull rally in gold. They have been troubled from transportation to energy, delaying numerous projects and squandering capital.  In order to avoid this turning into a reccomendation, I wish to mention why I think it is currently mispriced by the market.

This story is compelling to me for these reasons

* lihir island - is expected to produce 775k-840k oz in 2009 and reach 1m/oz yr by 2011. The remaining mine life based on current reserves is 18-20 years. But there sucess with lihir in terms of converting m&i to reserves, leads me to the conclusion they should convert an additional 10m of the 36m oz of net resources to reserves. 

 *Bonikro mine - 125k 155k oz in 2009 in addition to to other operating mines expected to produce 100-150 combined. The first year of production began in 2008, therefore production will accelerate over the next few years. There are some caveats: the upside could be substancial and it is highly likely the mines not in production in addition to Bonikro wiill lead to a mid to large increase in reserves over the coming years. The downside, however, lies in the fact these mines are located in west africa go obviously political risk may pose a problem.

*A large portion of their assets both producing and exploration lie in a politically safe area of australia or in favorable geopolitical areas. Including the infamous Ballarat mine, which had dissapointed investors expectations, but 2008 showed significant improvement  in production and the potential of the mine in general. 

In Short,  Lihir is trading at a fairly big discount to its peers, yet production will ramp up dramatically up from 2008. The overall risk has declined in operations, both in continuous production of their mines and the transformation of their balance sheet. Cash costs will be between 400-425/oz for the next 4-5 years. It is also a pure play on gold when compared the number 1 miner in australia (newcrest) which gets more or less 80% of total revenue from gold. I mention this in light over the hype going on with teck conmico which is a great story as well.




5 Comments – Post Your Own

#1) On April 09, 2009 at 7:03 PM, XMFSinchiruna (26.57) wrote:

I just added it back to my CAPS portfolio based on this post. To be honest, I'd stopped paying much attention to Lihir after looking at it 2 years ago and deciding it didn't earn a place in my portfolio. Thanks for bringing it back under my radar.

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#2) On April 09, 2009 at 7:08 PM, XMFSinchiruna (26.57) wrote:

On a barely related note, did you see Gammon's cost projections? If they can deliver on $14 per ounce by-product cost basis by 2011, they'll be sitting on a serious fortune with Ocampo (despite the relatively modest gold resource).

Production mostly leveling off after 2009 was nothing to inspire awe, but the ore grades remain extremely rich, exploration targets promising, and that silver resource is just enormous.

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#3) On April 09, 2009 at 8:03 PM, speedybure (< 20) wrote:

TMFSinchiruna :

I don't know if you read what i Posted on your CEF/RGLD blog, Franco Nevada is actualy 1.9 billion. Its kinda of hard to find, but its a nice diversified royalty company. Just thought i'd bring it up, maybe something to keep in mind. Good article on gammon by the way

Out of curiosity what broker do you use? I use interactive brokers and they allow you to trade on any exchange. The commissions are 2-3 dollars a trade, 99 cents for options.  

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#4) On April 12, 2009 at 12:24 AM, KamranatUCLA (29.50) wrote:

I liked your respond to my blog. I like Silver, you are absolutly correct about it, silver has much more industrail use than gold.

I guess I don't like Gold because I lost a lot of money in Gold when it was around $340 and it went down even further when banks started to sell gold (late 90s). For me gold is just too slow I said I don't like it.

But again beside contracts in Chicago Mercantile Exchange how can you invest in silver? When Silver prices was going up many silver mining companies didn't show any profits. I hate to say it but managment got all the money. Same with energy company. You said you made money when gas hot $150 but look at Exxon or Chevron stocks. When gas was $150 their stock didn't double like the gas prices. When prices go up they use all sort of reasons not to pay stock holders, and they keep stocks low.

I really liked you ideas about Canada and Austrailia. And I also liked your ideas about investing in Euro. Can you tell me how to invest in those things. My stock broker is sharebuilder. I don't know if I can buy anything with them in Hong Kong exchange. I appreciate giving me any information for investing in your ideas.

Thank you 

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#5) On April 12, 2009 at 3:51 PM, speedybure (< 20) wrote:

I would glad to expand on those tpoics. It might be easier via emal. I will post topics for you that may answer some questions. But you may consider Interactive Brokers.. 1.99 trades, 99 cent option contracts and you can trade on every exchange.

If you wish to do this my email is I bought my shares of exxon (though a very small portion) at 50 and sold them at 81. You have to understand the largest comanies in any industry will not act like the rest of the complex. They present a better risk/reward profile but you will also not see the gains. For example i bought transocean at 60 and sold out at 111. The people who did not make money were the ones that became greedy. My rule of thumb is after a 50% gain, take your initial investment off the table and portion of shres from your gains remain. Of course a lot oif people got burned, but it was because of greed. For example some of my friends made more than I did, because I was prudent, but a substancial portion did not becuase greed took over.

Anyway I am moving to Australia to finish the rest of my masters and PHD program. I will be moving in In June so i have done substancial research on the agriculture industry and have some found absolute gems out there. I just qualified for a 25 cent dividend on a 2.10A$ equity. I don't belive in "buy american" to the degree most do, our equities tend to me fully and overvalued while the entire eastern world tend to be very-under to extremely-under valued. I hear about all the risks, but the great thing is hong kong (not peoples republic) is far capitalistic than we have become. 


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