bell potter target $3.60

Lihir Gold Limited (LGL.AX - A$3.08) Buy Target A$3.60

LGL announced a strong end to CY08 with group production of 315koz at cash costs of US$353/oz. Production was 13% above our estimate of 278koz with costs 8% lower. Lihir Island produced 247koz at costs of US$362/oz as the grade from Phase 8 increased to 5.8g/t Au. Commissioning of Bonikro was completed during the quarter with grades positively reconciling against the reserve model. Full year guidance for the group was set at +1Moz at costs of below US$400/oz. The range provided by management is 1.04Moz - 1.20Moz with costs not expected to be too dissimilar to the December quarter costs. We estimate production from Lihir Island will be ~0.8Moz at cash costs of US$398/oz with Mt Rawdon at 100koz and Bonikro at 134koz (equity based). We continue to have low expectations for Ballarat with forecast production of less than 50koz. The flotation plant and de-bottlenecked crushing circuit are now showing what Lihir Island is capable of. We remain confident that the guidance is achievable; assuming the recent land dispute issue is not protracted. The expansion to 1Moz remains on schedule and ongoing successful exploration on Lihir Island and in Cote d’Ivoire is likely to lead to resource upgrades in the near future. Our target price has been increased to $3.60 from $3.30, derived as a 2x NAV multiple.