Aniolam Island (also known and commonly referred to as Lihir Island) is the largest of the Lihir Group of four islands. It is located 925 kilometers directly northeast of the PNG capital of Port Moresby. The Lihir Group forms part of the province of New Ireland.
Lihir Island is a volcanic seamount that rises steeply from sea level to about 600 meters above sea level. It is approximately oval in shape, roughly 22 kilometers long from north to south and 14.5 kilometers from east to west at its widest points. There is a caldera from what is believed to be a no longer active volcano (the ?Luise Caldera?), which adjoins a harbor (the ?Luise Harbor?) on the east coast of the island. All of the known ore deposits of the Lihir operation are located in the Luise Caldera.
Lihir Island experiences a high level of rainfall, averaging about 3,700 millimeters per year, and has an annual mean relative humidity of about 80%. The temperature generally varies between 20?C and 30?C (68?F and 86?F). Lihir Island is north of the area most affected by cyclones. Natural vegetation is mostly rain forest.
Prior to the development of the Lihir operation, Lihir Island was largely undeveloped. Subsistence agriculture was the principal occupation of most Lihirians, supplemented by some cash crops such as copra.
Geology
Lihir Island is made up of five Miocene-Pleistocene volcanic units, of which three are recognizable volcanic craters (including the Luise Caldera) and two are sequences of mafic volcanic rock that predate the three volcanoes. The volcano that formed the Luise Caldera was the most recent major volcanic event on the island. It was formed in the Pleistocene age, less than one million years ago. Remnant geothermal activity is present in the Luise Caldera, evidenced by hot springs and fumaroles. Studies of groundwater circulation suggest there is no magma present below the Luise Caldera.
The Luise Caldera is a well-defined, elliptically shaped caldera, which rises steeply to several peaks over 600 meters above sea level. The caldera is open to the northeast where it is breached by the sea to form Luise Harbor. Luise Caldera measures approximately 5.5 kilometers by 3.5 kilometers. [Currently defined gold mineralization occurs within an area of about 2.0 by 1.5 kilometers near the center of the caldera.]
Exploration work since 1983 has defined several adjacent and partly overlapping mineral deposits in the Luise Caldera, the principal ones being Lienetz, Minifie, Coastal, Borefields and Kapit. Of these, the largest is Minifie, which is about 1,000 by 600 meters with mineralization extending from the surface (50 meters above sea level) to 250 meters below sea level. The Lienetz deposit north of Minifie is about 800 by 400 meters, and extends from the surface (140 meters above sea level) to 300 meters below sea level. The smaller Coastal deposit adjoins Lienetz on the northeast, separating it from the sea. The Borefields zone extends to the north-east along the Minifie structure and is an extension of the Minifie mineralization. The Kapit deposit, extending 300 to 400 meters north of Lienetz, is about 450 by 300 meters with mineralisation extending from near surface to 250m below sea level. Drilling in 2002 and 2003 extended the limits of Lienetz to the North West, confirmed physical connection between Lienetz and Kapit and extended the current knowledge of the Kapit deposit. By February 2004, the Kapit resource had been sufficiently explored by drilling, geotechnical, geothermal and economic studies to partially convert the resource to reserves.
The bulk of the known gold mineralization is located in Minifie, Lienetz and Kapit. All of the deposits are connected by areas of low-grade mineralization. An analysis of the structural patterns has led to the hypothesis that the Lienetz, Coastal and Kapit areas are part of a single mineralization system, with a separate feeder system accounting for the Minifie and Borefields mineralization. The Coastal and Borefields pits are not currently included in the defined reserves.
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Based on exploration work to date, gold appears to be the only metal of economic significance present within the Luise Caldera. Gold occurs primarily as sub-micron size particles in sulfide minerals. Sulfide content is relatively high, with the average sulfur grade of the reserves being 6.15%. The main sulfide material is pyrite, with the marcasite form present as an accessory mineral. Arsenopyrite is rare. Free gold is increasingly apparent. Oxidation layers range in thickness from minimal in low lying areas such as Minifie to a maximum of 70 meters over the higher parts of Lienetz and Coastal and Kapit.
The mineral deposits in the Luise Caldera are hosted by volcanics, intrusives and breccias, and there has been extensive alteration of these rocks within the caldera. Two major alteration episodes have been identified, an earlier and deeper ?porphyry style? event resulting in potassic alteration grading laterally to propylitic alteration and a later and higher level epithermal event producing argillic, advanced argillic and phyllic alteration. Because the intensive alteration has destroyed much of the original host rock lithology, the deposits have been classified into a series of ?ore types? based on alteration, hardness, degree of brecciation and similar factors. While this is more a metallurgical classification than a geologic one, it has proved useful in determining many of the mining and processing characteristics of the ore body and host rocks. The ore types are roughly sub-horizontal and form a fairly consistent vertical sequence. The general sequence is that of clay-rich rock, grading into white mica- rock, then felspar-biotite and, at depth, into felspar-biotite-anhydrite. Within and on the boundaries of the ore types, geological structure is also a major influence in the localization of higher grades in the ore body.
Reserves Estimates
During 2003, an intensive resource definition and extension drilling program was undertaken at Lihir, which partially converted the Kapit ore body into reserves. Potential exists to further extend the company?s reserve on Lihir.
Development of the Kapit deposit will require the construction of a cofferdam in the shallows of Luise Harbour. A substantial geothermal depressurization program will be required prior to mining Kapit. Options are being investigated for early commencement of this program. Economic and technical studies have demonstrated the financial and technical viability of the cofferdam and depressurization programs and the relocation of the current low-grade stockpile lying over this ore. The Kapit ore body development lies within Mining Lease SML6 held by the company. Discussions with the PNG Government have confirmed that, subject to due processes, there currently are no foreseeable regulatory impediments to the granting of necessary approvals and permits for the development of the Kapit ore body.
Since the 2003 reserve release, substantial diamond drilling has been carried out in the Lienetz Zone (25 holes), resulting in the addition of over 8km of new drilling information to the database. In addition, significant refinement of the geological model has been undertaken to further increase the confidence and accuracy of the estimates. The latest drilling results were in line with expectations, confirmed earlier interpretations, and added additional data that have improved local resource estimates.
Appropriate reviews and additional studies in the areas of mining, geotechnical, geothermal, groundwater and geological modelling have been carried out to confirm and further develop the assumption base for the project. Site reviews of mining and processing costs have provided for an improved modelling and optimisation base for the latest estimate. After review of market and peer price data the company has adopted a long-term gold price assumption of $380/oz.
The ore reserves in the table below are based on the new resource model at a US$380 per ounce gold price assumption (1.45 g Au/t cutoff) adjusted to take account of mining depletion and reconciliation changes to December 31, 2004.
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Average Contained Reserve Tonnes grade Ounces Category (In millions) (g Au/t) (millions) Un-mined Ore Proven 2.2 3.42 0.2
Reserves have been prepared in accordance with Industry Guide 7 under the United States Securities Act of 1933 and the following definitions:
The term ?reserves? means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserves determination.
The term ?economically?, as used in the definition of reserves, implies that profitable extraction or production under defined investment assumptions has been established or analytically demonstrated. The assumptions made must be reasonable, including assumptions concerning the prices and costs that will prevail during the life of the project.
The term ?legally?, as used in the definition of reserves, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for reserves to exist there should not be any significant uncertainty concerning issuance of these permits or resolution of legal issues.
The term ?proven reserves? means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.
The term ?probable reserves? means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
Reserve tonnages were depleted during 2004 by mining activity. Reserves quoted are those remaining below the mining surface at December 31, 2004, within a revised pit design.
Stockpiled ore comprises mined ore above waste cut-off grade on the stockpiles, as of December 31, 2004.
The reserves reflect an assumed long term gold price of US$380 per ounce. The number of ounces of contained gold does not necessarily indicate the number of ounces that ultimately will be recovered. The number of ounces ultimately recovered and available for sale will depend upon, among other things, mining efficiency and processing efficiency. Lihir believes that US$380 is an appropriate gold price to use to estimate its reserves. If the assumed long-term gold price was to be reduced to US$360 per ounce, the company?s proved and probable gold reserves, including stockpiles would be reduced by 4% to 20.2 million of ounces. Conversely, an accrued long term metal price of US$400 per ounce would increase the reserve by 4% to 21.9m ounces of contained gold.
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Exploration
The Kapit exploration-drilling program continued during 2003, with results confirming and extending the magnitude of the ore body. In total, 52 diamond drill holes for 21,809 metres were completed. Further drilling was undertaken in the area between Kapit and Lienetz, following the discovery of mineralization linking the two ore bodies. The 17 holes for 5,542 metres drilled in the Kapit link zone reinforced the continuity of the ore system in this area. While the grades are relatively low in the shallower areas of the southern end, (thereby limiting the viability of mining the Lienetz and Kapit ore bodies with one pit), mineralization strengthens towards the Kapit zone with grade improvement towards four grams of gold per tonne.
By December 31, 2003, the limits of the ore body to the west and south had been defined, while the mineralization remains open to the north and to the east under Luise Harbour. Further drilling on the northern flank is scheduled for 2005, to convert inferred resource currently on the margins of the mine design
Exploration teams have been active with programs to define the western limits of Lienetz, Kapit and Minifie. Drilling results, while encountering minor vein-style mineralization, have confirmed economic closure of the Lienetz and Kapit ore bodies to the west. The Lienetz and Coastal ore body remains open to their eastern coastal sides.
Exploration is continuing on Lihir Island with the focus being within the Luise Caldera. Some preliminary stage exploration continues to be undertaken nearby at Ilkot Creek. Exploration programs are planned to fully explore the potential of the remainder of the Island. Subject to negotiations for land access, it is anticipated that the whole island will have been mapped and surface sampled within the next five years.
The drilling program for 2005, reduced from previous years? programs, will look to continue appropriate infill and geotechnical work in the Minifie, Lienetz and Kapit areas with an increasing emphasis on improved ore definition and design criteria for mine scheduling purposes.
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