MELBOURNE (Dow Jones)--Looking to cut the risk of owning a lone mine on a volcanic island, Papua New Guinea's Lihir Gold Ltd. (LIHRY) said Monday that it
is considering large acquisitions in the Asia-Pacific region, as well as boosting production from its existing mine by 50%.
New chief executive Arthur Hood said Monday he is keen to move Lihir, the second-biggest gold miner on Australia's benchmark stock index, to a multisite company which consistently produces more than 1 million ounces of a year.
The miner, which has previously missed a number of production targets from its mine on Lihir Island, expects to produce a record 670,000 ounces of gold this year and boost that to more than 800,000 ounces in 2007.
Acquisitions in the Asia-Pacific region, likely outside of Papua New Guinea, will cut Lihir's risk profile and boost returns, Hood told Dow Jones Newswires in an interview.
Hood said Lihir is already looking at some opportunities but wouldn't be drawn on the timing or size of any acquisition, saying only that it was unlikely to be small.
"It's got to be something material to our shareholders that will add shareholder value, so obviously a 50,000 ounce a year operation," won't be big enough, said Hood, who joined Lihir in September.
"If the right opportunity comes tomorrow it (an acquisition) will be tomorrow, if the right opportunity doesn't come for another two years it won't be for another two years," he said.
Lihir's shares touched a record A$3.30 Monday boosted by strong first quarter production of 184,000 ounces and after gold rose 2% in New York Friday to a new 25-year high. The shares were up 8 cents, or 2.6%, to A$3.18 around 0500 GMT.
The stock has morethan doubled since Hood took control, aided by gold prices shooting up 44% in the same period. By comparison, Newcrest Mining Ltd.
(NCM.AU), Australia's biggest gold miner, has risen 15% in the same period. Lihir, itself often touted as a potential takeover target by analysts, has appointed a corporate development general manager, Graham Folland, to look at boosting production at the site and making acquisitions, Hood said.
"The key focus is growth on the island," Hood said."That is the easiest place where we can add two, three or four hundred thousand ounces per annum to the company's production."
Lihir plans to boost production next year to more than 800,000 ounces with a new flotation processing circuit and geothermal power plant.
Hoodsaid the company also plans to let out a tender in the next week or so to price up scoping studies on three options to expand the mine to more than 1 million ounces a year.
He said production won't hit that mark next year and wouldn't commit to reaching that level in 2008.
When asked if there is still value to be found in the industry with gold prices up and mining stocks surging, Hood hinted that any acquisitions will likely be stock-based and may involve Lihir taking a stake in a developing operation.
"The important issue is the relative movement of your scrip against someone else's whom you might be doing something with," Hood said.
"We have a very strong balance sheet, generating strong cash flows, so we may have synergies with someone who doesn't have the cash-generating ability but has a large resource or reserve base."
Austock Ltd. analyst Hunter Hillcoat said the company would be looking to add well over 200,000 ounces of production a year and that a straight acquisition at a good price would be hard to find in the current environment.
"Their scrip is highly priced at the moment so they would be looking for something they could bring value to, through their expertise, or other ways such as cash-flow," Hillcoat said.
Smaller miners in the region include Oceana Gold Ltd. (OGD.AU), which produces about 200,000 ounces a year in New Zealand, and Resolute Mining Ltd. (RSG.AU) which produces about 180,000 ounces of gold a year at its Ravenswood operation in Queensland and inJanuary approved an extension at Mt Wright. It also has growth prospects in Africa.
Sino Gold Ltd. (SGX.AU) is also currently expanding its operations in China.
Hood said he is optimistic the gold price can continue its push higher. "You've got all the range of reasons that people say are providing underlying strength in the gold price," Hood said.
"Jewelry demand from India and China and their expanding economies, a large U.S. deficit, volatility of oil prices in the Middle East and the potential of central banks to increase gold reserves.
"I think it can go a long way yet."
-By Matt Chambers, Dow Jones Newswires; 61-3-9671-4343;
(20min delay)