Bell Potter - Review:Lihir Gold Limited – Solid profit result,...

Bell Potter - Review:

Lihir Gold Limited – Solid profit result, well placed for ‘09

Lihir Gold Limited (LGL.AX – A3.56) Buy Target A$3.90

The company today reported an underlying profit result of $185m, in line with our estimate of $181m. The reported number of $109m was below our estimate of $143m due to writedowns to some of the geothermal and dewatering wells on Lihir Island. No dividend was declared. The company also provided a resource and reserve update for Lihir Island and the C’ôte d’Ivoire projects. Lihir Island reserves were reduced by 1.1Moz to 21.8Moz, essentially due to mining depletion. Resources in C’ôte d’Ivoire were upgraded to 1.4Moz (20%). Minor changes to our production and costs have resulted in some small changes to our earnings forecasts. We also updated our capex assumptions to match the new company guidance of $345m for CY09. The bulk of the capital will be consumed at Lihir for maintenance ($125m) and the 1Moz upgrade project ($150m). The recent share price performance has resulted in our recommendation being downgraded to Neutral. We remain positive towards gold but highlight that without an increase to our long term gold price assumption the stock is starting to appear fully valued. Despite this, with the market sentiment towards gold remaining strong, Lihir remains our preferred gold stock due to it pure gold leverage, significant liquidity and healthy debt free balance sheet. Our valuation and target prices remain unchanged.