tricom buy recommendation

TRICOM RESEARCH: Lihir Gold Limited (LHG $2.11) Initiating Coverage


We initiate coverage on Lihir Gold Limited with a BUY recommendation and a $2.70/share price target.



Key points:

We are initiating coverage on LHG with a BUY recommendation and a $2.70/share price target.
The company offers excellent leverage to the gold price thanks to its relatively fixed cost base and the very large reserve and resource base.
LHG’s 2005 earnings result was below expectations, however, we are forecasting a significant turnaround in 2006 and beyond.
An increase in the head grade is driving the 12% uplift in gold production in 2006, while the commissioning of the flotation expansion in 2007 should see gold production rise to over 800kozpa for at least the next 7 years.
Aside from the improved operating performance, Tricom believes LHG’s share price is likely to benefit from news of a potential second expansion (likely to be biological oxidation or additional autoclaves) that would lift production to over 1.0Mozpa and a major reserve and resource upgrade, both of which are expected within twelve months.
We believe a decision to go ahead with a second major expansion at Lihir (the flotation expansion is due to be commissioned in 2007) will have a major positive impact on the company’s share price, noting that including a significant proportion of the resources in an accelerated mine plan could add as much as $1.00/share to our valuation.

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