Profit ahead of consensus. Provides strongproduction guidance􀂄...

Profit ahead of consensus. Provides strong
production guidance

􀂄 Event: 2004 NPAT of US$329.2m. Benefits from IFRS
Lihir reported what looked to be a surprising profit of US$329.2m. However, if we
back out one-offs including tax credit, reversal of historical impairment charges
(LHG raised LT gold price assumption to US$380/oz), and accounting changes
under IFRS, we arrive at a profit of US$18.6m, cf UBS est of US$1m and IBES
consensus of US$14.2m. Thus the result was slightly better than consensus.

􀂄 Impact: IFRS accounting results in major adjustments
Our earnings estimates have been materially affected by the change of accounting
practices to follow IFRS. The realisation of deferred hedging costs (non-cash), and
realisation of hedging contracts (cash), has seen earnings adjusted by +9.4% for
FY 05e and -57.8% in FY 06e. Hedging adjustments also contributed to the large
decline in 06e earnings.

􀂄 Action: +ve production guidance issued. Supportive for price
Lihir also provided a production profile out to 2018e, suggesting average
production levels of c. 700koz pa till 2018. We believe the guidance issued is
above market estimates and should therefore be supportive for the share price as
the market adjusts valuations.

􀂄 Valuation: A$1.12 (DCF, 10% d.r)
Our valuation is $1.12. With our more positive view of gold as an investment
class, we believe Lihir offers very good turnaround potential. Our PT is based on
re-rating to peer multiples.

Forecast returns
Forecast price appreciation +53.2%
Forecast dividend yield 0.0%
Forecast stock return +53.2%
Market return assumption 10.5%
Forecast excess return +42.7%