Finally 2007 is over for Lihir Gold.
It was a miserable year as a combination of problems caused the company to haul back on an ambitious production forecast of 800,000 to 830,000 ounces of gold issued in the 2006 fourth quarter production report a year ago.
After at least two major downgrades of production because of labour unrest and mechanical problems at the Lihir mine and associated processing facilities, the company ruled off the year with a 7.7% gain in annual gold out to a new record and has forecast a further increase in the current year.
Gold output for calendar 2007 was 701,091 ounces but that, according to the company's final quarter production statement, was down by at least 35,000 ounces because of the labour unrest alone.
Mechanical and operational problems were responsible for the loss of tens of thousands more ounces of potential production, which cost the company dearly given the way gold prices surged during the year.
Still, production rose in the December quarter to 168,370 and the company says the current year should see another significant boost to production..
The company forecasts gold output to rise in 2008, to between 740,000 and 820,000 ounces, which would be in the top end of the 2007 forecast a year ago.
But that all of that estimate was to come out of the Lihir Island mine in Papua New Guinea.
Some of the new, higher figure will result from new production from Ballarat in Victoria where Lihir acquired Ballarat Goldfields last year. Around 40,000 to 50,000 ounces is expected to come from this mine in 008.
That would put Lihir output in the range of 700,000 to 770,000, still well down on the estimates a year ago and up a maximum of 10% on the 2007 outcome.
In that respect it will be disappointing: the company is well behind where it was a year ago and will only maintain its growth through gold from the acquisition at Ballarat.
The share price reflects that performance: LGL shares eased 1c to $3.75, after spending most of the day in the black, despite world gold futures prices hitting $US930 an ounce yesterday. In contrast newcrest shares jumped by more than $1 in yesterday's tough trading.
"For the second consecutive year, Lihir was able to report record material movements, record process plant throughputs and record annual gold production in 2007," managing director Arthur Hood said in the statement to the ASX.
Lihir said the final outcome at the PNG mine depended on ore grade and normal operating variability.
"Unit costs for the current year will be influenced by the level of production, fuel prices and exchange rates in particular," Mr Hood said.
"However, while higher than prior periods, Lihir's costs will continue to benefit from the utilisation of geothermal power, assisting the company to maintain its position at the lower end of the industry cost curve.
"On the whole, 2008 should be an exciting year for the company as we bring Ballarat into production and reap the benefits of the expansion projects undertaken in 2007.
"We continue to make progress on plans to lift production in the future, our unhedged position enables us to take full advantage of the strength in the gold price, and our ungeared balance sheet provides enormous financial flexibility."
For 2007, annual sales of 708,428 ounces of gold were realised at an average price of $US666 an ounce with the cash gold price received for the December quarter increasing to $US794 an ounce, from $US677 in the September quarter.
Total cash costs were $US301 an ounce for the year, up from $US297 in 2006.
Lihir said the financial restructure completed during 2007 has helped it take advantage of the higher gold prices.
"The proceeds of a $1.2 billion issue to shareholders and capital raising were used to close out all hedging and repay a gold loan and other secured debt. This transaction has proven to be very worthwhile for shareholders, enabling LGL to capture the full benefits of the recent increase in gold prices. The cash gold price received for the year was $666/oz, up from $510/oz in 2006. The restructure also enhanced the company's financial flexibility.
"Significant progress on a feasibility study, which is examining an expansion of production capacity at Lihir Island to more than 1 million oz per year. The results of the feasibility study, which commenced in the first quarter of 2007, are expected to be released in March.
"Together, these initiatives demonstrate that good progress was achieved in 2007. However, a number of challenges also were encountered in the year, including: delays in commissioning parts of the process plant expansion, particularly in the mills and oxygen plant, leading to production being lower than otherwise would have been the case. The new oxygen plant is yet to complete commissioning due to component defects.
"Equipment failures in the shovel fleet and the primary crusher. Labour issues arising at Lihir Island in the third quarter, which reduced production by approximately 35,000 oz. These issues have since been resolved and workforce communications improved.
"A delay in the Ballarat underground development due to a rock fall in the main Woolshed Gully decline on November 19. All employees were safely brought out of the mine within a short time and no injuries were reported. Underground development resumed in January, and commercial production is now scheduled to commence by the end of the current year. Together, these issues contributed to production in the year being below initial expectations, particularly in the second half. Despite these short-term setbacks, the long term strategy remains intact, and the company continues to make good progress in lifting production and increasing efficiencies.
"The current year should see another signi
