Lihir Gold is the latest Australian mining company to try and mine the market for fresh capital to finance a new project.
It follows mining peer, Newcrest, which raised around half a billion dollars last month to help finance its expansion plans in Australia and PNG.
Yesterday Lihir shares were suspended at $3.31 after it announced it was looking for around $US325 million ($506.55 million).
Even though world gold prices have weakened to around $US900 an ounce from over $US1,000 an ounce late last month, gold is still in strong demand from investors looking for a hedge against the current global economic instability. That is one of the selling points for Lihir in its issue.
The miner said the proceeds would be used to accelerate the expansion of its Lihir Island mine in Papua New Guinea, taking advantage of lower prices for mining equipment and services brought about by current downturn in the mining industry. The so-called Million Ounce Plant Upgrade, or MOPU.
Lihir CEO, Arthur Hood sees a bargain out there amid the wreckage, and wants the financial firepower to pay for these never to be had deals.
“The recent downturn in global commodity markets has significantly reduced demand for mining industry equipment, process plant components and steel fabrication, which has led to more competitive pricing and created the opportunity for some stages of the Lihir Island expansion to be brought forward.
"These include earlier installation of crushing, oxygen production, grinding, leaching and water supply facilities,” he said.
“The accelerated installation of these elements will potentially lead to marginal increases in production in 2010 and 2011 through improvements in processing rates and recoveries.
"Importantly however, they will reduce operational risk by duplicating key parts of the processing chain and enhancing plant reliability.
"They also will help to ensure the MOPU project is completed on time and within budget.”
“In addition, the company will be well placed to proceed with expansion opportunities that are developing in West Africa, where our extensive exploration campaign recently led to increases in resources,” he said.
It will also provide "continued financial strength and flexibility" for the group, the company said.
"Following the capital raising, the company will have significant cash reserves and strong operating cashflows available to underpin capital commitments.
"In addition, the company intends to increase its existing debt facilities (currently undrawn) when market conditions become more attractive, providing further financial flexibility to pursue other growth opportunities as they arise," Lihir told the ASX
The placement will be conducted through an institutional bookbuild and will be available only to accredited or sophisticated investors, Lihir said.
The new shares will be issued on March 12, 2009, and will rank equally with existing Lihir shares.
The accelerated construction schedule for Lihir Island is expected to bring forward approximately $US50 million ($77.93 million) in capital spending into 2009, increasing the forecast annual capital spending to approximately $US200 million ($311.72 million).
The project capital spending in 2010 is estimated to be approximately $US350 million ($545.51 million).
After the share placement, Lihir will offer retail shareholders the opportunity to participate in a non-underwritten share purchase plan, the company said.
Shareholders will be able to subscribe for up to $5000 worth of Lihir shares.
