Lihir Gold has stumbled in its Ballarat gold ambitions, just as others have done.
The second-largest listed gold mining company on the ASC yesterday revealed in an update, that it will take a one-time charge of as much as $US350 million (over $AS400 million) to cut the value of its Ballarat mine after reducing forecast output.
The possible size of the write-down, in Australian dollars, could exceed the $A350 million purchase price of Ballarat in 2006, making the move to buy the troubled mine and its assets a very expensive deal.
Lihir said Ballarat production is likely to be 20,000 ounces this year, less than half an earlier forecast of 50,000 ounces.
That left the company on target to meet production guidance of between 1.04 million ounces and 1.2 million ounces this year after output totalled 510,000 ounces through the end of May, it said.
"To the end of May the three primary assets performed well with Lihir Island producing 389,000 ozs, Bonikro in Cote d’Ivoire 70,000 ozs and Mt Rawdon 44,000 ozs for the period," Lihir said in its statement.
Lihir has struggled to meet production targets at the Ballarat mine in Victoria since acquiring it in 2006 through the $A350 million takeover of Ballarat Goldfields NL.
The company cut production and 200 workers at the mine in April as lower-than-expected volumes of ore cut sales.
"At Ballarat, the company in April announced a streamlining of operations following mixed results from early mining in the southern and central zones of the goldfield and the ongoing review commenced earlier in the year," Lihir said.
"Following completion of the ventilation infrastructure at the end of 2008 and the refinement of mining strategies, the company resumed development work to enable access to larger anticipated ore zones located in the northern areas of the mine.
"Progress to the north is continuing to plan and is expected to be well advanced by the end of the year. This should enhance understanding of the long term production capability of the mine."
Lihir said yesterday the Ballarat mine was valued by the company at $US457 million at the end of 2008.
It will reduce the value by between $250 million and $350 million.
Lihir said it anticipated longer term annual output at the mine of 80,000 to 100,000 ounces, but this figure is "dependent on a successful drilling and development program in the northern zone".
Lihir shares eased 1c to $2.91 as investors appeared unconcerned about the impairment charge.
Back on October 18, 2006 when Lihir and Ballarat revealed their merger plans, Lihir’s shares fell 13c to, $2.98, so no gain, despite gold prices being much higher than they were in 2006.
