Lihir Gold has thrown in the towel and will end its adventure on the goldfields of Ballarat in Victoria at a loss of hundreds of millions of dollars.
The sale was announced yesterday, a month after it revealed it was reviewing the mine’s future and took a big impairment charge of close to $A400 million.
200 jobs could be lost as a result of the decision, if there’s no purchaser.
But Lihir says there has been some interest.
It obviously got all too hard to make the mine work and work efficiently and at a profit.
Lihir (LGL) shares rose 1 cent to $2.91 after being down earlier in the day.
"The review has concluded that despite encouraging results from ongoing exploration activities in the north of the Ballarat gold field, the project would be unlikely to achieve the scale required to fit within the LGL portfolio," the company told the ASX.
"A reassessment of historical mining records and more recent mining experience has determined that the project will not sustain large scale bulk mining techniques, with production unlikely to exceed 100,000 ounces per year.
"Consequently, underground development activity has been reduced from today. Total staff numbers therefore will be reduced to approximately 100 in order to maintain operations during a transition to new ownership.
"LGL has received expressions of interest from a number of potential acquirers, which will be further pursued in coming weeks. The sale process is expected to be completed early in the New Year."
LGL Managing Director Arthur Hood said the Ballarat project continued to provide significant opportunity for smaller scale production.
“However, LGL has a stated strategy of pursuing larger scale, low cost operations,” he said. “The Ballarat project unfortunately will not fit our preferred investment criteria. The disposal of the asset will enable management to focus on growth opportunities being developed in West Africa and at our Lihir Island operations in PNG,” he said.
“I would like to thank the employees at Ballarat for their efforts over recent months and the Ballarat community members for their strong support. LGL will be making every effort to preserve as many jobs as possible during the sale process, while reducing cash costs,” he said.
"As previously advised, total production at Ballarat in the current year is expected to be up to 20,000 ounces and the forthcoming interim profit results will include an impairment charge associated with the Ballarat assets in the range of US$250-350 million after tax.
"Overall expected LGL group gold production in the current year remains unchanged at between 1 million and 1.2 million ounces," Lihir said.
The second quarter production report will be released on July 30.
It was in early June that LGL revealed that it would 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 to 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 in June it anticipated longer term annual output at the mine of 80,000 to 100,000 ounces, but this figure was "dependent on a successful drilling and development program in the northern zone".
Obviously it got all too hard and the easiest option was to walk away.
