Despite the big falls this week, there’s still confidence in gold.
Lihir Gold will start paying dividends and its peer, Newcrest, is still bullish on the metal.
Seeing world gold prices have been at, or near, record levels for the past month, such confidence is understandable.
Gold traded up to $US1047 an ounce after the news of the US economy finally grew in the third quarter was released. That reversed the weaker trend of the past few days.
Lihir (LGL) said in a production review yesterday for the September quarter that it is on track to meet full-year production guidance after meeting quarterly production targets.
And it lifted reserves by 36% at its already huge Lihir Island operation in PNG.
That’s an extra 7.5 million ounces for the deposit.
The company said: “The 7.5 million ounce increase is equivalent to the total production for Lihir Island over the 12 years since the start of operations, and confirms the deposit as one of the world’s largest".
The gold miner also says it will begin paying dividends to shareholders due to its strong financial position and positive outlook.
An interim dividend of 1.5 US cents per share will be paid on November 30.
The latter would be very positive news most days, especially so given the swag of industrial companies (including the big banks) which are confirming dividend cuts.
”The improved reliability of production at Lihir Island, coupled with diversified income streams created by operating mines in three countries and the strengthening of the company’s balance sheet over recent years have provided the basis for the decision,” the company said in the production review.
"The company aims to sustain dividend payments into the future. In addition, following the global financial crisis the company is progressing with the establishment of long term core debt facilities that will provide further financial flexibility and may enable a return of capital to shareholders in the future," Lihir said.
Lihir produced 233,346 ounces in its third quarter taking year to date production to 845,000 and leaving it on the way to meeting guidance of 1 million to 1.2 million ounces.
At Lihir, output was 169,000 ounces, lower then the prior quarter on routine maintenance but above guidance.
The million-ounce plant upgrade remains on schedule and on budget, Lihir said.
In Cote d’Ivoire, production at the Bonikro operation was 32,000 ounces for the quarter, which was down on the prior quarter because of transitioning of mining and processing from oxide ore to fresh, hard rock.
In Australia, the Mount Rawdon operation in Queensland lifted output to 30,400 ounces in the quarter, maintaining its consistent track record.
And at Ballarat, the process for the sale of the operation proceeded, with a number of attractive indicative offers received to date.
The sale should be completed early in 2010.
Lihir says it sold 221,000 ounces of gold in the quarter, at an average realised cash price of $US955 an ounce, up from $US900 in the three months to June.
For the nine months to the end of September, 834,000 ounces were sold at an average price of $US906 per ounce.
Total cash costs per ounce are forecast to remain below $US400 per ounce for the year, excluding Ballarat.
Explaining the increase in reserves at Lihir Island operation by 7.5 million ounces (taking total Ore Reserves to 28.8 million ounces) the company said the 36% increase in reserves is the net result of the following factors:
- Additional resources incorporated in the December 2008 Resource model following successful resource drilling over recent years, as released in August 2009.
- Increase in the reserves inventory through expansion and refinement of the proposed pit shell
- A rise in the long term gold price assumption from $675/oz to $800/oz
- Adjustments to cost assumptions of mining and processing costs offset by the cost benefits from the Million Ounce Plant Upgrade project at Lihir Island, currently under construction.
Lihir shares however were more influenced by the fall in world gold prices.
The shares lost 2.6% to end 7 cents lower at $2.98. They should rise today
Lihir’s Australian rival, Newcrest Mining, says the outlook for the precious metal remains positive.
But the high value of the Australian dollar remains a concern.
Chairman Don Mercer told yesterday’s AGM that the current strength of the Australian dollar is an underlying concern for all exporters, including Newcrest, and will ensure that pressures on margins continue.
"As the Australian dollar gold price closes the gap to the US dollar gold price the Company’s Australian dollar sales revenues and earnings will be negatively impacted.
"This highlights the need for careful management of the Company’s production costs and the extent of the challenge for Newcrest to remain a low cost producer."
Despite these reservations, Mr Mercer still expressed optimism about gold.
After all, what else could he say? Newcrest is a gold miner, with some copper attached.
"During the year, the Board has re-affirmed the Company’s strategy of positioning itself as a large scale, low cost producer with a strong track record of organic growth through exploration and a significant pipeline of new major projects.
"Newcrest will continue to focus on gold, with copper as a by-product, and will maintain a strong ba
