Clive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me today from Lihir Gold for an update on how they are performing in the current economic climate, is CEO Arthur Hood. Arthur welcome to FNN. Your website lists a number of aims for the company including; production of more than a million ounces of gold at a cost that puts you in the lowest quartile of producers, assistance to the communities which you operate in to allow them to achieve sustainable development, and to deliver superior returns to shareholders. How are you performing against your own scorecard?
Arthur Hood: Ok, well three years ago/four years ago, we were a 600,000 ounce a year company. We’ve had three consecutive years of record production, 650 – 780,000 ounces last year and we’re well on track this year to produce over a million ounces of gold. With regards to assistance to the community, if you work in Papua New Guinea you’re very familiar with a community license to operate. And the local community license to operate involves, providing long term development for the community and near term benefits, and our community are no different from any other in Papua New Guinea in ensuring that they get the full benefit from what they see as their resources. And the company is well positioned over the next year or two, If we deliver on the program that we say we’re going to do, that will deliver very strong results to our shareholders.
Clive Tompkins: You just raised $325 million U.S. via the sale of new shares, where is the money going?
Arthur Hood: That is to under-write or under-pin the million ounce plant upgrade on Lihir Island. It is to ensure that we have the funding to complete what is actually a five year project in essence. The board approved the feasibility study at the beginning of 2008. This project will not be fully commissioned until the end of 2011, beginning of 2012, so this is a four or five year project and we want to ensure that we can complete this project. It involves some $800 million of expenditure over a four year period and we want to ensure that we can complete this project and deliver those returns to our shareholders, so that is what the $325 million raising is for.
Clive Tompkins: Newmont Mining recently came out and predicted that gold would average over $900 an ounce for the remainder of 2009, and equities would outperform bullion. What’s Lihir’s view on the gold price for the rest of the year?
Arthur Hood: Ok, we actually never make predictions on gold price but you would have to say that you would expect the gold price to remain very strong this year. If you look over the last three years there’s been a consistent increase in the gold price as people have become more and more concerned about the state of the world economy. We believe that the gold price will stay very strong for the remainder of this year. It has already dipped below $900 so we’ve had a couple of days below $900 so, you know it will fluctuate and there is a lot of volatility in the gold price, but underlying, the underlying fundamentals will keep the gold price strong.
Clive Tompkins: Turning to your most recent results, underlying profit, EBITDA, operating cash flow, all rose to record levels. What were the drivers?
Arthur Hood: Gold price obviously plays a part, but also, very importantly, is we’re increasing our production. And at Lihir Island, Lihir Island is largely a fixed cost operation, so if you increase production, you increase the denominator, you reduce the unit cost of production, so that adds to profit, EBITDA etc, etc. Adding in additional mines, as we have done with the Equigold merger, in particular Mount Rawdon and Bonikro, we’re adding in basically low cost operations which also adds to that, so all of those combined together, great operational performance, great management team, has combined to give us that excellent financial performance.
Clive Tompkins: And what would you like to improve on in 2009?
Arthur Hood: Well there are always many areas that you would like to improve. We would like to control our costs better at Lihir. We’ve made a lot of steps in the last few years on that and we will continue to pursue those this year and I’m sure that we will see good production performance out of Lihir and that will be combined with good cost performance, and we will see us moving down the cash cost curve. With Mount Rawdon we want to keep that operating well, as it has been doing for the last seven years, and continue the good quality operation we have there. And then in the Ivory Coast we have only just had the first quarter of operation at Bonikro, we wish to consolidate that operation, make sure it continues to operate as well this year as it did in the first quarter last year producing gold for $307 an ounce – great performance for the first quarter of operation. And then leverage up on our great exploration package in the Ivory Coast, find more ounces with in trucking distance of the Bonikro plant, and then be able to justify expanding the Bonikro plant and growing the size of that operation. And exploring in our other exploration licenses in Ivory Coast and hopefully finding some other large ore bodies.
Clive Tompkins: Last question. Amidst the deteriorating employment market, much focus is on companies and their plans for head count. How many people does Lihir employ in Australia and in total?
Arthur Hood: Ok, in direct LGL employees in Australia, we have some 300 plus direct employees, there’s probably about another 200 or so contractors or business partners as we prefer to call them. Now some of those are involved in construction work, particularly at Ballarat or in capital development work, so obviously by nature it goes up and goes down, but we would expect our permanent numbers to stay largely the same, in fact our corporate office has grown substantially from virtually nothing to over 100 in the last three years.
And with the million ounce plant upgrade and our global reach now, I certainly wouldn’t expect to see the corporate office reducing in any way, shape or form in the near future.
Clive Tompkins: Arthur Hood thank you for giving us a better understanding of the business.
Arthur Hood: Thank you very much.
Clive Tompkins: And that was Arthur Hood from Lihir Gold giving us an update. I’m Clive Tompkins, until next time, goodbye.
