LGH

Lihir Gold Limited (LHG) has a Neutral 2 broker call and a share price target of $3.60 from sharemarket analyst UBS. The gold miner has had a Financial restructure to leave Lihir free of debt and hedging. The company is raising of A$1.2b via entitlement offer and placement: Lihir is to raise A$1.2b in new equity through a 1 for 3 rights offer at $2.30, a 26% discount to the theoretical ex-rights price, and an additional placement, to close out its hedge book, repay its gold loan and other debt, and fund future expansions. The transaction is value dilutive on UBS gold price forecasts: the benefit of the transaction is the creation of a fully leveraged gold play. The trend among global gold majors has been to de-hedge, and as metal prices have continued to surprise on the upside, lower hedging has been popular with the market. However closing out the hedgebook when gold has hit US$690/oz, compared to the UBS forecasts which see gold back below this level by year end is dilutive. Lihir Gold Limited requires US$500-550m for the proposed expansion to >1Moz. We estimate only US$200m may be available following this transaction for the project, leaving further funding requirements outstanding. The analyst's valuation for Lihir Gold Limited falls from $1.62 to $1.24. Lihir was previously trading at a premium of 2x our NPV which was attractive compared to global majors trading at 2.5x. The theoretical ex-rights price of $3.09 is a 2.4x multiple to our adjusted valuation, making Lihir less attractive.

Lihir Gold (LHG) have a Neutral 2 share trading recommendation and a price target of $3.60 and valuation of $1.61 per share from analyst UBS. Lihir have had their 06 preliminary financials audited and have commented that: 2006 NPAT was $53.8m vs the $53.4m reported on 30 Jan with the production result. There was no change to the cashflow statement, operating cashflow $58.7m, cash balance $47m. Net debt has increased to $234m from $87.7m pcp largely due to the $171m of capex over the period related to the flotation and geothermal power plants. Gearing is up to 22% from 10% pcp. Flotation and geothermal power expansion projects remain on track for commissioning in early 07. FY07 production guidance remains 800-830koz at total cash costs of US$250/oz. Expansion project metrics remain US$500-550m for 300koz incremental capacity starting in 2010. Production guidance of 800+koz for 2008 - 2011 has been given but this excludes expansion plans to >1Moz and Ballarat production. They like the expansion proposal as it provides opportunities for economies of scale and further reserves upgrades; however, the question remains how it will be funded with only a $47m cash balance. LHG remains the analysts' preferred gold exposure of the majors.