A gold mine of opportunity

By Sam Vulum

ESPITE the threat of M Papua New Guinea’s

M ongoing tax hikes

■ against the mining

industry and the falling gold prices,

the country’s latest gold mine and one of the world’s largest undeveloped gold resources, Lihir is riding on the crest of success. Lihir Gold Limited chairman Ross Gamaut told shareholders in the company’s annual general meeting recently that despite the tax complaints by the mining industry, Lihir has exceeded production forecasts for its first year (1997) by almost 20 per cent, producing 212.000 ounces of gold. Gamaut said gold

production began, as forecasted, in May

1997 from oxide ore, with the first gold poured on May 25. The first of the three autoclaves, commissioned in August 1997, permitted production from the higher grade sulphide ore. All three autoclaves were operating by September 1997.

In 1998, .the plans for production of 625.000 ounces of gold should place the company amongst the top 15 gold mines in the world, according to the company’s 1997 annual report. The chairman, Gamaut also told shareholders that Lihir had posted an inaugural profit of US$ll.B million in its first year of gold production. Gamaut also said the excellent performance in con struction and start-up reflected well on the company’s management. It also reflected well on the employees - 85 per cent of who were Papua New Guineans, many from Lihir itself. “This has emerged as a great asset for the company, reflecting the quali ty of partnership with the people of Lihir, the quality of life on Lihir and the inherent strengths and challenges of the operation itself,” he said.

The chairman, however, warned that the increases in taxes imposed by the govern ment on the mining industry could threaten the country’s development of new and existing projects. He referred to the PNG budget that increased royalty and payroll taxes and introduced a 50 per cent tax on leave flights from mining sites. Gamaut said the latest taxes were part of continuing increases, which were making production less viable for the mining industry. PNG is

in a difficult economic position with a weak kina and a lack of foreign reserves caused mainly by the recent drought that stalled the operating of the Ok Tedi Copper and Porgera gold mine. Both mines have since re-opened following the return of wet weather. However, Lihir together with other members of the PNG Chamber of Mines and Petroleum have been urging the government to review these new taxes.

Chamber president Dr Moseley Moramoro said recently that the industry would collectively pay K9O million in extra taxes with the introduction of the measures. Dr Moramoro said these taxes will hinder new projects the government was planning to fast track. The Lihir chair man also told shareholders that despite beating production expectations and sched ules in just 19 months, the company had to

face highly unfavourable gold prices.

“Gold prices fell sharply in 1997 and in early 1998, and they remain historically low. This will take the edge off the compa ny’s financial performance. The low gold prices have underlined the critical impor tance of low costs and take every opportu nity to reduce costs to a minimum,” he said. Gamaut said the company’s relatively low cash costs put it in a good position in the current low gold price environment.

The chairman said the board had taken steps to ensure full utilisation of every opportunity to further reduce costs. He said the company’s extensive reserves and long mine life made it sensible to take a long term view of the gold price. “Consideration has been given to the average price over recent years as well as the existence of hedging mechanisms, whereby a higher price than the current spot price can be obtained. Accordingly, the board has con cluded that a gold price of $365 per ounce remains appropriate for valuation purpos es. The board will continue to assess the gold price prospects and review the effect of a lower gold price on reserves and other business parameters in 1998,” he said. In its annual report, the company highlighted that it believes its success to date has large ly been due to its relationship with its employees, the local community and the wider external environment. The report said a special committee within the board the environment and Lihir impact commit

lee - lakes particularly close interest in these matters and works closely with management to monitor the impact of the operation. Of the 1534 employees of the

company, approximately 43 per cent were Lihirians and a further 49 per cent were from other areas of PNG. The annual report said the company has sought to build on its relationship with the Lihirian community.

The goal remains to nurture a long-term association of mutual respect and trust.

There are committees to encourage the development of programmes to promote health, education, social awareness, law and order, community infrastructure, busi ness development and agriculture for the sustainable benefit of the people of Lihir Island. The second phase of village devel opments began in 1997. The Village Development Scheme will provide up to 40 modem permanent houses each year to Lihirian families throughout the Lihir group of islands. By the end of 1997, the company handed over 39 houses and a fur ther 11 were nearing completion.

Lihir continued to give support and assistance to relocated families moving from village dwelling to modem housing.

The annual report said projects funded by the village scheme included village water supplies, clinics, aid posts and nurs es’ houses, education facilities, and church and mission assistance. The report added that the company had acquired enough land in the pit and stockpile areas for 95 per cent of 1998 projected requirements.

During the year, the company paid gold and silver royalties to landowners through arrangements with the government. The development of a township near Londolovit, including the industrial and commercial areas, has begun.

A number of successful Lihirian busi ness groups have been formed, some in joint venture with nationally established companies. Established sporting facilities are well used by the township community.

A detailed investigation into truck disposal of soft waste from a platform constructed out into Luise Harbour, to complement barge disposal, is complete and the appro priate government licence obtained.

For the second consecutive year, ocean ic sedimentation was lower than forecast in the project environment plan.

An ongoing external environmental review by Dames & Moore found no major environmental problems arising from the operation. ■