Ok, where do I start. Well This is a stock that I have followed...

Ok, where do I start. Well This is a stock that I have followed since 1996. I first bought them in Dec of that year. Until 21-2-07, when I last sold them ( yes just before their big spike, so what do I know?? ) I have traded them something like 40 times. Initially I was a big believer, in fact i am still a believer, but a highly disallusioned one. As is regularly reported, they are habitual under achievers. Promising much, but rarely If ever achieving their stated goals. Clearly the plant, as originally installed and commisioned had many shortcomings, these have steadily been overcome. Untill recent years Lihir has been totally dependant on HFO ( Heavy Fuel Oil ) to power their generating plant to produce electricity. This was a huge burden, particularly considering that it is priced in US dollars. This is problematic, in the event of price hikes and unpredictable currency movements. This has now been partially overcome by the installation of geothermal power generation. I see though they are increasing their HFO capacity to meet future increased power needs. This of course leads onto the not insubstantial issue of mining on top of a VERY active volcanic hot spot. They are dealing with geological conditions that few, if any other mining companys in the world have to deal with. I recall reading that one of their problems is that heavy earth moving equipment actually has their tyres rapidly deteriate from the heat, If not actually melt. Then their is the constant threat of Tsunami's. Yes thats correct tsumanis. Throw in the soverign risk of PNG. The policy of employing a large proportion of locals is an admirable one, but in all fairness, they may not represent the cream of the worlds mining personel elite. Untill a few years back, by far the majority of their production was hedged. This was all well and good when gold was 3/4/500 dollars an oz, but was quickly out of the money when gold moved on. This is now in the past seeing as they are now unhedged and totally exposed to gold movements. Of course this also means they are exposed to US/Aus dollar movements. Their sludge/slurry is disposed of, off shore via an undersea pipe line. Which I would assume, would be nearly impossible to achieve in any other country. These are just a few of the issues that pop to mind. It's not as if the investment community, especially the big international institutions are unaware of these problems. As a result Lihir will alway's ( in my opinion ) underform, when compared to their peers.

On the subject of hoarding all that cash. It's my opinion that they still have large capitol requirements to get their plant up to scratch, as it were. Especially If LGL is to achieve the output that such a huge deposit deserves. On top of that it's apparent that LGL management realises and have constantly stated, they wish to diversify their risk, by expanding their production base to other sites. Either by aquisition or organic growth. Neither of which comes cheaply.

It's a pointless exercise trying to over annylize cental bank manipulation/Washington agreement/gold hoarding/ultimate currency/hedge against inflation/hedge against deflation/only limited supply blah, blah, blah arguments. At the end of the day, it is a commodity (some would argue a dubious one). That is priced in $US, effected by Indian wedding seasons and in Australian terms also effected by exchange rates. Keep these simple things in mind and you will make money out of LGL. I have (did) but
I've moved on, I just think there are easier ways to make a quid out of the share market than Lihir Gold.

As per usual all the normal caveats apply and do your own research etc.

gkp