Volcanic steam heat helps power Papuan goldmine
Wed Jun 6, 2007 5:21pm
yahoo.reuters.com
NEW YORK, June 6 (Reuters) - One gold company has found a novel way to offset spiraling production costs -- harness the heat from a dormant volcano on which its main mine sits.
And saving $40 million per-year using geothermal power, might just help Lihir Gold Ltd.'s (LGL.AX: Quote, Profile , Research) (LIHR.O: Quote, Profile , Research) ambitious plan to double production in four years, Chief Executive Arthur Hood told Wall Street analysts on Wednesday.
"We're a little island in the middle of nowhere, so we're going to generate our own power," Hood said of the mine on the island of Lihir, which is part of Papua New Guinea.
"Our energy costs are flat, or slightly lower, as others' are going up," he told a metals and mining conference at the New York Society of Security Analysts.
Most gold producers are facing increasing costs for labor, equipment and energy, despite a relatively high gold price -- around $669 per ounce in New York on Wednesday.
Hood estimates Lihir can save $40 million this year on energy by using natural heat in the ground, which he said is typically around 120 degrees-to-140 degrees Centigrade.
"We take the steam straight out of the ground and feed it into the turbines," he told Reuters after his presentation.
Hood said the island of Lihir is basically the peak of a dormant volcano that extends 1 or 2 kms beneath the south Pacific. The open-pit gold mine, which was originally developed by Rio Tinto (RIO.L: Quote, Profile , Research), sits in the crater.
Since Rio Tinto ended its involvement in October 2005, Hood has led Brisbane, Australia-based Lihir's turnaround.
"We were serial underperformers, but we've taken a step-up in the level of organization," he said of the company whose shares are traded in Australia and on the Nasdaq.
The company, which has gold reserves of 23.6 million ounces, acquired an underground mine in the gold-mining region of Ballarat in southeastern Australia.
It has also increased mill performance from an annual throughput to 4.3 million tons of rock processed in 2006 up from 3.5 million tons in 2005, Hood said.
As a result, gold production has risen from 596,000 ounces in 2005 to an estimated 800,000-to-830,000 ounces this year. Lihir plans to double production from 651,000 ounces in 2006 to 1.25 million ounces in 2010, Hood said.
He has also put the company's financial house in order. It recently raised $984 million from an institutional entitlement offer and a placement, allowing it to close its hedge book and repay gold loans and other secured debt.
The new Lihir -- Australia's second-largest listed gold miner behind Newcrest Mining Ltd. (NCM.AX: Quote, Profile , Research) -- will have greater financial flexibility to profit from high spot gold prices.
"We've got great internal growth and we're going to double our production over four years," Hood told Reuters. "That's plenty to keep us occupied at the moment. But yes, we will look at M&A (mergers and acquisitions) if we see something that we think makes sense then we'll take a punch at it."
Asked if operating in Papua New Guinea presented a political risk, Hood noted it has a democratically elected government. "PNG gets an unfair rap," he said of reports of violent crime in the island nation.
"They tried to change mine ownership 13 years ago and it nearly killed the industry. There is no desire to go back to those days."
Finding labor in a region where there is 90 percent unemployment was not a problem, Hood said. |
