1. Low grades
2. Low predictability of gold grades
3. The lack of scalability of the mine
4. Low gold prices
The first two factors are unlikely to change, however there is the prospect of higher gold prices resulting in an increase in production in future. The problem is that there is some prospect of weaker gold prices in the medium term as we witness a recovery in the USD. For this reason, this is not the time to buy this stock. For Lihir, it seems a little too late to sell. Anyway, these developments are not surprising given our view on this stock dating back to October 2008. There is of course always the prospect of trading this stock when gold prices recover. In the interim, I would stay away from most gold stocks since the USD is stronger for now.
It seems probable that no party is likely to be interested in buying Lihir's BDG stake. I can't imagine a buyer. Perhaps the stock will be offered to an institution to place over time in exchange for a high commission. Otherwise maybe they will dump the stock on the market using some slight of hand. Well of course not...that's illegal....if they know about it. Usually institutions perform this type of dirty work...for a commission. It is the role of institutions to perform such work. They charge a large commission for such practices. The last one I remember was the Qld Metals Corp fiasco, where the major investment banks were peddling this company's stock issue in exchange for a 7% commission. The higher the commission the more dodgy the issue. Mostly issues involve a 3-5% commission, so 7% must be a dog, and you wouldn't do it in a bad market. So I guess an investment broker would be looking at a large share of the stock or 10% straight commission to unload this stock. Well its not without some value given the outlook for gold, and that treatment plant will be worth something. Maybe they can use the kilometres of underground development for carbon sequestration. Just kidding. It might have a useful life yet.
PS: Qld Metals Corp went broke. No thanks to my negative report on the issue. That did not stop my employer from recommending the issue...sorry not recommending...just not disclosing my report or findings. Its hard to knock back a 7% commission.
Andrew Sheldon www.sheldonthinks.com