##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ___ to ___
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date
of event requiring this shell company report _________
 Commission file number: 2-6860
 Lihir Gold Limited
  
 
 
  Lihir Gold Limited Ordinary Shares of no par value
    
    NASDAQ National Market*American Depositary Shares, each of which represents ten
Lihir Gold Limited Ordinary Shares and which are
evidenced by American Depositary Receipts
    
    NASDAQ National Market
 
   
 
  Lihir Gold Limited Ordinary Shares of no par value:
    
    1,284,048,639 fully paid sharesLihir Gold Limited Treasury B Shares
    
    161,527,405Lihir Gold Limited Restricted Executive Shares
    
    176,071
 
  þ o
  o þ
   þ o
  þ o o
  o þ
 If this is an Annual Report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act
 o þ




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##### 



Table of Contents
 PageCertain Definitions
    
    
    
    
    1Forward Looking Statements
    
    
    
    
    1PART I
    
    
    
    
    1Item 1. Identity of Directors, Senior Management, and Advisors
    
    Not applicable*Item 2. Offer Statistics and Expected Timetable
    
    Not applicable*Item 3. Key Information
    
    
    
    
    1A. Selected Financial Data
    
    
    
    
    1B. Capitalisation and Indebtedness
    
    Not applicable*C. Reasons for the Offer and Use of Proceeds
    
    Not applicable*D. Risk Factors
    
    
    
    
    3Item 4. Information on the Company
    
    
    
    
    10A. History and Development of the Company
    
    
    
    
    10B. Business Overview
    
    
    
    
    12C. Organizational Structure
    
    
    
    
    26D. Property, Plant and Equipment
    
    
    
    
    27Item 4A. Unresolved Staff Comments
    
    
    
    
    37Item 5. Operating and Financial Review and Prospects
    
    
    
    
    38A. Operating Results
    
    
    
    
    38B. Liquidity and Capital Resources
    
    
    
    
    49C. Research and Development, Patents and Licenses, etc
    
    
    
    
    51D. Trend Information
    
    
    
    
    51E. Off-Balance Sheet arrangements
    
    
    
    
    52F. Tabular disclosure of contractual obligations
    
    
    
    
    52Item 6. Directors, Senior Management and Employees
    
    
    
    
    52A. Directors and Senior Management
    
    
    
    
    52B. Compensation
    
    
    
    
    55C. Board Practices
    
    
    
    
    59D. Employees
    
    
    
    
    63E. Share Ownership
    
    
    
    
    63Item 7. Major Shareholders and Related Party Transactions
    
    
    
    
    64A. Major Shareholders
    
    
    
    
    64B. Related Party Transactions
    
    
    
    
    65C. Interests of Experts and Counsel
    
    Not applicable*Item 8. Financial Information
    
    
    
    
    66A. Consolidated Statements and Other Financial Information
    
    
    
    
    66B. Significant Changes
    
    
    
    
    67Item 9. The Offer and Listing
    
    
    
    
    67Item 10. Additional Information
    
    
    
    
    68A. Share Capital
    
    Not applicable*B. Memorandum and Articles of Association
    
    
    
    
    68C. Material Contracts
    
    
    
    
    71D. Exchange Controls
    
    
    
    
    80E. Taxation
    
    
    
    
    80F. Dividends and Paying Agents
    
    Not applicable*G. Statement by experts
    
    Not applicable*H. Documents on Display
    
    
    
    
    83I. Subsidiary Information
    
    
    
    
    83Item 11. Quantitative and Qualitative Disclosure about Market Risk
    
    
    
    
    83A. Quantitative Information about Market Risk
    
    
    
    
    83B. Qualitative Information about Market Risk
    
    
    
    
    85Item 12. Description of Securities Other than Equity Securities
    
    Not applicable*PART II
    
    
    
    
    86Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    
    
    86Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
    
    
    
    
    86Item 15. Controls and Procedures
    
    
    
    
    86A. Evaluation of Disclosure Controls and Procedures
    
    
    
    
    86B. Managements annual report on internal control over financial reporting
    
    
    
    
    86C. Attestation Report of the registered public accounting firm
    
    
    
    
    86D. Changes in internal control over financial reporting
    
    
    
    
    86Item 16A. Audit Committee Financial Expert
    
    
    
    
    87Item 16B. Code of Ethics
    
    
    
    
    87Item 16C. Principal Accountant Fees and Services
    
    
    
    
    87Item 16D. Exceptions from Listing Standards for Audit Committees
    
    
    
    
    88Item 16E. Purchases of Equity Securities by Issuer and Affiliates
    
    
    
    
    88PART III
    
    
    
    
    88Item 17. Financial Statements
    
    
    
    
    88Item 18. Financial Statements
    
    
    
    
    88Item 19. Exhibits
    
    
    
    
    89EX-99.4.T: FACILITY AGREEMENTEX-99.4.U: DEED OF CHANGEEX-99.4.V: PARENT DEPOSIT AGREEMENTEX-99.4.W: MANAGEMENT SERVICES AGREEMENTEX-99.4.X: MANAGEMENT SERVICES AGREEMENTEX-99.4.Y: MERGER IMPLEMENTATION AGREEMENTEX-99.4.Z: SHARE SUBSCRIPTION AGREEMENTEX-99.4.AA: DEED POLLEX-99.8: SIGNIFICANT SUBSIDIARIESEX-99.12.A: CERTIFICATIONEX-99.12.B: CERTIFICATIONEX-99.13.A: CERTIFICATIONEX-99.13.B: CERTIFICATION
  
 *
    
    Not applicable to annuals reports on Form 20-F.




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##### Table of Contents



Certain Definitions
      
 Forward Looking Statements
   
 PART I
 
 Item 1. Identity of Directors, Senior Management, and Advisors
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 A. Selected Financial Data
  - 1 -




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Year ended December 31,(In $ millions, except where indicated)2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Amounts calculated in accordance with IFRS:Income Statement Data:Sales revenue (1)
    
    
    310.5
    
    
    
    224.9
    
    
    
    234.7
    
    
    
    214.5
    
    
    
    213.2Operating profit (2)
    
    
    80.8
    
    
    
    18.1
    
    
    
    313.1
    
    
    
    37.3
    
    
    
    72.4Profit from ordinary activities after taxation (3)
    
    
    53.8
    
    
    
    9.8
    
    
    
    329.2
    
    
    
    34.8
    
    
    
    53.2Earnings per share, basic and diluted (4)
    
    
    0.042
    
    
    
    0.008
    
    
    
    0.256
    
    
    
    0.030
    
    
    
    0.047Number of ordinary shares (millions) (5)
    
    
    1,284.2
    
    
    
    1,284.2
    
    
    
    1,284.2
    
    
    
    1,282.3
    
    
    
    1,142.3Balance Sheet Data(6):Total assets
    
    
    1,496.1
    
    
    
    1,319.4
    
    
    
    1,156.9
    
    
    
    748.9
    
    
    
    576.7Cash and current receivables held
    
    
    51.7
    
    
    
    133.2
    
    
    
    88.7
    
    
    
    163.2
    
    
    
    38.5Current liabilities
    
    
    177.4
    
    
    
    80.8
    
    
    
    104.3
    
    
    
    60.3
    
    
    
    27.5Long term obligations
    
    
    506.8
    
    
    
    455.1
    
    
    
    215.4
    
    
    
    227.2
    
    
    
    122.7Total shareholders equity (7)
    
    
    811.9
    
    
    
    783.5
    
    
    
    837.2
    
    
    
    461.4
    
    
    
    426.4Paid up capital(8)
    
    
    1,027.1
    
    
    
    1,027.5
    
    
    
    1,027.5
    
    
    
    1,025.3
    
    
    
    873.8Cash dividends per ordinary share (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.016
    
    
    
    Expenditure and Financing Data:Cash flow from operating activities
    
    
    58.7
    
    
    
    9.5
    
    
    
    30.3
    
    
    
    16.7
    
    
    
    22.8Financing activities:Issuance of ordinary shares
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    151.5
    
    
    
    Drawdown of term debt
    
    
    65.6
    
    
    
    245.5
    
    
    
    
    
    
    
    
    
    
    
    Restructure hedge book
    
    
    
    
    
    
    (62.2
    )
    
    
    
    
    
    
    
    
    
    
    Repayment of loans
    
    
    
    
    
    
    (49.5
    )
    
    
    (14.0
    )
    
    
    (7.0
    )
    
    
    (3.8
    )Dividend paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.2
    )
    
    
    Purchase of treasury shares
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total financing activities
    
    
    65.2
    
    
    
    133.8
    
    
    
    (11.8
    )
    
    
    130.3
    
    
    
    (3.8
    )Total expenditure on investing activities
    
    
    (204.7
    )
    
    
    (99.1
    )
    
    
    (87.6
    )
    
    
    (26.9
    )
    
    
    (24.4
    )Amounts calculated in accordance with US GAAP:Sales revenue (1)
    
    
    310.5
    
    
    
    224.9
    
    
    
    234.7
    
    
    
    214.5
    
    
    
    213.2Net income(9)(10)
    
    
    36.3
    
    
    
    21.8
    
    
    
    141.6
    
    
    
    0.4
    
    
    
    38.6Earnings per share, basic and diluted (4)
    
    
    0.03
    
    
    
    0.02
    
    
    
    0.11
    
    
    
    0.00
    
    
    
    0.03Number of ordinary shares (millions) (5)
    
    
    1,284.2
    
    
    
    1,284.2
    
    
    
    1,284.2
    
    
    
    1,282.3
    
    
    
    1,142.3Total assets (6)
    
    
    1,187.7
    
    
    
    1,112,5
    
    
    
    928.0
    
    
    
    683.4
    
    
    
    536.7Total shareholders equity (6)
    
    
    500.8
    
    
    
    542.4
    
    
    
    584.1
    
    
    
    395.9
    
    
    
    395.3Long term obligations(6)
    
    
    506.8
    
    
    
    482.7
    
    
    
    239.6
    
    
    
    227.2
    
    
    
    113.9
 
 (1)
    
    Alternative terminology: net sales or operating revenues.(2)
    
    Alternative terminology: income/(loss) from operations or income/(loss) from
continuing operations.(3)
    
    Alternative terminology: Net income/(loss) since Lihir has no discontinued
operations(4)
    
    In US$  per share. Lihir paid its maiden dividend of $A0.02 per share on July 16,
2003.(5)
    
    As adjusted to reflect changes in capital. Does not reflect an additional
111,957,502 shares issued on March 8 2007 and 38,494 shares issued on March 23 2007, in
connection with the purchase of Ballarat.(6)
    
    At period end.(7)
    
    Alternative terminology: net assets.(8)
    
    Alternative terminology: capital stock.(9)
    
    Includes the cumulative effect in 2004 of a change in accounting policy with respect
to the method of accounting for deferred mining costs. Please refer Note 34 (g) of the
financial statements.(10)
    
    Includes the cumulative effect in 2006 of adopting EITF 04-6.
Please refer to Note 34(f) of the financial statements. - 2 -




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B. Capitalisation and Indebtedness
  
 C. Reasons for the Offer and Use of Proceeds
  
 D. Risk Factors
  1. Lihir is currently dependent on a single mine
  2. The Lihir mine may be adversely affected by difficult geological conditions
 a. Hydrological and geothermal risks
   b. Volcanic activity risks
  - 3 -




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##### Table of Contents



c. Landslide risks
  i.
    
    extension of the North Kapit Stockpile;ii.
    
    higher than long term average rainfall over the previous six months prior to the
landslide; andiii.
    
    a magnitude 7.7 earthquake on September 9, 2005.
  (a)
    
    flow of water into tension cracks and blockage of subsurface drainage;(b)
    
    geothermal activity; and(c)
    
    loss of side restraint and extension upslope.
  3.
Production, construction, commissioning and other operational
risks
     4.
Expansion feasibility risk
  5. Lihirs insurance may not address all operating risks
  6. Lihir is subject to Papua New Guinean political risks
    - 4 -




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7. Lihir is vulnerable to civil unrest
  8. Lihir is vulnerable to landowner identification and compensation issues
    9. Lihirs results are dependent upon volatile gold prices
    .
 - 5 -




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Price in $ Per Ounce of GoldYear
    
    High
    
    Low
    
    Average1988
    
    
    484
    
    
    
    395
    
    
    
    4371989
    
    
    416
    
    
    
    356
    
    
    
    3811990
    
    
    424
    
    
    
    346
    
    
    
    3841991
    
    
    403
    
    
    
    344
    
    
    
    3621992
    
    
    360
    
    
    
    330
    
    
    
    3441993
    
    
    406
    
    
    
    326
    
    
    
    3601994
    
    
    396
    
    
    
    370
    
    
    
    3841995
    
    
    396
    
    
    
    372
    
    
    
    3841996
    
    
    415
    
    
    
    367
    
    
    
    3971997
    
    
    366
    
    
    
    283
    
    
    
    3311998
    
    
    313
    
    
    
    273
    
    
    
    2941999
    
    
    326
    
    
    
    253
    
    
    
    2792000
    
    
    313
    
    
    
    264
    
    
    
    2792001
    
    
    293
    
    
    
    256
    
    
    
    2712002
    
    
    349
    
    
    
    278
    
    
    
    3102003
    
    
    416
    
    
    
    319
    
    
    
    3632004
    
    
    454
    
    
    
    375
    
    
    
    4092005
    
    
    537
    
    
    
    411
    
    
    
    4452006
    
    
    725
    
    
    
    525
    
    
    
    6032007 (to March 31)
    
    
    686
    
    
    
    608
    
    
    
    650
   10.
    
    Lihirs prospects are partly dependent on reserves estimates and future experience.
   11.
    
    Lihir cannot guarantee it can obtain all the mining and processing inputs required for its
operation, including staff.
   12.
    
    Lihir is subject to the effects of rising oil prices
  - 6 -




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13. Lihirs financing agreements impose limitations on its operations
     14. Lihir has limited financial resources
  15. Lihir is subject to environmental risks
   - 7 -




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16.
    
    Lihirs mining and exploration rights may be terminated under PNG law
    17.
    
    Lihir is vulnerable to a limited market for the Kina and foreign exchange controls
    18.
    
    Lihirs dividends to U.S. shareholders are subject to withholding tax
  19.
    
    Lihirs shareholders are subject to different rights under certain circumstances
  - 8 -




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20.
    
    Difficulty may be experienced in the pursuit of litigation against Lihir or its executive
officers, directors, or experts who are not resident in the United States
  
    
    the presence of the person to be served within the jurisdiction of the relevant court; or
 
    
    the consent of that person to receive service outside the jurisdiction.
    21.
    
    Risk Associated with the Ballarat Acquisition
 a. Ballarat is exposed to exploration risk and uncertainty of development projects
   
    
    establish the presence, and to quantify the extent and grades (metal
content), of mineralized material through exploration drilling;
    
    determine appropriate metallurgical recovery processes to extract gold
from the ore;
    
    estimate ore reserves;
    
    undertake feasibility studies and to estimate the technical and
economic viability of the project; and
    
    construct, renovate or expand mining and processing facilities.
   b. Lihir may not realize the benefits expected from the Ballarat acquisition
   - 9 -




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c. Ballarat has limited financial resources
  d. Ballarat does not have ore reserves and the level of its estimated mineral resources are uncertain
  
 Item 4. Information on the Company
  
 A. History and Development of the Company
 (i) Introduction
  Lihir Mine
      - 10 -




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(ii) Capital Expenditures
   Capital Expenditure for Lihir Mine in 2004  2006
 (in US$ millions)
    
    2006
    
    2005
    
    2004Projects
    
    
    148.3
    
    
    
    49.0
    
    
    
    47.6Mining
    
    
    23.7
    
    
    
    34.9
    
    
    
    27.4Processing
    
    
    15.7
    
    
    
    15.6
    
    
    
    12.7Total
    
    
    187.7
    
    
    
    99.5
    
    
    
    87.7
      - 11 -




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B. Business Overview
   2 2
 Description of Operations
 Overview
   
    
    it enables the treatment of ore into a higher grade sulphide concentrate for pressure oxidation feed, and
 
    
    sensitivity analyses indicate that the flotation expansion has a lower risk profile than the current plant
configuration case, because it is less sensitive to most adverse variations in sulphur feed types.
  - 12 -




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Current Plant Flowchart
 
 Plant
 Flowchart after Flotation Installation
 
   Mining
 General.
    2006
    
    2005
    
    2004High-Grade Sulphide Ore (K tonnes)
    
    
    4,204
    
    
    
    3,518
    
    
    
    5,036High-Grade Sulphide (g Au/t)
    
    
    5.51
    
    
    
    6.11
    
    
    
    5.11Low-Grade Sulphide Ore (K tonnes)
    
    
    3,751
    
    
    
    5,857
    
    
    
    6,550Low-Grade Sulphide Ore (g Au/t)
    
    
    2.27
    
    
    
    2.05
    
    
    
    2.23Total Ore (K tonnes)
    
    
    7,955
    
    
    
    9,375
    
    
    
    11,586Total Ore (g Au/t)
    
    
    3.98
    
    
    
    3.57
    
    
    
    3.52Total Waste
    
    
    48,195
    
    
    
    32,177
    
    
    
    35,170Total Material
    
    
    56,150
    
    
    
    41,552
    
    
    
    46,756
 Pit Design and Planning.
 - 13 -




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o o o o o
  Production Scheduling.
   - 14 -




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Plant Optimisation for selected Pulp Density and Sulphur grades
 
 Sulphide sulphur grade in autoclave feed solids
 Assumptions:      3
 - 15 -




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Plant Optimisation for selected Hardness/Work Index and Sulphur grades
 
  - 16 -




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Cut-off Grade strategy for Plant Feed
 
  Further information on Metallurgical Recovery
   Recovery = (0.033*LN(Ore grade)+0.8576)
  Sulphide Content.
 Economic Grade Ore Stockpiles.
 - 17 -




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Waste Rock Disposal.
 Dewatering and Geothermal Control.
   Blasting.
 Mine Drainage.
 Mining Equipment.
  Processing
 General.
 - 18 -




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Crushing.
  Stockpiling and Blending.
  Grinding and Thickening.
  Pressure Oxidation.
  - 19 -




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Energy
  CCD Washing and Neutralization.
   CIL Processing.
 Gold Recovery.
    Tailings Disposal.
  Economic Grade Ores.
 
    
    The heat recovery circuit commissioned in the third quarter of 2001 enables the
pressure oxidation circuit to treat a lower grade of sulphide in ore feed.
    
    Flotation plant capacity provides an opportunity to increase the sulphide grade of
stockpile ore.
    
    Blending of stockpile ores combined with operation of the flotation circuit will
enable feeding of the autoclave circuit at the optimum sulphur level.
 Limestone Deposits.
 - 20 -




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Infrastructure.
     Logistics
  Workforce
  Community Affairs
     - 21 -




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2006
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Kina millions
    
    
    31.4
    
    
    
    24.8
    
    
    
    37.2
    
    
    
    25.2
    
    
    
    26.5
    
    
    
    18.1$ millions equivalent
    
    
    10.7
    
    
    
    8.5
    
    
    
    11.8
    
    
    
    7.2
    
    
    
    6.6
    
    
    
    5.0
  Business Development
   Education Assistance 
 - 22 -




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Occupational Health and Safety
   Kapit Landslide
    Phase 7 Geothermal Outburst
     Dewatering
  Moving Forward
   Lihir LTIs and LTIFR by year
 1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006LTI
    
    
    12
    
    
    
    11
    
    
    
    11
    
    
    
    16
    
    
    
    11
    
    
    
    12
    
    
    
    13
    
    
    
    12
    
    
    
    5LTIFR
    
    
    2.05
    
    
    
    1.70
    
    
    
    1.75
    
    
    
    2.30
    
    
    
    1.80
    
    
    
    1.50
    
    
    
    1.50
    
    
    
    1.53
    
    
    
    0.53
  - 23 -




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Community Health
  Processing Period after 2021
    Symbol
    
    Production Parameter
    
    Unit
    
    ValueA
    
    Estimated Stock Pile Material
    
    Mtonnes
    
    113B
    
    Plant Annual Throughput
    
    Mtonnes
    
    5.6(calculation = A/B)
    
    years
    
    20C
    
    Gold Grade  average
    
    Au g/t
    
    2.15D
    
    Plant Recovery
    
    %
    
    86.7%E
    
    Conversion
    
    grams to ounces
    
    31.1035
 Approximate Annual Production ounces 335,000
(calculation = B*C*D/E)]
  Lihir Process Plant Expansion Option Study
  - 24 -




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Recent Developments
 Acquisition of Ballarat Goldfields NL
        - 25 -




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C. Organizational Structure
        - 26 -




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D. Property, Plant and Equipment
 .
 Mining Rights
   - 27 -




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Lihir Island (Aniolam Island)
     Geology
   - 28 -




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- 29 -




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Reserves Estimates
   - 30 -




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ContainedReserve
    
    Tonnes
    
    Average grade
    
    OuncesCategory
    
    (In millions)
    
    (g Au/t)
    
    (millions)Un-mined Ore
    
    Proven
    
    
    0
    
    
    
    0
    
    
    
    0Probable
    
    
    212.0
    
    
    
    2.89
    
    
    
    19.7Economic Stockpiled Ore*
    
    Proven
    
    
    46.5
    
    
    
    2.57
    
    
    
    3.8Total Reserves
    
    
    
    
    
    
    258.5
    
    
    
    2.83
    
    
    
    23.6* Economic Stockpiled OreHigh Grade
    
    
    0.6
    
    
    
    5.26
    
    
    
    0.1Medium Grade
    
    
    2.9
    
    
    
    3.47
    
    
    
    0.3Low Grade
    
    
    43.7
    
    
    
    2.47
    
    
    
    3.4Total Stockpiled
    
    Proven
    
    
    46.5
    
    
    
    2.57
    
    
    
    3.8
            - 31 -




---



##### Table of Contents



Exploration
       Environmental Considerations
 Overview
    - 32 -




---



##### Table of Contents



3 3
     Environmental Plan
    1.
    
    Distribution of bioactive mine-derived contaminants, including secondary
precipitates/flocs (particularly As speciation (e.g. arsenobetane)) formed on
neutralization of mine tailings with seawater (CSIRO Centre for Advanced Analytical
Chemistry & company  sponsored post graduate student);2.
    
    Assessment of bentho/pelagic coupling mechanisms within the severe impacted zone,
examining both vertical (near-slope) feeding communities, and near and far-shore pelagic
communities (<500m) exposed to sub-surface plumes (CSIRO Marine Research and CSIRO
Centre for Environmental Contaminants Research);3.
    
    Further definition of the tailings footprint using remote sensing (acoustic seabed
classification) techniques, combined with calibration and gap (sediment) sampling (Ian
Hargreaves and Associates);
 - 33 -




---



##### Table of Contents



4.
    
    Deep water physical marine investigations including additional water column current
velocity monitoring and sub-surface plume definition (Ian Hargreaves and Associates); and5.
    
    Inshore monitoring/modeling of interactions between shallow marine communities and
anthropogenic sources (mine and non-mine related), incorporating food web, human health
and socio-economic data (CSIRO Marine Research)
  Land and Habitat Impacts
    Waste Rock and Marine Impacts
     - 34 -




---



##### Table of Contents



Stockpile Drainage
   Tailings Disposal
      Rehabilitation and Decommissioning
   - 35 -




---



##### Table of Contents



Seismic Considerations
    Insurance
    Security
    - 36 -




---



##### Table of Contents



4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
 
 A. Operating Results
 Introduction
   Recent Developments
 Ballarat acquisition
     Critical Accounting Policies
  
    
    Carrying value of Lihirs non-current assets (IAS 36 Impairment of Assets and IAS 4
Depreciation Accounting)
 Mine properties
     - 37 -




---



##### Table of Contents



Mine buildings, plant and equipment
   Remaining mine life
  Impairment of assets
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Long term gold price  $ / oz
    
    
    500
    
    
    
    425
    
    
    
    380
    
    
    
    340
    
    
    
    305Risk adjusted pre-tax rate
    
    
    7
    %
    
    
    7
    %
    
    
    7
    %
    
    
    7
    %
    
    
    7
    %Impairment (charge) / reversal- IAS GAAP $ millions
    
    
    
    
    
    
    
    
    
    
    205.7
    
    
    
    31.1
    
    
    
    37.9- US GAAP $ millions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  
    
    Non-current liabilities (IAS 37 Provisions, Contingent Liabilities and Contingent Assets)
 Restoration, rehabilitation and environmental expenditure
  - 38 -




---



##### Table of Contents




    
    Inventory valuation (IAS 2 Inventories)
 Inventories
     
    
    Deferred tax position (IAS 12 Income Taxes)
 Income tax
   
    
    Derivative financial instruments (IAS 39 Financial Instruments: Recognition and
Measurement)
 Accounting for derivative financial instruments and hedging activities
     - 39 -




---



##### Table of Contents




    
    Deferred mining costs (IAS 16 Property, Plant and Equipment)
    
    
    short term changes in the mine plan and scheduling within the period;
    
    changes in the reserves and strip ratio with a change in cut-off grade policy; and
    
    changes in pit wall design and operating strategies.
    Overview
    - 40 -




---



##### Table of Contents



$ millionsAmounts calculated in accordance with IFRS
    
    2006
    
    
    2005
    
    
    2004Sales Revenue
    
    
    324.8
    
    
    
    238.8
    
    
    
    238.7Gold lease rate fees
    
    
    2.8
    
    
    
    5.0
    
    
    
    4.6Fair value gains
    
    
    (1.7
    )
    
    
    (5.4
    )
    
    
    8.6Realisation of deferred hedging costs
    
    
    (17.1
    )
    
    
    (13.5
    )
    
    
    (17.2
    )Other revenue
    
    
    1.6
    
    
    
    
    
    
    
    Total revenue
    
    
    310.4
    
    
    
    224.9
    
    
    
    234.7Gross cash costs
    
    
    258.2
    
    
    
    222.2
    
    
    
    213.8Deferred waste and inventory movements  cash
    
    
    (50.5
    )
    
    
    (34.3
    )
    
    
    (34.1
    )Economic grade stockpile current year  cash
    
    
    (17.2
    )
    
    
    (22.4
    )
    
    
    (18.1
    )Total cash costs*
    
    
    190.5
    
    
    
    165.5
    
    
    
    161.6Depreciation and amortization
    
    
    37.4
    
    
    
    35.8
    
    
    
    32.9Deferred waste and inventory movements  non cash
    
    
    (6.2
    )
    
    
    (4.7
    )
    
    
    (7.3
    )Economic grade stockpile current year  non cash
    
    
    (1.8
    )
    
    
    (2.9
    )
    
    
    (7.1
    )Other corporate costs
    
    
    3.9
    
    
    
    7.1
    
    
    
    6.9Exploration
    
    
    5.9
    
    
    
    6.0
    
    
    
    5.3Net interest
    
    
    4.8
    
    
    
    2.4
    
    
    
    (1.4
    )Total costs before impairment adjustments
    
    
    234.5
    
    
    
    209.2
    
    
    
    190.9Profit before impairment adjustments
    
    
    75.9
    
    
    
    15.7
    
    
    
    43.8Asset impairment reversal
    
    
    
    
    
    
    
    
    
    
    205.7Economic grade stockpile impairment reversal
    
    
    
    
    
    
    
    
    
    
    65.0Income tax benefit/(charge) recognized
    
    
    (22.1
    )
    
    
    (5.9
    )
    
    
    14.7Net earnings
    
    
    53.8
    
    
    
    9.8
    
    
    
    329.2
 
 *
    
    equal to cash costs per oz multiplied by
ounces produced less the finished goods cash
movement for the year. - 41 -




---



##### Table of Contents



Financial Results of Operations
 Sales
 2006
    
    
    2005
    
    
    2004Gold sales
    
    $/oz
    
    
    643
    
    
    
    592
    
    
    
    610Gold sales at spot
    
    
    
    
    
    
    596
    
    
    
    446
    
    
    
    403Hedging gains / (losses)  cash
    
    
    
    
    
    
    (93
    )
    
    
    (43
    )
    
    
    (11
    )Gold lease rate fees
    
    
    
    
    
    
    4
    
    
    
    8
    
    
    
    7Deferred hedging gains / (losses)  non cash
    
    
    
    
    
    
    (27
    )
    
    
    (22
    )
    
    
    (29
    )Average gold price realized (excl. fair value gains and losses)
    
    $/oz
    
    
    480
    
    
    
    389
    
    
    
    370Fair value gains and losses
    
    
    
    
    
    
    3
    
    
    
    (9
    )
    
    
    15Average gold price realized (incl. fair value gains and losses)
    
    $/oz
    
    
    483
    
    
    
    380
    
    
    
    385Average gold price realized (excl. fair value gains and losses)
    
    $/oz
    
    
    480
    
    
    
    389
    
    
    
    370Average spot price
    
    $/oz
    
    
    603
    
    
    
    445
    
    
    
    409Premium/(discount) to spot price
    
    
    %
    
    
    
    (20
    )
    
    
    (13
    )
    
    
    (10
    )
 Gold Prices
       Hedging 
 - 42 -




---



##### Table of Contents



Residual OtherDeferred hedging
    
    Comprehensive
    
    Total OCI recycled toCosts / (Gains)
    
    Income
    
    incomeYear
    
    $ millions
    
    $ millions
    
    $ millions2007
    
    
    (2.2
    )
    
    
    90.2
    
    
    
    88.02008
    
    
    (2.8
    )
    
    
    74.1
    
    
    
    71.32009
    
    
    (1.5
    )
    
    
    85.5
    
    
    
    84.02010
    
    
    (0.1
    )
    
    
    66.1
    
    
    
    66.02011
    
    
    
    
    
    
    36.7
    
    
    
    36.72012
    
    
    
    
    
    
    5.2
    
    
    
    5.22013
    
    
    
    
    
    
    5.6
    
    
    
    5.6Total
    
    
    (6.6
    )
    
    
    363.4
    
    
    
    356.8
     - 43 -




---



##### Table of Contents



Production and Operating Costs 
 2006
    
    
    2005
    
    
    2004Ore Processed (Tonnes 000s)
    
    
    4,344
    
    
    
    3,482
    
    
    
    4,091Gold Produced (Ounces)
    
    
    650,811
    
    
    
    595,966
    
    
    
    599,386Grade (g Au/t)
    
    
    5.14
    
    
    
    5.98
    
    
    
    5.11Operating Expenses ($000s)Mining expenses
    
    
    107,551
    
    
    
    95,304
    
    
    
    89,687Exploration expenses
    
    
    5,976
    
    
    
    6,198
    
    
    
    5,306Processing costs
    
    
    47,875
    
    
    
    41,654
    
    
    
    41,524Power generation costs
    
    
    27,000
    
    
    
    27,413
    
    
    
    29,237General and administrative costs
    
    
    66,618
    
    
    
    57,884
    
    
    
    53,102Refining, royalty and management fees
    
    
    12,972
    
    
    
    6,813
    
    
    
    7,144Deferred mining costs
    
    
    (56,349
    )
    
    
    (25,048
    )
    
    
    (37,865
    )Costs
deferred and transferred to inventories
    
    
    (19,395
    )
    
    
    (39,208
    )
    
    
    (3,557
    )192,248
    
    
    
    171,010
    
    
    
    184,578
 Production Costs ($ per tonne of ore processed)Mining
    
    
    24.8
    
    
    
    27.4
    
    
    
    21.9Exploration
    
    
    1.4
    
    
    
    1.8
    
    
    
    1.3Processing
    
    
    11.0
    
    
    
    12.0
    
    
    
    10.2Power generation
    
    
    6.2
    
    
    
    7.9
    
    
    
    7.1General and Administrative
    
    
    15.2
    
    
    
    16.6
    
    
    
    13.0Total
    
    
    58.6
    
    
    
    65.7
    
    
    
    53.5
   
    
    Lower than expected mill feed grade; and
 
    
    Total plant gold recovery was 90.2% in 2006, which was marginally below the plan of 90.6%
recovery being adversely impacted by the higher than plan autoclave throughput which
marginally reduced the % oxidation of sulphides.
  
    
    Autoclave operating time averaged 90.6% in 2006, which was ahead of the planned 89.2%; and,
 
    
    Autoclave throughput for 2006 was 184.5 tonnes per operating hour per autoclave which was
ahead of the planned 180 tph/ac.
     
    
    Increase in supervisory manning levels to raise the utilization rates;
    
    Improved equipment availabilities;
 - 44 -




---



##### Table of Contents




    
    Quick reaction to geothermal issues with corresponding controls; and
    
    Mining on inclined benches in all areas to produce better floors.
  
    
    Geothermal event in April in Phase 7 delayed production from this area. This arose
when an eruption of steam and rock occurred from an undetected zone of pressure beneath an
area being mined. Procedures have now been modified to prevent a recurrence of this event;
and
    
    Ground water levels in Phase 5 locked out high grade ore during the fourth quarter.
  Mining Expenses 
   Processing Costs -
 Power Generation Costs 
 General and Administrative Expenses 
 Royalty, Refining and Management Fees -
    - 45 -




---



##### Table of Contents



Unit Costs 
 $/ounce2006
    
    
    2005
    
    
    2004Gross operating costs
    
    
    403
    
    
    
    378
    
    
    
    356- Exploration
    
    
    (9
    )
    
    
    (10
    )
    
    
    (9
    )- Other corporate costs
    
    
    (8
    )
    
    
    (4
    )
    
    
    Direct mining expenses *
    
    
    385
    
    
    
    364
    
    
    
    347- Deferred mining costs
    
    
    (76
    )
    
    
    (37
    )
    
    
    (53
    )- Refining costs *
    
    
    1
    
    
    
    1
    
    
    
    1-Inventory adjustment
    
    
    (24
    )
    
    
    (54
    )
    
    
    (33
    )Cash operating costs
    
    
    287
    
    
    
    274
    
    
    
    262- Royalties *
    
    
    10
    
    
    
    8
    
    
    
    8Total cash costs
    
    
    297
    
    
    
    282
    
    
    
    270- Depreciation
    
    
    57
    
    
    
    60
    
    
    
    55- Restoration and mine closure
    
    
    
    
    
    
    
    
    
    
    - Non-cash deferred mining costs
    
    
    (10
    )
    
    
    (5
    )
    
    
    (10
    )- Non-cash inventory adjustment
    
    
    1
    
    
    
    (1
    )
    
    
    (2
    )- Economic Grade Stockpile Adjustment  Non
Cash
    
    
    (3
    )
    
    
    (5
    )
    
    
    (12
    )Total production costs
    
    
    342
    
    
    
    331
    
    
    
    301
 
 *
    
    Components of Gross Cash Costs  Other Charges
 Depreciation and Amortization 
    - 46 -




---



##### Table of Contents



Interest Expense 
 Tax Expense 
        Impairment Provisions
 Impairment testing of asset values
  - 47 -




---



##### Table of Contents



Impairment testing of economic grade stockpiles
   Foreign Currency Fluctuations
  Recently Issued US Financial Accounting Standards
     - 48 -




---



##### Table of Contents



Recently Issued IFRS Standards
  (i)
    
    in August 2005, the International Accounting Standards Board (IASB) issued
International Financial Reporting Standard (IFRS) 7 Financial Instruments: Disclosures.
IFRS 7 revises and enhances IAS 30 Disclosures in the Financial Statements of Banks and
Similar Financial Institutions and IAS 32 Financial Instruments: Disclosures and
Presentation. IFRS 7 is applicable to annual periods beginning on or after January 1,
2007. The group has not elected to early adopt IFRS 7.
 (ii)
    
    in November 2006, the IASB issued IFRS 8 Operating Segments. IFRS 8 replaces IAS
14 Segment Reporting and aligns segment reporting with the requirements of Statement of
Financial Accounting Standard (SFAS) 131. IFRS 8 is applicable to annual periods
beginning on or after January 1, 2009. The group has elected not to early adopt IFRS 8.
 
 B. Liquidity and Capital Resources
   Gold Loan and Project Financing Facility
  - 49 -




---



##### Table of Contents



Ballarat Goldfields Facility
     Net Debt/Cash Position
  Net debt as at December 31$ 0002006
    
    2005
    
    2004Syndicated Facility Agreement  revolving credit facility
    
    
    (30,000
    )
    
    
    
    
    
    
    (19,509
    )Syndicated Facility Agreement  gold loan
    
    
    (215,520
    )
    
    
    (215,520
    )
    
    
    Ballarat Goldfields bilateral facility agreement
    
    
    (35,595
    )
    
    
    
    
    
    
    Less cash on hand
    
    
    47,032
    
    
    
    127,836
    
    
    
    83,559Net (debt)/cash1
    
    
    (234,083
    )
    
    
    (87,684
    )
    
    
    64,050Equity
    
    
    (811,877
    )
    
    
    (783,472
    )
    
    
    (837,223
    )Net debt to debt plus equity1
    
    
    22.4
    %
    
    
    10.0
    %
    
    
    N/A
 
 1
    
    Does not include cash from the Ballarat Goldfields bilateral facility agreement that
was paid to Ballarat prior to the Ballarat merger.   - 50 -




---



##### Table of Contents



Net Cash Flow From Operating Activities
   Cash Flow From Financing Activities
   
 C. Research and Development, Patents and Licenses, etc
  
 D. Trend Information
        - 51 -




---



##### Table of Contents



E. Off-Balance Sheet arrangements
  
 F. Tabular Disclosure of Contractual Obligations
  Later than 1 year
    
    Later than 2 yearsbut not later than
    
    but not later thanTotal
    
    Less than 1 year
    
    2 years
    
    5 years
    
    More than 5 years$ 000
    
    $ 000
    
    $ 000
    
    $ 000
    
    $ 000Project financing facility
    
    
    215,520
    
    
    
    26,940
    
    
    
    44,900
    
    
    
    143,680
    
    
    
    Ballarat Goldfields facility
    
    
    35,595
    
    
    
    35,595
    
    
    
    
    
    
    
    
    
    
    
    Revolving Credit Facility
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    Operating leases
    
    
    5,349
    
    
    
    971
    
    
    
    749
    
    
    
    1,302
    
    
    
    2,327Capital expenditure
commitments
    
    
    68
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    Other liabilities reflected
on the Companys balance
sheet*
    
    
    427,396
    
    
    
    175,399
    
    
    
    45,531
    
    
    
    205,289
    
    
    
    1,177Total in cash
    
    
    713,928
    
    
    
    238,973
    
    
    
    91,180
    
    
    
    380,271
    
    
    
    3,504
 
 *
    
    The majority of these liabilities are out-of-the-money hedge positions at December 31, 2006,
totaling $332.8 million. Gold ouncesTotal
    
    Less than 1 year
    
    1 to 3 years
    
    4 to 5 years
    
    More than 5 yearsLong term debt
    
    
    480,000
    
    
    
    60,000
    
    
    
    230,000
    
    
    
    190,000
    
    
    
    Total in ounces
    
    
    480,000
    
    
    
    60,000
    
    
    
    230,000
    
    
    
    190,000
    
    
    
    
  
 Item 6. Directors, Senior Management and Employees
 
 A. Directors and Senior Management
 Directors
  Dr Ross Garnaut AO BA, PhD
 Chairman, Independent director
   - 52 -




---



##### Table of Contents



Dr Peter Cassidy BSc (Eng), PhD, DIC, ARSM, CEng, FAusIMM, FIMM, FAICD
Independent director
   Mrs Winifred Kamit BA, LLB
Independent director
   Mr Geoff Loudon MSc, FAusIMM
Independent director
   Mr Bruce Brook BCom, BAcc, FCA, MAICD
Independent director
   Mr Arthur Hood BSc (Hons), M AusIMM, MICE, CEng
Managing Director and Chief Executive Officer
  Mr Alister Maitland B Com, FAICD, FAIM, SF Fin
Independent director
  - 53 -




---



##### Table of Contents



Dr Mike Etheridge PhD, FTSE, FAIG, FAICD
Independent director
  Management
  Name
    
    Position with Lihir Gold Limited
    
    Year JoinedArthur Hood
    
    Managing Director
    
    
    2005Philip Baker
    
    Chief Financial Officer
    
    
    2007Joseph Dowling
    
    General Manager Corporate Affairs
    
    
    2005Murray Eagle
    
    General Manager External Affairs & Sustainable Development
    
    
    2005Noel Foley
    
    Executive General Manager
    
    
    2006Graham Folland
    
    General Manager Corporate Development
    
    
    2006Richard Laufmann
    
    Executive General Manager Australian Operations and Business Development
    
    
    2007Stuart MacKenzie
    
    Group Secretary and General Counsel
    
    
    2006Wojciech Ozga
    
    General Manager BGF Operations
    
    
    2007Ron Yung
    
    General Manager Organization Performance
    
    
    2006
 Arthur Hood:
 Philip Baker:
 Joseph Dowling:
 Murray Eagle:
 Noel Foley:
 Graham Folland:
 Richard Laufmann:
 - 54 -




---



##### Table of Contents



Stuart MacKenzie:
 Wojciech Ozga:
 Ron Yung:
  
 B. Compensation
 Non-Executive Directors Remuneration
     Board fees (1)Directors (non-executive)
    
    $Dr Ross Garnaut (3) (4)
    
    
    210,000Mr John OReilly (3) (5)
    
    
    70,000Mr Geoff Loudon (2)
    
    
    70,000Dr Peter Cassidy (3)
    
    
    70,000Mrs Winifred Kamit (2)
    
    
    70,000Mr Bruce Brook
    
    
    70,000
 
 Notes(1)
    
    Board fees are denominated in US dollars.(2)
    
    Fees are paid to Mrs Kamit and Mr Loudon in PNG Kina. Mr Loudons fees are
donated to the Port Moresby City Mission.(3)
    
    Fees are payable to Dr Garnaut, Mr OReilly, Dr Cassidy and Mr Brook in
Australian Dollars.(4)
    
    The services of Dr Garnaut are provided through Dr Garnauts family company,
Maccullochella Pty Limited.(5)
    
    Mr OReilly retired on December 31, 2006.   - 55 -




---



##### Table of Contents



Senior management remuneration
   
    
    To provide total remuneration which is competitive in structure and quantum with comparator organizations so as to attract,
retain and motivate appropriately qualified and experienced executives;
    
    To achieve alignment between the structure of remuneration incentives for individual employees with shareholder value
creation;
    
    To tie variable elements of remuneration to the achievement of challenging performance criteria that are consistent with
the best interests of the Company and shareholders; and
    
    To provide an appropriate balance of fixed and variable or at-risk remuneration.
       - 56 -




---



##### Table of Contents



Tranche 1  20% of the award will be subject to the Strategic Performance Condition
  Tranche 2  20% of the award will be subject to the NPV Performance Condition
  Tranche 3  30% of the award will be subject to the Comparator TSR Performance Condition
 
    
    Companys average annual total shareholder return over the performance period against announcement date VWAP (expressed as a percentage); and
    
    average annual total shareholder return of the Comparator Group over the performance period against the Comparator Groups VWAP on the announcement date (expressed as a percentage).
 
    
    is greater by 10% or more, all of the rights subject to this condition will vest;
    
    does not exceed the Comparator Groups, no rights subject to this condition will vest; or
    
    is greater by less than 10%; a straight-line calculated proportion of the rights subject to this condition will vest.
   Tranche 4  30 % of the award will be subject to the TSR Growth Performance Condition
 
 
    
    15% or more, Mr Hood will be entitled to all of the TSR growth shares;
    
    5% or less, Mr Hood will not be entitled to any TSR growth shares; and
    
    more than 5% but less than 15%, Mr Hood will be entitled to a pro rated number of TSR growth shares calculated on a straight line basis.
        - 57 -




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##### Table of Contents



Short Term
    
    Other
    
    Share BasedBase
    
    Superannuation
    
    Incentive/bonus
    
    benefits
    
    PaymentsSalary
    
    contribution
    
    Accrued
    
    Received
    
    Accrued
    
    TotalExecutive Officers
    
    $
    
    $
    
    $
    
    $
    
    $
    
    $Arthur Hood
Managing Director
    
    
    433,486
    
    
    
    39,302
    
    
    
    138,084
    (1)
    
    
    3,203
    
    
    
    450,561
    
    
    
    1,064,636Paul Fulton (2)
Chief Financial Officer
    
    
    277,945
    
    
    
    434,011
    (12)
    
    
    
    
    
    
    15,148
    
    
    
    
    
    
    
    727,104Jan Anderson (3)
General Manager Operations
    
    
    48,031
    
    
    
    438,881
    (13)
    
    
    
    
    
    
    13,716
    
    
    
    
    
    
    
    500,628Mark Laurie (4)
Company Secretary/
General Counsel, 
Manager Corporate & Towns
    
    
    126,058
    
    
    
    21,203
    
    
    
    296,734
    (5) (14)
    
    
    54,841
    
    
    
    
    
    
    
    498,836Noel Foley (6)
Executive General Manager
    
    
    204,539
    
    
    
    18,409
    
    
    
    48,372
    
    
    
    
    
    
    
    102,928
    
    
    
    374,278Murray Eagle 
General Manager External Affairs &
Sustainable Development
    
    
    227,447
    
    
    
    22,495
    
    
    
    53,580
    (7)
    
    
    6,267
    
    
    
    116,457
    
    
    
    426,246Graham Folland (8)
GM Corporate Development
    
    
    173,716
    
    
    
    15,634
    
    
    
    37,693
    
    
    
    139
    
    
    
    88,225
    
    
    
    315,406Joe Dowling 
General Manager Corporate Affairs
    
    
    163,959
    
    
    
    17,231
    
    
    
    53,205
    (9)
    
    
    7,155
    
    
    
    77,197
    
    
    
    318,746Stuart MacKenzie (10)
Group Secretary and General Counsel
    
    
    58,061
    
    
    
    5,226
    
    
    
    17,276
    
    
    
    5,810
    
    
    
    21,169
    
    
    
    107,539Ron Yung (11)
General Manager Organisation Performance
    
    
    104,229
    
    
    
    9,381
    
    
    
    22,615
    
    
    
    695
    
    
    
    28,372
    
    
    
    165,292
 
 (1)
    
    This amount includes a bonus payment made to Mr Hood in 2006 in the amount
of $35,156 which relates to services provided in 2005(2)
    
    Mr Fulton ceased to be an executive on February 23, 2007(3)
    
    Mr Anderson ceased to be an executive on February 22, 2006(4)
    
    Mr Laurie ceased to be an executive on November 24, 2006(5)
    
    Includes a bonus payment of $34,083 made to Mr Laurie in 2006 which relates to
services provided in 2005(6)
    
    Mr Foley commenced employment with the Company on January 13, 2006(7)
    
    This amount includes a bonus payment made to Mr Eagle in 2006 in the amount of
$12,118 which relates to services provided in 2005(8)
    
    Mr Folland commenced employment with the Company on March 1, 2006.(9)
    
    This amount includes a bonus payment made to Mr Dowling in the amount of $21,477
which relates to services provided in 2005(10)
    
    Mr MacKenzie commenced employment with the Company on August 14, 2006(11)
    
    Mr Yung commenced employment with the Company on July 1, 2006(12)
    
    Includes termination payment of $408,996 per contract(13)
    
    Includes termination payment of $434,558 per contract(14)
    
    Includes termination payment of $262,651 per contract Retirement Benefits
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##### Table of Contents



C. Board Practices
 Board of Directors
   
    
    final approval of corporate strategy and performance objectives, resources and reserves and financial plans;
 
    
    capital management, including capital raisings, approval and monitoring of significant capital expenditure;
 
    
    monitoring of financial performance, review and approval of significant financial and other reporting;
 
    
    assessing the appropriateness and adequacy of, and monitoring compliance with, corporate governance policies and ethical
standards;
 
    
    evaluating the performance of the senior management team;
 
    
    determining the Companys risk management policies and reviewing and ratifying its risk management and internal control
framework, including insurance, corporate security and prudential limits;
 
    
    determining the Companys treasury policies, including gold price hedging, foreign currency and interest rate exposure; and
 
    
    the engagement of auditors to review and report to the Board on the Companys financial results and reporting systems,
internal controls and compliance with statutory and regulatory requirements.
   Composition of the Board
  
    
    the Board may, in accordance with the Companys constitution, be comprised of a minimum
of five directors and maximum of twelve; and
    
    the roles of the Chairman of the Board and of Managing Director should be exercised by
different individuals.
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##### Table of Contents



Year AppointedName
    
    Position
    
    As Director
    
    Term EndsRoss Garnaut
    
    Chairman of Board, Independent Director
Member of Audit Committee
Member of Environmental and Lihir Impact
Committee
Chairman of Remuneration and
Nomination Committee
    
    1995Geoffrey Loudon
    
    Independent Director
Member of Safety and Technical
Committee
Member of Environmental and Lihir Impact 
Committee
    
    1995Peter Cassidy
    
    Independent Director
Chairman of Safety and Technical
Committee
Member of Remuneration and Nomination
Committee
    
    2003Winifred Kamit
    
    Independent Director
    
    2004Chair of Environmental and Lihir Impact
Committee
Member of Audit Committee
Member of Remuneration and Nomination
CommitteeArthur Hood
    
    Managing Director
    
    2005
    
    October 1, 2010Bruce Brook
    
    Independent Director
Chairman of Audit Committee
Member of Safety and Technical Committee
    
    2005Michael Etheridge
    
    Independent Director
    
    2007Alister Maitland
    
    Independent Director
    
    2007
  Directors Service Contracts Providing for Benefits on Termination of Contract
   If employment is terminated...
    
    ...the relevant multiple is...Before October 1, 2006
    
    3Between October 1, 2006 and September 30, 2008
    
    The number of whole months in the period commencing on
the day after the date of termination of employment and
ending on October 1, 2010, divided by 24.Between October 1, 2008 and September 30, 2010
    
    1 or, if the date of termination of employment is after
October 1, 2009, the relevant multiple is a fraction, the
numerator of which is the number of whole months in the
period commencing the day after the date of termination of
employment and the denominator of which is 12.
 Board committees
  
    
    Audit;
    
    Remuneration and Nomination;
    
    Environmental and Lihir Impact; and
    
    Safety and Technical.
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##### Table of Contents



Audit committee
  
   (a)
    
    determining the appropriateness of accounting principles and disclosure practices
adopted by management and monitoring compliance with applicable accounting standards and
other requirements;(b)
    
    overseeing the preparation and audit of, and verifying and ensuring the integrity of,
the Companys financial statements and reports;(c)
    
    the appointment, compensation, retention and oversight of the Companys external
auditor or any other public accounting firm engaged for the purpose of performing audit,
review or attestation services for the Company;(d)
    
    reviewing and evaluating the independence, qualifications and performance of the
external auditor and managing the relationship between the Company and its external
auditor;(e)
    
    monitoring the adequacy of the Companys internal financial controls, risk
management, and compliance systems and processes;(f)
    
    overseeing the retention, tasking and resourcing of the Companys internal auditors,
monitoring their progress and evaluating their performance; and(g)
    
    reviewing the financial management of the Company generally and undertaking such
other tasks as the Board or the Managing Director may request from time to time.
    Auditor independence
  
    
    requires that no person may play a significant role in managing the audit for more than
five out of any seven successive years;
    
    must approve all non audit work which may be undertaken by the external auditor and
exclude them from undertaking such work where it may give rise to a conflict of interest;
    
    receives periodic statements, at least annually, from the auditors outlining all work
undertaken for the Lihir Gold, and confirming that the auditor has satisfied all
professional regulations relating to auditor independence; and
    
    meets with the external auditor independently of management.
 Risk oversight and management
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##### Table of Contents



Remuneration and nomination committee
  
   
    
    reviewing remuneration of non-executive directors, the Managing Director and other
senior executives;
    
    establishing criteria for membership of the Board and its committees, and processes for
the identification of suitable candidates;
    
    reviewing membership of the board and its committees;
    
    nominating members of the board and its committees;
    
    formulating policies relating to the retirement of non-executive directors;
    
    reviewing management succession planning, reviewing human resources and remuneration
policies for the Company generally; and
    
    ensuring the Companys obligations in relation to employee benefits and entitlements,
including superannuation, are met.
   Environmental and Lihir Impact Committee
  
  
    
    the interaction between the Companys activities and the local community, and the ways
in which these activities contribute to social and economic development;
    
    policies and practices followed in dealings with the local community in relation to land;
    
    maintaining and improving community health; and
    
    the impact and associated risks of the Companys activities on the natural marine,
atmospheric and terrestrial environment, together with monitoring compliance with the
applicable regulatory regime.
  Safety and Technical Committee
  
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##### Table of Contents




    
    occupational health and safety standards, policies and issues;
    
    technical issues associated with the Companys exploration, mining and processing
activities, with reference to the standards set by the Company and the standards and
norms of the industry more generally; and
    
    the status of major capital projects approved by the Board.
  
 D. Employees
  2006
    
    2005
    
    2004Management
    
    
    12
    
    
    
    14
    
    
    
    13Commercial, human resources, towns and site
services, community and environment
    
    
    450
    
    
    
    340
    
    
    
    300Mining operations and mine technical
    
    
    642
    
    
    
    414
    
    
    
    407Plant operations and maintenance
    
    
    455
    
    
    
    359
    
    
    
    350LSA
    
    
    28Total Lihir employees
    
    
    1,587
    
    
    
    1,127
    
    
    
    1,070Total contractors (full-time equivalent)
    
    
    2,250
    
    
    
    1,506
    
    
    
    1,500Total
    
    
    3,837
    
    
    
    2,633
    
    
    
    2,570
     
 E. Share Ownership
  Director
    
    Interest held by directors in shares of Lihir Gold LimitedRoss Garnaut
(Director)
    
    
    53,225
    
    
    
    (1)Peter Cassidy
(Director)
    
    
    33,225
    
    
    
    (2)Geoffrey Loudon
(Director)
    
    
    143,840Winifred Kamit
(Director)
    
    
    2,000
    
    
    
    (3)Bruce Brook
(Director)
    
    
    10,000
    
    
    
    (4)Arthur Hood
(Managing Director)
    
    
    228,371Alister Maitland
(Director)
    
    
    23,148
    
    
    
    (5)Michael Etheridge
(Director)
    
    
    46,296
    
    
    
    (6)
 - 63 -




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##### Table of Contents



Notes:(1)
    
    Held by Maccullochella Pty Limited of which Dr Garnaut is a director and shareholder(2)
    
    20,000 of which are held by Cassidy Waters Pty Limited as trustee for the Cassidy
Superannuation Fund(3)
    
    Held by Kamchild Limited of which Mrs Kamit is a director and shareholder(4)
    
    Held by Eagles Rest 156 Pty Limited as trustee of the Brook Family Superannuation Fund(5)
    
    Held by the Alister Maitland Superannuation Fund.(6)
    
    Held by Tectonex Geoconsultants Pty Ltd as trustee for the Etheridge Superannuation Fund    
 Item 7. Major Shareholders and Related Party Transactions
 
 A. Major Shareholders
  Name of Substantial Shareholder
    
    Relevant interest
    
    
    PercentageNuveen Investments Inc.
    
    
    214,151,556
    
    
    
    15.34BlackRock Inc.
    
    
    140,531,491
    
    
    
    10.07
 Class B shares  Niugini Mining Limited
     PNG Government Participation and Mineral Resources Lihir Limited Shareholding
   - 64 -




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##### Table of Contents



American Depositary Shares
    a)
    
    The listed ADR programme was altered from October 2, 2006, such that the ratio of underlying
Deposited Shares represented by each ADS was reduced from twenty (20) Deposited Shares to ten (10)
Deposited Shares.At February 16, 2006, there were 23,133,405 listed ADS representing 231,334,050 shares held by 17
registered holders.b)
    
    The second, restricted ADR programme was terminated, effective from November 22, 2006. ADR
holders have until November 22, 2007 to cancel their existing ADRs and exchanged for corresponding
ordinary shares. Alternatively, after that date the Depositary will sell the stock and reimburse
remaining holders. As at March 16, 2007, there was one registered holder, and there were 20,000
ADRs outstanding, representing 400,000 ordinary shares. US Resident Shareholders
  Share Options
  Control
   
 B. Related Party Transactions
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##### Table of Contents




    
    Dr Garnaut was re-appointed as chairman for a three-year period commencing on May 1, 2004, subject to his continuing to hold
office as a director and to certain other termination rights set out in the agreement;
    
    No fees or benefits are payable to Dr Garnaut by reason of his retirement or other
termination of office; and
    
    The Company has agreed to indemnify Dr Garnaut against any liability incurred in
defending any proceedings arising from the performance of his duties and responsibilities
in which judgment is given in his favour, he is acquitted, or relief is granted to him
under the Companies Act. The indemnity does not apply to the extent it would be
inconsistent with the Companys constitution or to the extent the liability is otherwise
insured.
   
 C. Interests of Experts and Counsel
  
 Item 8. Financial Information
 
 A. Consolidated Statements and Other Financial Information
  Export sales
  Legal or arbitration proceedings
  Trade Practices Act
 Dividend distributions
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##### Table of Contents



B. Significant Changes
  Ballarat merger
   Reserves
  Contingent liability  Niugini Mining (Australia) Pty Limited  arts  Roderick Salfinger
  
 Item 9. The Offer and Listing
      - 67 -




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##### Table of Contents



Ordinary Shares
    
    American Depositary SharesHigh
    
    Low
    
    High
    
    LowYear
    
    A$
    
    A$
    
    $
    
    $2001
    
    
    1.28
    
    
    
    0.54
    
    
    
    12.93
    
    
    
    5.442002
    
    
    1.65
    
    
    
    1.02
    
    
    
    19.13
    
    
    
    11.502003
    
    
    1.83
    
    
    
    1.25
    
    
    
    24.17
    
    
    
    13.992004
    
    
    1.59
    
    
    
    0.90
    
    
    
    24.20
    
    
    
    12.582005
    
    
    2.35
    
    
    
    0.99
    
    
    
    37.01
    
    
    
    15.302006
    
    
    3.64
    
    
    
    1.98
    
    
    
    28.37
    *
    
    
    11.46
    *
 Ordinary Shares
    
    American Depositary SharesHigh
    
    Low
    
    High
    
    LowQuarter Ending
    
    A$
    
    A$
    
    $
    
    $2005
    
    
    March 31
    
    
    1.18
    
    
    
    1.02
    
    
    
    18.85
    
    
    
    15.30June 30
    
    
    1.28
    
    
    
    0.99
    
    
    
    19.77
    
    
    
    15.45September 30
    
    
    1.92
    
    
    
    1.18
    
    
    
    29.95
    
    
    
    17.41December 31
    
    
    2.35
    
    
    
    1.57
    
    
    
    37.01
    
    
    
    22.672006
    
    
    March 31
    
    
    2.67
    
    
    
    1.99
    
    
    
    37.99
    
    
    
    29.11June 30
    
    
    3.60
    
    
    
    2.57
    
    
    
    56.74
    
    
    
    35.02September 30
    
    
    3.17
    
    
    
    2.66
    
    
    
    49.50
    
    
    
    39.45December 31
    
    
    3.24
    
    
    
    2.73
    
    
    
    25.19
    *
    
    
    20.11
    *2007
    
    
    March 31
    
    
    3.57
    
    
    
    2.79
    
    
    
    28.60
    *
    
    
    21.70
    *
 
 *
    
    Each ADS represented 20 fully paid ordinary shares until October 2, 2006 and 10 fully paid
ordinary shares from October 3, 2006. Ordinary Shares
    
    American Depositary SharesHigh
    
    Low
    
    High
    
    LowA$
    
    A$
    
    $
    
    $December 2006
    
    
    3.24
    
    
    
    2.98
    
    
    
    25.19
    
    
    
    23.22January 2007
    
    
    3.20
    
    
    
    2.79
    
    
    
    24.69
    
    
    
    21.70February 2007
    
    
    3.57
    
    
    
    3.11
    
    
    
    28.60
    
    
    
    24.09March 2007
    
    
    3.14
    
    
    
    3.09
    
    
    
    24.98
    
    
    
    24.58
   
 Item 10. Additional Information
 
 A. Share Capital
  
 B. Memorandum and Articles of Association
  PNG Companies and Securities Laws
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##### Table of Contents




    
    the acquisition of, or an agreement to acquire, whether contingent
or not, assets the value of which is more than half the value of
assets of the company before the acquisition;
    
    the disposal of, or an agreement to dispose of, whether contingent
or not, assets of the company the value of which is more than half
the value of the assets of the company before the disposal; or
    
    a transaction which has or is likely to have the effect of the
company acquiring rights or interests, or incurring obligations or
liabilities, the value of which is more than half the value of the
assets of the company before the transaction.
     
    
    the power to control the exercise of any right to vote attached to a voting share;
    
    the power to acquire or dispose of the voting share; or
    
    having the above powers by virtue of any trust, arrangement, agreement or understanding.
  Constitution
  (i)
    
    reflected changes made under the new Companies Act (for example, the abolition of par value of
shares, the increased power for directors to make distributions of money or property to members and
the removal of the requirement that a company have specific objects and powers); or(ii)
    
    took advantage of specific provisions of the new Act which allow the Company to take a course
of action (for example, to buy back the companys shares, to indemnify directors or to pay for D&O
liability insurance) if expressly permitted to do so by its constitution.
  
    
    The Company is incorporated and registered in Papua New Guinea (Number C1-23423) and is a registered foreign company in
Australia (ARBN 069 803 998). Under section 17 of the Companies Act, a company has full capacity to carry on or
undertake any business or activity, do any act or enter into any transaction, and in respect of these purposes, it has
full rights, powers and privileges. Therefore it is not necessary to list the objects and purposes of the Company in
its constitution.
 - 69 -




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##### Table of Contents




    
    In accordance with clause 17, a director may vote on a proposal, arrangement or contract in which he is materially
interested provided that he has complied with the Companies Act, the Official Listing Rules of the ASX and provided the
board does not otherwise determine.
    
    The constitution contains provisions for the remuneration of directors (including reimbursement of expenses), the
indemnification of directors in respect of certain liability or for costs incurred in defending or settling any claim
or proceedings relating to such liability, and for effecting insurance for directors to the extent permitted under the
Act. These are general powers of the Company which may in the normal course be exercised by a resolution of the Board.
An interested director who has declared his or her interest would be entitled to vote on any such resolution unless
the board has determined that the director should not exercise any power in relation to the matter. The interested
director is not entitled to vote on a resolution to make that preliminary determination.
    
    There are no specific provisions relating to borrowing powers in the constitution. Clause 20.1 provides that the Board
has all necessary power for managing, and for directing and supervising the management of, the business and affairs of
the Company to the exclusion of the Shareholders and in accordance with clause 21.9 every resolution of the board is
decided by a majority of votes. Therefore, the borrowing by the Company is determined by a majority decision of the
Board.
    
    An exercise of the borrowing power may in certain circumstances be subject to the provisions of the Companies Act
(section 110) requiring shareholder approval for major transactions.
    
    There are no provisions for retirement or non-retirement of directors under an age limit in the constitution.
    
    Clause 15.5 provides that a director of the Company need not be a shareholder.
    
    Clause 10A.2(b) provides that Class B shares have no entitlement to dividends.
    
    Clause 24.1 provides that the Board may declare distributions to the shareholders (other than Class B shareholders)
including declaring the property to constitute the distribution and the time of the distribution. Shareholder approval
is not required for a distribution. Clause 24.3 provides that where the Board has declared a dividend the obligation
of the Company to make the distribution only arises when the Board fixes the time for distribution and that time has
arrived. Clause 24.8 provides that each dividend in respect of each share must be distributed according to the amount
paid up on that share save to the extent that the terms of issue of a share provide otherwise. The Company does not
have any partly paid shares on issue.
    
    Clause 24.18 provides that all dividends declared but unclaimed may (in the case of dividends not to be distributed as
money) be realized into money and (in any case) be invested for the benefit of the Company until claimed or until
required to be dealt with under any applicable law dealing with unclaimed money.
    
    Clause 5.6 provides that if a call in relation to a share is due and payable and not paid, the shareholder has no right
to receive any dividends and has no right to vote.
    
    Clause 10A.2(a) provides that the Class B shareholders do not have any voting rights.
    
    Clause 13.2 provides that each shareholder who is entitle to vote on a resolution (where not disqualified from voting
pursuant to the Listing Rules or the Act) has one vote on voting by voice or show of hands, and on a poll he has the
number of votes equal to the number of fully paid shares held by that person.
    
    Under clause 15.3, one third of the directors (excluding the managing director) retire by rotation each year and are
eligible for re-election.
    
    Clause 27.3 provides that after distribution of assets to repay paid up capital any surplus assets will be distributed
to the shareholders in proportion to the amount paid up by the shareholder on each share, save to the extent that the
terms of issue of a share provide otherwise.
    
    Clause 10A.2(d) provides that the Class B shares are redeemable at the option of the Company for consideration of K100
per million (or part thereof) of those shares.
    
    Clause 2.6(b) provides that the Company is authorized to redeem any redeemable shares subject to the provisions of the
Listing Rules and the securities clearing house business rules of Australia.
    
    There are no provisions in the constitution in relation to sinking funds.
    
    Clause 5 provides that the Board may make calls on a shareholder in respect of any or all of the amount unpaid on the
share unless the terms of issue make that payment payable at a fixed time. The constitution does not expose the
shareholders to any liability to further capital calls by the Company.
    
    There are no provisions discriminating against any existing or prospective holder of such securities as a result of
such shareholder owning a substantial number of shares in the constitution.
 - 70 -




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##### Table of Contents




    
    Under the Companies Act, any provision of the constitution can be altered by special resolution of the shareholders
requiring a 75% majority vote of those attending and voting.
    
    Clause 8.2 provides that where the Company by ordinary shareholders resolution consolidates, divides or sub-divides
its shares, the Company may also by special resolution determine that, as between the shares
resulting from the consolidation, division or sub-division, one or more of those shares has
some preference or special advantage as regards dividends, capital, voting or otherwise over
or compared with the other shares.
 
    
    Clause 8.3 provides that if the shares are divided into different
classes of shares, the rights attached to any class of shares may
only be varied or abrogated with either the written consent of 75%
of the shareholders of that class, or, sanction of a special
resolution passed at a separate meeting of that class of
shareholders.
    
    Clause 8.4 provides that the board may do anything to give effect
to any resolution authorizing or effecting the alteration of the
share capital of the Company, the variation or abrogation of
rights attaching to any class of shares, or to adjust the rights
of all parties.
    
    Clause 11.3 provides that the board may convene a special meeting
of the Company at any time. Alternatively, clause 11.4 provides
that the shareholders may requisition the holding of a special
meeting as provided by section 102(b) of the Companies Act, which
requires a written request of shareholders holding shares carrying
not less than 5% of the voting rights.
    
    Clause 11.2 provides that the Company must hold an annual general
meeting in accordance with the Companies Act, which must be held
not later than 15 months after the previous annual general
meeting.
    
    Fourteen days written notice of the meeting must be sent to the
shareholders, directors and auditor of the Company, stating the
nature of the business, the text of any special resolution and, if
required by the Official Listing Rules of the ASX, include a form
of proxy.
    
    All shareholders (including Class B shareholders) may attend a
meeting of shareholders either in person, by proxy, by attorney or
(in the case of a shareholder which is a body corporate) by a
representative.
    
    Clause 12.2 provides that no business may be transacted by a
meeting of shareholders unless a quorum of three is present.
Clause 12.3 provides that, where a quorum is not present within 30
minutes after the time appointed for the meeting, (in the case of
a meeting requisitioned by shareholders), the meeting is
dissolved, or in the case of any other meeting, it is adjourned to
the same time and the same place the following week, and if there
is not a quorum within 30 minutes of the appointed time of that
meeting, it is dissolved.In 1995, the Company was granted an exemption with respect to the quorum requirement under
NASDAQ Rule 4350(f), which requires each issuer to provide for a quorum as specified in its
by-laws for any meeting of the holders of common stock, which shall in no case be less than
33 1/3% of the outstanding shares of the Companys common voting stock. The Company complied
with the quorum requirements set forth in the previous paragraph.
 
    
    There are no limitations on rights to own securities, including
the rights of non-resident or foreign shareholders to hold or
exercise voting rights on the securities imposed by foreign law,
or by the charter or other constituent document of the Company in
the constitution.
    
    There are no provisions in the constitution that would have an
effect of delaying, deferring or preventing a change in control of
the Company, and that would operate only with respect to a merger,
acquisition or corporate restructuring involving the Company (or
any of its subsidiaries).
    
    There are no provisions in the constitution governing the
ownership threshold above which shareholder ownership must be
disclosed.
    
    The Company is incorporated, and has its principal activities, in
PNG. As such it is subject to the Companies Act, the Securities
Act of PNG and the Takeovers Code under the Securities Act of PNG.
The general effect of this legislation is referred to elsewhere
in this Annual Report.
    
    In relation to an increase in capital by the issue of new shares,
clause 2.1 provides that this power is conferred on the board of
directors subject to the listing rules of any applicable stock
exchange (namely the Australian Securities Exchange, Port Moresby
Stock Exchange and the Nasdaq Stock Exchange). The conditions in
this regard are no more stringent than is required by law. There
are no pre-emptive rights of existing shareholders.
 
 C. Material Contracts
 Operations Agreements
 Pressure Oxidation Technology License.
  - 71 -




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##### Table of Contents



Termination of Rio Tinto management arrangements in 2005
  
    
    previous arrangements under which management services were provided by the Rio
Tinto group to the Company were terminated;
    
    the Company acquired all of the shares of LMC (which had been a wholly owned
subsidiary of the Rio Tinto group used in connection with the provision of management
services) with consideration consisting of a nominal sum, together with transfer of
the cash holdings, accrued accounts receivable and net income tax credits receivable
at that date;
    
    the Rio Tinto Group agreed to provide, at the Companys option, certain defined
technical and procurement services to the Company on certain commercial terms for a
term of up to two years; and
    
    the Company granted certain releases and indemnities to the Rio Tinto Group in
connection with the termination of the management agreements.
  Lihir management
  PNG Mining Laws
  Mineral Resources Authority Act 2005 Mining Act 1992, the Mining (Safety) Act (Chapter 195A),
 Mineral Resources Authority Act 2005
    - 72 -




---



##### Table of Contents



Related Agreements with PNG Government
 Exploration License.
   Special Mining Lease.
   Mining Development Contract.
  - 73 -




---



##### Table of Contents




    
    to construct the mine and operate in accordance with the approved proposal for development (including the
environmental plan);
    
    not to incur debt in violation of certain coverage tests;
    
    to convert its foreign currency revenues into Kina, subject to certain exceptions;
    
    not to keep gold in inventory for a period greater than three months without placing in its Kina bank account an amount
equivalent to the cash value of such gold;
    
    to comply with PNG Government notices forbidding certain sales of gold;
    
    to comply with its various obligations to hire PNG employees or suppliers or contractors;
    
    not to suspend its operations other than as permitted by the Mining Development Contract; and
    
    to comply in all material respects with the environment plan (see Item 4. Information on the Company  D. Property,
Plant and Equipment  Environmental Considerations  Environmental Plan).
  - 74 -




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##### Table of Contents



Local Community Agreements
   Lihirian Equity Settlement Agreement
  
    
    MRDC and LMC agreed to each contribute K3,532,759 and $2,635,000 to MRL; and
    
    MRL agreed to sell down a proportion of its shareholding in the Company in two separate
tranches and to invest the portion of the proceeds remaining, after meeting current
commitments to the EIB, to enable it to meet future financing commitments to the EIB.
  Financing Agreements
     - 75 -




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##### Table of Contents




    
    a Gold Facility of up to 480,000 ounces of gold; and
    
    a revolving credit facility of $50 million (RCF).
  1.
    
    To repay the original Syndicated Facility agreement;2.
    
    To assist in funding the expansion of the Companys gold production by approximately 140,000
ounces per year on average through the addition of a 3 million ton per annum flotation
processing facility; and3.
    
    To finance a restructuring of the Companys hedge book.
        
    
    Purpose: See above
    
    Pricing:
Benchmark rate for Gold Facility  LIBOR minus GOFO
Benchmark rate for RCF  Reuters screen page LIBOR 01
Interest Margin 1.90%
Political risk premium 0.95%
Certain limited circumstances (such as changes in law and official regulations) could increase the cost of funds.
    
    Prepayment: The gold loan can be prepaid on any interest payment date without penalty or at any other time on payment of any break costs,
subject to a minimum amount of 10,000 ounces and a multiple of 2,500 ounces and giving 2 business days notice. Cash advances under the RCF
can be prepaid on any interest payment date without penalty or at any other time on the payment of any break costs, subject to a minimum of
$2,500,000 and a multiple of $500,000 and the giving of 2 business days notice. Any undrawn commitments under the RCF may be cancelled
without penalty on giving 10 days notice.
    
    Repayments: Gold loans are repayable in gold ounces to be delivered to the financiers in 16 quarterly instalments from September 2007
through to June 2011 inclusive. Cash advances under the RCF must be repaid on June 30 2011.
    
    Security: The financiers and the hedge providers have the benefit of charges and mortgages over the assets of the Company. Further details
are set out under the heading Security Trust Deed in Connection with the Syndicated Facility Agreement, below. The security does not
include security over a distribution account into which amounts available for Permitted Distributions (as defined below) and Non-Project
Cashflows are permitted to be paid. Fifty percent of the proceeds held in such account are pledged in favour of Australia and New Zealand
Banking Group Limited as security for the borrowings under the ANZ Facility Agreement, as described in further detail below under the heading
ANZ Facility Agreement  Terms and Conditions.
    
    Conditions: The Gold Facility is fully drawn. No drawings may be made under the RCF if an event of default or a potential event of default
subsists.
    
    Representations and Warranties: The Company was required to make customary representations and warranties, certain of which are required to
be repeated every six months.
 - 76 -




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##### Table of Contents




    
    Undertakings: Undertakings given by the Company include, without limitation:
 -
    
    compliance with the 1998 World Bank Environmental Health and Safety Guidelines;-
    
    providing the Facility Agent and the Independent Engineer each year with the
annual life of mine plan and a certificate detailing the debt service cover ratio and
the loan life cover ratio for the relevant period;-
    
    a restriction on committing to forward sales or derivative hedging
instruments which would create a commitment of more than (i) ten percent of its proven
and probable reserves, and (ii) eighty percent of its annual exposure to foreign
exchange and interest rate market risks; and-
    
    negative undertakings, including but not limited to, agreements not to engage
in any business activities other than those relating to its core business of gold
production and related mining and processing activities, not to incur any additional
indebtedness or encumbrances, not to provide financial accommodation, not to dispose
of its assets and not to pay any dividends, nor make certain other restricted payments
unless certain conditions are met (see Distributions to Subordinated Lenders and
Shareholders, below).
 
    
    Distributions to subordinated lenders and shareholders: If, at
December 31 and June 30 in any year the debt service cover ratio
for the preceding 12 months is equal to or greater than 1.35:1 and
the loan life cover ratio is equal to or greater than 1.65:1, the
Company will have the right to withdraw from the secured accounts
excess project cash flow which exceeds a minimum liquidity balance
of $15 million (Permitted Dividend). This withdrawal right
commences after December 31, 2007, and that minimum liquidity
balance must be maintained at all times. However, pursuant to the
terms of the parent deposit agreement entered into by the Company
in connection with the ANZ Facility Agreement, the Company must
deposit any such Permitted Dividends into the distribution
account. Fifty percent of all such deposits are charged to ANZ as
security for LAHs borrowings under the ANZ Facility Agreement and
may not be withdrawn from that account without the consent of ANZ.
    
    Mandatory Prepayment :If a Permitted Dividend is paid, the
Company must deliver to the Facility Agent a quantity of gold
which has a US dollar value equal to fifty percent of that
Permitted Dividend.If on any December 31 or June 30, the debt service cover ratio is below 1.35:1, or if the
loan life cover ratio is below 1.65:1, on the next interest payment date, the Company must:
 (i)
    
    apply any excess project cash flow which would have been
available to pay a Permitted Dividend had the requisite ratio tests been met;
and(ii)
    
    deliver any surplus gold (being gold in its unallocated
bullion account which is not required to meet gold delivery obligations under
the Syndicated Facility Agreement on that interest payment date), to reduce
the gold loan.
 Any mandatory prepayment must be applied in inverse order of maturity.
    
    Events of Default: In addition to the normal default provisions relating to the non-payment, financial distress,
misrepresentation, cross-default and breach of undertakings, the Syndicated Facility Agreement includes, without
limitation, default provisions covering material adverse change, expropriation, political risk events, certain exchange
control impositions and loss of political risk insurance. Further, it will be an event of default if at any December
31 or June 30 in any year, the debt service cover ratio for the previous 12 months is less than 1.1:1 or the loan life
cover ratio is less than 1.2:1 and the Company does not remedy the breach within 30 days.If an event of default is continuing, the Facility Agent acting on the consent of a
majority of the financiers (being financiers whose RCF commitments exceed sixty-six percent
of total RFC commitments) may cancel the RCF commitment and accelerate redelivery of all
gold outstandings and the repayment of cash advances under the RCF.
    
    Review Event: If without the consent of the Facility Agent (acting on the instructions of
a majority of the financiers), a person not in control of the Company acquires such control or
the Lihir Gold Management Transition Plan Document is terminated, then the financiers may
within 30 days of being notified, request the Company to agree to required amendments to the
facilities (including a change in margin and facility limits). If no agreement is reached,
the financiers may require all Gold outstanding to be redelivered and cash advances under the
RCF to be repaid.
 Security Trust Deed in connection with the Syndicated Facilities Agreement
  - 77 -




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##### Table of Contents



Ballarat Goldfields Facility Agreement
   Tranche A)
    
    A$45 million to finance the acquisition of Ballarat shares under the Private Placement
pursuant to the Share Subscription agreement (note 15) including associated transaction costs,
interest and fees in relation to the facility and any transaction costs associated with the
merger;
 Tranche B)
    
    an amount of A$5 million to be made available to cover expenses following successful
completion of the merger.
  
    
    Facility and Purpose: The facility is a cash advance facility consisting of two tranches, both of which are repayable
on the date falling 364 days from the date of the ANZ Facility Agreement. Tranche A consists of a A$45,000,000 cash
advance facility which was drawn in full in connection with the merger between Lihir and Ballarat Goldfields NL
Tranche B consists of a A$5,000,000 cash advance facility which is permitted to be drawn by LAH for the purpose of
financing capital expenditure in connection with the Ballarat East Gold Project.
    
    Pricing: Interest on the facility is paid at the rate shown on the Reuters screen BBSY on the first day of each
interest period plus a margin of one-seventy five percent.Certain limited circumstances (such as changes in law and official regulations) could increase the cost of funds.
    
    Prepayment: The facility can be prepaid on any interest payment date without penalty or at any other time on payment
of any break costs, subject to a minimum prepayment amount of A$5,000,000 and a multiple of A$1,000,000 and the giving
of five days notice. The commitments under the facility will be automatically cancelled to the extent of any
prepayment.
    
    Repayments: All amounts outstanding under the facility must be repaid in full on the date falling 364 days from the
date of the ANZ Facility Agreement.
    
    Security: See description of the security under the heading Security Agreements  ANZ Facility Agreement, below.
    
    Conditions: Tranche A is fully drawn. $2 million was drawn down under Tranche B on February 26, 2007.
    
    Representations and Warranties: LAH was required to make customary representations and warranties, which are each
required to be repeated on every drawdown date.
    
    Undertakings: Undertakings given by LAH under the ANZ Facility Agreement include:
 -
    
    undertakings in relation to the merger, including undertakings that Ballarat
of use the proceeds of the private placement only to fund the development of the
Ballarat East Project and to ensure that any documents in connection with the merger
or the private placement contain similar undertakings;-
    
    negative undertakings, including but not limited to, agreements not to sell
or dispose of LAHs shares in Ballarat Goldfields, not to incur any additional
indebtedness or encumbrances, not to provide financial accommodation, not to dispose
of its assets and not to pay any dividends, nor make certain other restricted payments
unless certain conditions are met (see point, below);-
    
    positive undertakings including reporting and corporate maintenance undertakings.
 
    
    Mandatory Prepayment: if the shares in Ballarat are sold or forfeited or otherwise disposed of, LAH is required to
prepay the proceeds of such disposal against the principal outstanding under the facility.
 - 78 -




---



##### Table of Contents




    
    Events of Default: In addition to the normal default provisions relating to the non-payment, financial distress,
misrepresentation, cross-default and breach of undertakings, the Syndicated Facility Agreement includes default
provisions covering change of control of LAH, compulsory acquisition of a material part of the pledge assets of LAH,
government interference, material environmental claims or expenditure, no charge granted over the shares in Ballarat
within 60 days of the date falling five business days after the second court hearing in respect of the merger between
Lihir and Ballarat, Ballarat using private placement proceeds other than for the purposes of the Ballarat Gold East
Project, and material adverse change.If an event of default is continuing, the Lender may cancel any undrawn commitment and
accelerate repayment of all outstanding advances.
 Security Agreements  ANZ Facility Agreement
      Ballarat Goldfields Merger Agreements
 Merger
Implementation Agreement. Corporations Act Corporations Act
   Share Subscription Agreement.
 - 79 -




---



##### Table of Contents



Deed Poll.
 
 D. Exchange Controls
        
 E. Taxation
  
    
    a dealer in securities;
    
    a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
    
    a tax-exempt organization;
    
    a life insurance company;
    
    a person liable for alternative minimum tax;
    
    a person that actually or constructively owns 10% or more of our voting stock;
    
    a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction; or
    
    a person whose functional currency is not the U.S. dollar.
  - 80 -




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##### Table of Contents




    
    a citizen or resident of the United States;
    
    a domestic corporation;
    
    an estate whose income is subject to United States federal income tax regardless of its source; or
    
    a trust if a United States court can exercise primary supervision over the trusts administration
and one or more United States persons are authorized to control all substantial decisions of the
trust.
  You should consult your own tax advisor regarding the United States federal, state and local, and
other tax consequences of owning and disposing of shares and ADSs in your particular circumstances.
  Taxation of Dividends
 
    Taxation of Capital Gains
  PFIC Rules
  - 81 -




---



##### Table of Contents



Australian Taxation
  Papua New Guinea Taxation
  
    
    is domiciled in PNG, unless the persons permanent place of abode is outside PNG; or
    
    has been in PNG for more than one half of the year of income, unless that person has a
usual place of abode outside PNG and does not intend to take up residence in PNG.
          
    
    if transferred through a stock broker registered to operate on the Port Moresby Stock
Exchange, the transfer is exempt from stamp duty;
    
    otherwise at the rate of 1% of the value of the securities, payable by the purchaser or
transferee.
  - 82 -




---



##### Table of Contents



F. Dividends and Paying Agents
  
 G. Statement by Experts
  
 H. Documents on Display
   
 I. Subsidiary Information
  
 Item 11. Quantitative and Qualitative Disclosure about Market Risk
 
 A. Quantitative Information about Market Risk
 Gold Commodity Price Risk
   Put Options Bought
 Average
    
    
    Put Revenue *1Year
    
    Ounces
    
    
    Strike price
    
    
    ($ millions)($/Oz)2007
    
    
    76,000
    
    
    
    315.00
    
    
    
    23.92008
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    13,000
    
    
    
    375.00
    
    
    
    4.92012
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.82013
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.8Total
    
    
    141,000
    
    
    
    342.55
    
    
    
    48.3
 
 *1
    
    Lihir has the option to sell the above ounces in the future years at the price
corresponding to that year. Normally, these options would only be exercised by Lihir, if the
spot price for gold is below the put price at the time this put option is due for delivery. - 83 -




---



##### Table of Contents



Call Options Sold
 Average
    
    Call Revenue *2Year
    
    Ounces
    
    Strike price
    
    ($ millions)($/Oz)2007
    
    
    76,000
    
    
    
    307.00
    
    
    
    23.32008
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    13,000
    
    
    
    375.00
    
    
    
    4.92012
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.82013
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.8Total
    
    
    141,000
    
    
    
    338.30
    
    
    
    47.7
 
 *2
    
    Lihir can be called upon to sell the above ounces in the future years at the price
corresponding to that year. Normally, these options would only be exercised against Lihir, if
the spot price for gold is above the call price at the time the call option is due for
delivery. Forwards
 Average
    
    RevenueYear
    
    Ounces
    
    Strike price
    
    ($ millions)($/Oz)2007
    
    
    115,000
    
    
    
    330.26
    
    
    
    38.02008
    
    
    145,000
    
    
    
    327.12
    
    
    
    47.42009*3
    
    
    240,000
    
    
    
    350.00
    
    
    
    84.02010*3
    
    
    240,000
    
    
    
    350.00
    
    
    
    84.02011*3
    
    
    120,000
    
    
    
    350.00
    
    
    
    44.62012
    
    
    
    
    
    
    
    
    
    
    2013
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    860,000
    
    
    
    346.51
    
    
    
    298.0
 
 *3
    
    The gross price for the forwards in these years is $371.67. The price of $350.00 shown
above is net of fees.  - 84 -




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##### Table of Contents



Hedging Valuations Summary
 As at Dec 31,
    
    As at Dec 31,
    
    As at Dec 31,2006
    
    2005
    
    2004Prevailing spot price
    
    $
    633.80
    
    
    $
    517.38
    
    
    $
    438.00Minimum revenue from hedge programs
    
    $
    356m
    
    
    $
    424m
    
    
    $
    639mRevenue generated from same number of ounces at prevailing
spot price
    
    $
    634m
    
    
    $
    625m
    
    
    $
    843mOut-of-the-money position
    
    $
    332.8m
    
    
    $
    263.2m
    
    
    $
    233.6mFair value reserve
    
    $
    355.5m
    
    
    $
    304.6m
    
    
    $
    232.2mRevaluation (costs) / benefits relating to ineffective hedges
    
    $
    (1.7m
    )
    
    $
    (5.4m
    )
    
    $
    8.6m
     Interest Rate and Exchange Rate Risk
      
 B. Qualitative Information about Market Risk
  - 85 -




---



##### Table of Contents



Item 12. Description of Securities Other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and use of Proceeds
  
 Item 15. Controls and Procedures
 
 A. Evaluation of Disclosure Controls and Procedures
  
 B. Managements annual report on internal control over financial reporting
    
 C. Attestation Report of the registered public accounting firm
  
 D. Changes in internal control over financial reporting
  - 86 -




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##### Table of Contents



Item 16A. Audit Committee Financial Expert
   
 Item 16B. Code of Ethics
  
    
    full fair and accurate timely disclosure in all reports and documents including all
public communications;
    
    commitment to a work environment where the health, safety and well-being of employees,
contractors, visitors and other parties affected by the Companys operations are
paramount;
    
    compliance with all laws, regulations and other requirements relating to all aspects of
business and personal conduct within PNG and the countries with which the Company
interacts;
    
    integrity, honesty, transparency and respect in all interactions (whether internal or
with groups outside the Company) including with Lihirian and other representative groups
in relation to issues important to the community;
    
    excellence in the management of environmental responsibilities to ensure minimisation
of any adverse effects on the environment or impact on the local community;
    
    adoption of the highest standards of business administration, accountability and
corporate governance, including the ethical use of all Company resources, funds,
equipment, information and time;
    
    fairness, within the framework of commitments to local community groups, to potential
and existing employees in all areas of recruitment, training and administration of
employee benefits;
    
    initiative and personal commitment by all employees, contractors and agents working on
behalf of the Company, to the highest standards of work performance and the effective
achievement of Company objectives; and
    
    accountability and willingness to take responsibility.
   
 Item 16C. Principal Accountant Fees and Services
  (a)
    
    review the performance of the external auditors at least annually and be responsible for
recommending to the Board their appointment, re-appointment or termination;
 (b)
    
    review the scope of the annual audit program, or audit plan and approve the scope of the
audit services to be provided;(c)
    
    review any engagement fees or terms proposed by the external auditors;
 (d)
    
    consider whether the external auditors provision of non-audit services to the Company and
any other relationship between the external auditor and the Company (if any) is compatible
with maintaining the independence and objectivity of the external auditor and maintaining the
quality of the audit services provided;
 - 87 -




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##### Table of Contents



(e)
    
    if applicable, take appropriate action in response to the external auditors report to
satisfy itself of the external auditors independence for the purposes of making a
recommendation to the Board.
   2006 Fees
    
    2005 Fees
    
    2004 FeesServices provided
    
    $000
    
    $000
    
    $000Audit fees
    
    
    455
    
    
    
    354
    
    
    
    262Audit-related fees
    
    
    112
    
    
    
    111
    
    
    
    103Tax fees
    
    
    79
    
    
    
    129
    
    
    
    27
  
    
    comfort letters;
    
    statutory audits;
    
    attest services;
    
    consents; and
    
    assistance with and review of documents filed with the SEC.
  
    
    employee benefit plan audits;
    
    due diligence related to mergers and acquisitions;
    
    accounting assistance and audits in connection with proposed or consummated acquisitions;
    
    internal control reviews; and
    
    consultations concerning financial accounting and reporting standards.
  
    
    tax compliance services, including the preparation of original and amended tax
returns;
    
    tax consultations, such as assistance and representation in connection with
tax audits and appeals, tax advice related to mergers and acquisitions, employee benefit
plans and requests for rulings or technical advice from taxing authorities; and
    
    tax planning services.
 
 Item 16D. Exceptions from Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by Issuer and Affiliates
  
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  - 88 -




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##### Table of Contents



Glossary of Certain Technical Terms
 Alteration
    
    Change in the mineral composition of a rockAnhydrite
    
    Mineral form of calcium sulfateArgillic alteration
    
    Alteration composed of clay mineralsArsenopyrite
    
    A sulfide mineral of iron and arsenicAutoclave
    
    Vessel used for chemical reactions at high temperature and pressure; for example, to oxidize
sulfide oreAutogenous threshold
    
    The level of sulfur feed at which the heat generated by oxidation of the sulfides is
sufficient to propagate the reaction.Ball mill
    
    A mill using metal balls as the grinding mediumBench
    
    The horizontal floor along which mining progresses in a pit, also used to describe the
horizontal segment between two such floors. The thickness of such a segment is referred to
as the bench height. As the pit progresses to lower levels, safety benches are left in
the walls to catch any rock falling from above.Brecciation; breccia
    
    Fracturing of pre-existing rocks by natural forces; a rock type formed in this mannerBullion
    
    Gold or silver in bars or ingotsCalcining
    
    To reduce to a powder or friable state by heatCaldera
    
    Large basin shaped, typically circular crater resulting from volcanic activityCarbon-in-leach
    
    Method of extracting gold from solution using carbonConcentrate
    
    Material that has been processed to increase the content of contained metal or mineral
relative to the contained wasteCounter-current decantation or CCD
    
    The clarification and concentration of slurry material by the use of several thickeners in
series, with the washing solution flowing in the opposite direction to the slurryCut-off grade
    
    In resource/reserve estimation, the lowest grade of mineralized material that can be
economically extractedCyanidation
    
    A standard method of extracting gold and silver from crushed or ground mineralized rock
using sodium cyanideCyanide leaching
    
    The extraction of a precious metal from an ore by its dissolution in a cyanide solutionDilution
    
    Waste which is commingled with ore in the mining processDore
    
    A mixture of gold and other metals, mostly silver, usually the raw metal produced from a
precious metal mineElectro-winning
    
    The process of removal of gold from solution by the action of electric currentsElution
    
    The process of desorption (taking of gold from carbon)Epithermal
    
    A term applied to deposits formed at shallow depths from ascending solutions of moderate
temperaturesExsolution
    
    To be removed from solutionFeasibility study
    
    A technical and financial study of a project at sufficient level of accuracy and detail to
allow a decision as to whether the project should proceedFlocculant
    
    An additive introduced to promote aggregation in a solution.
 - 89 -




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##### Table of Contents



Flotation
    
    The process of concentrating ground mineral particles by attaching them to air bubbles in a
slurry using chemical reagents and recovering the mineralized froth generated by aerationFree gold
    
    Gold not chemically or physically entrapped and hence amenable to relatively simple
extraction processes.Friable
    
    Said of a rock or mineral that crumbles naturally or is easily broken, pulverized, or
reduced to powder, such as soft or poorly cemented sandstone.Fumaroles
    
    Vents in a volcanic region from which gases and vapors emanate at high temperaturesGAAP
    
    Generally accepted accounting principles.Geochemistry
    
    The study of the variation of chemical elements in rocks and soils; a method of exploration
based on thisGeotechnical
    
    Pertaining to the engineering properties of rocks and soilsGeothermal
    
    Pertaining to the heat of the earths interiorGrade
    
    The metal (or mineral) content per unit of rockGrinding
    
    Reducing mineralized rock to the consistency of fine sand by crushing the abrading in a
rotating steel grinding millGyratory Crusher
    
    A primary crusher consisting of a vertical spindle, the foot of which is mounted in an
eccentric bearing within a conical shell. The top carries a conical crushing head revolving
eccentrically in a conical maw.Hydrological
    
    Pertaining to the science of hydrologykPa
    
    A unit of pressure  an abbreviation for kilopascals, gauge.Joint venture
    
    An arrangement in which two entities unite to form a new, jointly-owned entity to achieve a
specific purpose.Lime
    
    Calcium oxide; artificially made from limestoneLimestone
    
    Rock composed mainly of calcium carbonateLithology
    
    The physical characteristics of rockMafic
    
    Descriptive of rocks containing or made up of ferro-magnesian minerals (usually dark in
color)Magma; magmatic
    
    Liquid molten rock; pertaining to processes and rocks involving magmaMarcasite
    
    Iron sulfide mineral (a form of pyrite)Metallurgy
    
    The science and technology of metals, usually pertaining to the processing of metals and
minerals in miningMill feed grade
    
    The grade of material feed to the mill, equivalent to received at millMilling/mill
    
    The comminution of the ore, although the term has come to cover the broad range of machinery
inside the treatment plant where economically valuable minerals are separated from the oreMineable
    
    The portion of a resource for which extraction is technically and economically feasibleMineral deposit
    
    A mineralized underground body which has been intersected by a sufficient number of
closely-spaced drill holes and/or underground sampling to support sufficient tonnage and ore
grade to warrant further exploration or development; a mineral deposit or mineralized
material does not qualify as a commercially mineable ore body (Reserves), as prescribed
under standards of the Commission, until a final and comprehensive economic, technical, and
legal feasibility study based upon the test results is concluded.Net smelter returns
    
    The value received for a mineral after refining, less the cost of transporting the mineral
to the refinery and the cost of refining
 - 90 -




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##### Table of Contents



Open pit
    
    Surface mining in which the ore is extracted from a pit. The geometry of the pit may vary
with the characteristics of the ore body.Ore
    
    Material that contains one or more minerals, at least one of which has commercial value and
which can be recovered at a profitOre body
    
    A continuous well defined mass of material of sufficient ore content to make extraction
economically feasibleOre grade
    
    The average amount of the valuable metal or mineral contained in a specific mass of ore; for
gold, this is usually expressed as troy ounces per short ton (2,000 pounds avoirdupois) or
grams per tonneOunces
    
    Troy ounces of 31.103 grams, or 1.097 Avoirdupois ouncesOutcrop
    
    That part of a rock formation exposed on surfaceOxide ore
    
    Gold ore that has been subjected to oxidation through natural weathering and surface water
percolation to the extent that the minerals are readily treatable by standard processesPhyllic alteration
    
    Hydrothermal alteration of rocks involving the secondary formation of quartz and sericitePit shell
    
    Designed outline of an open pit mine containing all the open pit ore reservesPleistocene
    
    A subdivision of geologic time, about 10,000  2 million years before the presentPotassic alteration
    
    Hydrothermal alteration of rock involving the secondary formation of potash feldspar,
commonly the mineral orthoclase, usually with biotitePressure oxidation
    
    A method of processing refractory sulfide orePropylitic alteration
    
    Hydrothermal alteration of basic rocks involving the secondary formation of chlorite,
epidote, calcite and sulfidePyrite
    
    Iron sulfide mineralRC hole
    
    A reverse circulation drill hole produced by percussion drilling in which rock cuttings are
recovered instead of core. Reverse circulation refers to the air flow which flows
downward around the outside of the drill pipe, returning with the rock cuttings through the
drill bit face and stem.Reactive sulfur
    
    In mineral processing involving pressure oxidation, sulfur in the form of sulfideRefining
    
    The final stage of metal production in which final impurities are removed from the molten
metal by introducing air and fluxes. The impurities are removed as gases or slagRefractory ore
    
    Ore not amenable to standard processing techniquesSampling
    
    Taking small pieces of rock at intervals along exposed mineralization for assay (to
determine the mineral content)SAG
    
    Semi-autogenous grinding, a method of comminution that utilizes the rock fragments to
assist in the grinding processSeismic
    
    Pertaining to shock waves that pass through the earthShotcreting
    
    Application by pressure spraying of a setting medium with the characteristics of concrete
for stabilization of rock faces.Silt curtain
    
    A flooding barrier to be deployed offshore from watercourses, which causes temporary ponding
of sediment laden fresh water within its confines to enhance settling, and mixing with sea
water, as the turbid stream is forced underneath the barrierSlurry
    
    A fluid comprising fine solids suspended in a solution (generally water containing additives)Smelting
    
    Thermal processing whereby molten metal is liberated from beneficiated ore or concentrate
with impurities separating as lighter slagStockpile
    
    A store of unprocessed ore
 - 91 -




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##### Table of Contents



Stripping
    
    The process of removing overburden or waste to expose oreIn open pit mining, the ratio of waste material to ore, usually expressed as tonnes waste :Stripping ratio
    
    tonnes oreSulfide ore
    
    Ore characterized by the inclusion of metal in the crystal structure of a sulfide mineral.
This type of ore is often refractory oreSuperannuation fund
    
    A contributory pension fund.Surface mixed layer
    
    Uppermost layer of the ocean that is constantly mixed by wind and wave actionTailings
    
    The finely-ground waste product from ore processingUnderground Mine
    
    Mining of an ore body beneath the
earths surface where ore is recovered using trucks via a portal or hoisted via a shaft
 Conversion Table
  US$/ oz. Gold
    
    US dollars per troy ounce of goldUS$/ t ore
    
    US dollars per tonne of oreC
    
    Degrees Celsiusg Au/t
    
    Grams of gold per tonneha
    
    Hectareskg
    
    Kilogramskg Au/t
    
    Kilograms of gold per tonnekPa
    
    kilo Pascalskt
    
    kilo tonnesm2
    
    Square metersm3
    
    Cubic metersmtpy
    
    Million tonnes per yeart/d
    
    Tonnes per dayt/h
    
    Tonnes per hour
 Unit Equivalents
 Celsius degrees
    
    (Fahrenheit degrees minus 32.0) times 5/91 cubic meter
    
    35.314 cubic feet1 gram
    
    0.03215 troy ounces1 gram Au/tonne
    
    0.02917 troy ounces gold/short ton1 hectare
    
    2.471 acres1 kilogram
    
    2.205 pounds1 kilometer
    
    0.62 statute miles1 kilopascal
    
    0.145 pounds per square inch1 kilo tonne
    
    1102.31 short tons1 meter
    
    3.281 feet1 millimeter
    
    0.039 inches1 square kilometer
    
    0.3861 square miles1 square meter
    
    10.764 square feet1 tonne
    
    1.1023 short tons
 - 92 -




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##### Table of Contents



FINANCIAL STATEMENTS
 LIHIR GOLD LIMITED
 Audited Financial Statements
 Report
of Independent Registered Public Accounting Firm
    
    
    F-A1Consolidated Income Statements for the years ended December 31, 2006, 2005, and 2004
    
    
    F-1Consolidated Balance sheets as at December 31, 2006, 2005 and 2004
    
    
    F-2Statements of changes in equity for the years ended December 31, 2006, 2005 and 2004
    
    
    F-3Consolidated Statements of cash flows for the years ended December 31, 2006, 2005 and 2004
    
    
    F-4Notes to the financial statements
    
    
    F-5Supplemental schedule
    
    
    F-44




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##### Table of Contents



PricewaterhouseCoopersABN 52 780 433 7576th Floor Credit HouseCuthbertson StreetPO Box 484PORT MORESBYPAPUA NEW GUINEAWebsite: www.pwc.com.pgTelephone +61 2 8266 0000Facsimile +61 2 8266 9999
 
 Report of Independent Registered Public Accounting Firm
 
  Consolidated financial statements
   F-A1 




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##### Table of Contents



Internal control over financial reporting
 Internal Control  Integrated Framework Internal
Control  Integrated Framework
    F-A2 




---



##### Table of Contents



 F-A3 




---



##### Table of Contents



LIHIR
GOLD LIMITED
 
 CONSOLIDATED INCOME STATEMENTS
Year ended December 31, 2006, 2005 & 2004
 2006
    
    2005
    
    2004Note
    
    $ 000
    
    $ 000
    
    $ 000Sales revenue
    
    
    
    
    
    
    307,744
    
    
    
    225,200
    
    
    
    221,465Gold lease rate fees
    
    
    
    
    
    
    2,765
    
    
    
    5,016
    
    
    
    4,595Fair value losses
    
    
    
    
    
    
    (1,682
    )
    
    
    (5,390
    )
    
    
    8,608Other revenue
    
    
    
    
    
    
    1,627
    
    
    
    45
    
    
    
    Total revenue
    
    
    6
    
    
    
    310,454
    
    
    
    224,871
    
    
    
    234,668Operating expensesMining expenses
    
    
    
    
    
    
    (107,551
    )
    
    
    (95,304
    )
    
    
    (89,687
    )Exploration expenses
    
    
    
    
    
    
    (5,976
    )
    
    
    (6,198
    )
    
    
    (5,306
    )Processing costs
    
    
    
    
    
    
    (47,875
    )
    
    
    (41,654
    )
    
    
    (41,524
    )Power generation costs
    
    
    
    
    
    
    (27,000
    )
    
    
    (27,413
    )
    
    
    (29,237
    )General and administrative costs
    
    
    
    
    
    
    (66,618
    )
    
    
    (57,884
    )
    
    
    (53,103
    )Refining, royalty and management fees
    
    
    
    
    
    
    (12,972
    )
    
    
    (6,813
    )
    
    
    (7,144
    )Deferred mining costs
    
    
    
    
    
    
    56,349
    
    
    
    25,048
    
    
    
    37,865Costs deferred and transferred to inventories
    
    
    
    
    
    
    19,395
    
    
    
    39,208
    
    
    
    3,557Impairment reversal: Mine properties and
deferred mining costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,723Economic grade stockpile value
recognised/(impaired)Impairment
reversal/(charge): Economic grade stockpile
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,200Depreciation and amortisation
    
    
    
    
    
    
    (37,444
    )
    
    
    (35,757
    )
    
    
    (32,929
    )Total operating (expenses)/Income
    
    
    6
    
    
    
    (229,692
    )
    
    
    (206,767
    )
    
    
    78,415Operating profit
    
    
    
    
    
    
    80,762
    
    
    
    18,104
    
    
    
    313,083Interest income
    
    
    
    
    
    
    1,436
    
    
    
    1,221
    
    
    
    3,512Finance costs
    
    
    6
    
    
    
    (6,229
    )
    
    
    (3,588
    )
    
    
    (2,110
    )Profit from ordinary activities before taxation
    
    
    
    
    
    
    75,969
    
    
    
    15,737
    
    
    
    314,485Income tax (expense)/Benefit
    
    
    9
    
    
    
    (22,132
    )
    
    
    (5,949
    )
    
    
    14,736Net profit from ordinary activities after taxation
    
    
    
    
    
    
    53,837
    
    
    
    9,788
    
    
    
    329,221Earnings per share
    
    
    29- Basic (cents/share)
    
    
    
    
    
    
    4.2
    
    
    
    0.8
    
    
    
    25.6- Diluted (cents/share)
    
    
    
    
    
    
    4.2
    
    
    
    0.8
    
    
    
    25.6
  -F-1-




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##### Table of Contents



LIHIR GOLD LIMITED
 
 CONSOLIDATED BALANCE SHEETS
As At December 31, 2006 and 2005
 2006
    
    2005Note
    

$ 000
    

$ 000ASSETSCURRENT ASSETSCash and cash equivalents
    
    
    7
    
    
    
    47,032
    
    
    
    127,836Derivative financial instruments
    
    
    10
    
    
    
    269
    
    
    
    543Inventories
    
    
    11
    
    
    
    75,295
    
    
    
    81,712Receivables
    
    
    12
    
    
    
    4,641
    
    
    
    5,347Prepayments
    
    
    
    
    
    
    5,514
    
    
    
    3,696Total current assets
    
    
    
    
    
    
    132,751
    
    
    
    219,134NON-CURRENT ASSETSDerivative financial instruments
    
    
    10
    
    
    
    2,419
    
    
    
    4,236Inventories
    
    
    11
    
    
    
    141,730
    
    
    
    115,494Receivables
    
    
    12
    
    
    
    400
    
    
    
    476Deferred mining costs
    
    
    13
    
    
    
    148,330
    
    
    
    91,981Mine properties
    
    
    14
    
    
    
    951,201
    
    
    
    800,346Available-for-sale financial assets
    
    
    15
    
    
    
    33,001
    
    
    
    Deferred income tax
    
    
    9
    
    
    
    86,226
    
    
    
    87,739Total non-current assets
    
    
    
    
    
    
    1,363,307
    
    
    
    1,100,272Total assets
    
    
    
    
    
    
    1,496,058
    
    
    
    1,319,406LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESDerivative financial instruments
    
    
    10
    
    
    
    61,537
    
    
    
    40,793Accounts payable
    
    
    16
    
    
    
    46,567
    
    
    
    34,691Provisions
    
    
    17
    
    
    
    6,427
    
    
    
    5,349Current tax liability
    
    
    
    
    
    
    320
    
    
    
    Borrowings
    
    
    18
    
    
    
    62,535
    
    
    
    Total current liabilities
    
    
    
    
    
    
    177,386
    
    
    
    80,833NON-CURRENT LIABILITIESDerivative financial instruments
    
    
    10
    
    
    
    273,954
    
    
    
    227,157Provisions
    
    
    17
    
    
    
    14,261
    
    
    
    12,424Borrowings
    
    
    18
    
    
    
    218,580
    
    
    
    215,520Total non-current liabilities
    
    
    
    
    
    
    506,795
    
    
    
    455,101Total liabilities
    
    
    
    
    
    
    684,181
    
    
    
    535,934SHAREHOLDERS EQUITYShare capital
    
    
    19
    
    
    
    1,027,069
    
    
    
    1,027,504Reserves
    
    
    20
    (a)
    
    
    (250,689
    )
    
    
    (225,692
    )Accumulated profits/(losses)
    
    
    20
    (b)
    
    
    35,497
    
    
    
    (18,340
    )Total shareholders equity
    
    
    
    
    
    
    811,877
    
    
    
    783,472Total liabilities and shareholders equity
    
    
    
    
    
    
    1,496,058
    
    
    
    1,319,406
  -F-2-




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##### Table of Contents



LIHIR GOLD LIMITED
 
 STATEMENTS OF CHANGES IN EQUITY
Year ended December 31, 2006, 2005 & 2004
 2006
    
    2005
    
    2004$ 000
    
    $ 000
    
    $ 000Total equity at the beginning of the financial year
    
    
    
    
    
    
    783,472
    
    
    
    837,223
    
    
    
    461,391Profit for the year
    
    
    20
    (b)
    
    
    53,837
    
    
    
    9,788
    
    
    
    329,221Issue of share capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,286Share issue transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Shares reclassified as treasury shares
    
    
    19
    
    
    
    (435
    )
    
    
    
    
    
    
    Changes in the hedging reserve  cash flow hedges (net
of tax)
    
    
    20
    (a)
    
    
    (30,431
    )
    
    
    (63,539
    )
    
    
    44,395Fair value reserve
    
    
    20
    (a)
    
    
    17
    
    
    
    
    
    
    
    Employee share rights (net of tax)
    
    
    20
    (a)
    
    
    5,421
    
    
    
    
    
    
    
    Exchange difference on translation of foreign operations
    
    
    20
    (a)
    
    
    (4
    )
    
    
    
    
    
    
    Total equity at the end of the financial year
    
    
    
    
    
    
    811,877
    
    
    
    783,472
    
    
    
    837,223
  -F-3-




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##### Table of Contents



LIHIR GOLD LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 2006, 2005 & 2004
 2006
    
    2005
    
    2004Note
    
    $ 000
    
    $ 000
    
    $ 000CASH FLOWS FROM OPERATING ACTIVITIESCash receipts from customers
    
    
    
    
    
    
    329,235
    
    
    
    243,704
    
    
    
    248,391Cash payments for consumables and supplies
    
    
    
    
    
    
    (122,724
    )
    
    
    (107,551
    )
    
    
    (109,223
    )Cash payments for services
    
    
    
    
    
    
    (50,437
    )
    
    
    (42,428
    )
    
    
    (39,159
    )Cash payments in relation to employees
    
    
    
    
    
    
    (37,492
    )
    
    
    (32,712
    )
    
    
    (27,022
    )Cash payments for mining activities
    
    
    
    
    
    
    (9,123
    )
    
    
    (10,370
    )
    
    
    (14,262
    )Cash payments for processing activities
    
    
    
    
    
    
    (2,055
    )
    
    
    (2,775
    )
    
    
    (3,421
    )Cash payments for power generation
    
    
    
    
    
    
    (662
    )
    
    
    (1,273
    )
    
    
    (1,397
    )Cash payments for other operating activities
    
    
    
    
    
    
    (46,212
    )
    
    
    (36,392
    )
    
    
    (25,741
    )Interest received
    
    
    
    
    
    
    1,436
    
    
    
    1,882
    
    
    
    3,512Interest and finance charges paid to third parties
    
    
    
    
    
    
    (3,276
    )
    
    
    (2,543
    )
    
    
    (1,327
    )Net cash flow from operating activities
    
    
    8
    
    
    
    58,690
    
    
    
    9,542
    
    
    
    30,351CASH FLOWS FROM FINANCING ACTIVITIESDrawdown of term debt
    
    
    
    
    
    
    65,595
    
    
    
    245,520
    
    
    
    Repayment of term debt
    
    
    
    
    
    
    
    
    
    
    (49,509
    )
    
    
    (14,039
    )Hedge book restructure and fees
    
    
    
    
    
    
    
    
    
    
    (62,200
    )
    
    
    Payment for treasury shares
    
    
    
    
    
    
    (418
    )
    
    
    
    
    
    
    Issuance of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,286Share issue transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Net cash flow from financing activities
    
    
    
    
    
    
    65,177
    
    
    
    133,811
    
    
    
    (11,823
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property plant and equipment
    
    
    
    
    
    
    (170,756
    )
    
    
    (99,492
    )
    
    
    (87,663
    )Proceeds on disposal of fixed assets
    
    
    
    
    
    
    92
    
    
    
    416
    
    
    
    64Payments for investments
    
    
    
    
    
    
    (34,007
    )
    
    
    
    
    
    
    Net cash flow from investing activities
    
    
    
    
    
    
    (204,671
    )
    
    
    (99,076
    )
    
    
    (87,599
    )Net increase/(decrease) in cash held
    
    
    
    
    
    
    (80,804
    )
    
    
    44,277
    
    
    
    (69,071
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    127,836
    
    
    
    83,559
    
    
    
    152,630Net increase/(decrease) in cash held
    
    
    
    
    
    
    (80,804
    )
    
    
    44,277
    
    
    
    (69,071
    )Cash and cash equivalents at end of year
    
    
    7
    
    
    
    47,032
    
    
    
    127,836
    
    
    
    83,559
  -F-4-




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##### Table of Contents



NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
    (i)
    
    ConsolidationThe consolidated financial statements of Lihir Gold Limited (the Company) include the
accounts of the Company and its majority owned subsidiaries (the Group). Subsidiary
undertakings, which are those entities in which the Company has an interest of more than
one half of the voting rights or otherwise has power to exercise control over the
operations, are consolidated. Subsidiaries are consolidated from the date on which control
is transferred to the Company and are no longer consolidated from the date that control
ceases. All intercompany transactions, balances and unrealised gains and losses on
transactions between group companies are eliminated. Where necessary, accounting policies
for subsidiaries have been changed to ensure consistency with the policies adopted by the
Company.(ii)
    
    Exploration and evaluation expenditureThe Company charges exploration and evaluation costs against earnings as incurred.(iii)
    
    Development propertiesA property is classified as a development property when a mine plan has been prepared,
proved and probable reserves have been established, and the Company has decided to
commercially develop the property. Development expenditure is accumulated separately for
each area of interest in which economically recoverable mineral resources have been
identified and are reasonably assured.All expenditure incurred prior to the commencement of commercial levels of production from
each development property is carried forward to the extent to which recoupment out of
revenue to be derived from the sale of production from the relevant development property,
or from sale of that property, is reasonably assured.No amortisation is provided in respect of development properties until they are
reclassified as Mine Properties, following the commencement of commercial production.
For the years ended December 31 2006, 2005 and 2004 the Company has had no properties in
the development stage.Upon commencement of commercial production, costs incurred in removing overburden and
other waste material are classified as deferred mining costs. Details of the accounting
policy are outlined in note 1 (vi).(iv)
    
    Mine propertiesMine properties represent the accumulation of all development expenditures incurred by or
on behalf of the Company in relation to areas of interest in which mining of a mineral
reserve has commenced.When future economic benefits are established by further development expenditure in respect
of a mine property after the commencement of production upon extraction of saleable
materials, such expenditure is carried forward as part of the cost of that mine property.
Otherwise such expenditure is classified as part of the cost of production.The cost of each asset is depreciated or amortised over its expected useful life to
reflect the continued use of the assets through to the end of the mining or processing
period. The mining period is determined for each area-of-interest, with an
area-of-interest defined as an individual ore body or pit..Depreciation and amortisation of mine costs is determined using total proven and
probable reserves. Total proven and probable reserves are used as the existing plant,
infrastructure and other mining properties will be used in the development of all of the
Companys proven and probable reserves. No future costs have been included in the
depreciable base.Depreciation and amortisation of costs is provided for using the units-of-production
method. The units-of-production basis results in a charge proportional to the depletion of
estimated recoverable gold ounces contained in proved and probable ore reserves. Under
this process, production of a unit commences when the ore is extracted from the ground.
The amortisation charge is allocated to inventory throughout the production processes from
the point at which ore is extracted from the pit until the ore is processed into gold dorè.Where a change in estimated recoverable gold ounces contained in proved and probable ore
reserves is made, depreciation and amortisation of mine properties is accounted for
prospectively.
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(v)
    
    Determination of ore reserves and remaining mine lifeThe Company estimates its ore reserves and mineral resources based on information compiled
by Competent Persons (as defined in accordance with the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves as revised December 2004 (the JORC
code). Reserves determined in this way are taken into account in the calculation of
depreciation, amortisation, impairment and restoration, deferred mining costs,
rehabilitation and environmental expenditure.In estimating the remaining life of the mine for the purpose of amortisation and
depreciation calculations, due regard is given, not only to the amount of remaining
recoverable gold ounces contained in proved and probable ore reserves, but also to
limitations which could arise from the potential for changes in technology, demand, product
substitution and other issues which are inherently difficult to estimate over a lengthy
time frame.Where a change in estimated recoverable gold ounces contained in proved and probable ore
reserves is made, depreciation and amortisation is accounted for prospectively.(vi)
    
    Deferred mining costsThe Companys mining operations at Lihir Island comprise a single mine with three
contiguous open pits to extract ore from a single orebody. In conducting these mining
operations it is necessary to remove overburden and other waste materials to access the
orebody. The costs of removing waste materials are referred to as stripping costs.During the initial development of a mine, stripping costs would be capitalized as
development costs. Capitalization of development costs ceases when saleable material is
extracted from the mine; at this same time, depreciation of the capitalized development
costs begins. Depreciation is calculated on a units-of-production basis over the life of
the mine. The development stage is also referred to as preproduction. In the case of the
mine at Lihir Island, the preproduction phase ceased in 1997 when commercial production
commenced.Removal of waste materials will continue until mining operations cease. This is referred to
as production stripping and commences when saleable material starts to be extracted from
the mine. Production stripping costs are charged to the income statement on an estimated
life-of-pit strip ratio basis. This ratio is the proportion of waste material to ore
estimated to be extractable from the relevant pit in the mine. The life-of-pit has been
determined as the most effective method of matching stripping costs to the associated
ounces mined.As ore is extracted from each pit of a mine, the ratio of waste material to ore may vary
from time to time from the expected average life-of-pit strip ratio. If the actual ratio
for an accounting period is higher than the estimated life-of-pit ratio, a portion of
stripping costs is capitalized and deferred for recognition in the income statement during
a later period; if the ratio is less than the estimated life-of-pit ratio, then a portion
of capitalized stripping costs is charged to the income statement.In this way, stripping costs expensed in the income statement should reflect the
life-of-pit stripping ratio. Any change in the estimated life-of-pit stripping ratio is
accounted for prospectively.Capitalized production stripping costs are classified as Deferred Mining Costs.
Capitalized development stripping costs would be reflected in Deferred Expenditure within
Mine Properties.The Company applied the transitional provisions in EITF 04-6 Accounting for Stripping
Costs Incurred during Production in the Mining Industry for the fiscal year beginning on
January 1, 2006 in order to conform with the consensus. This resulted in a GAAP difference
between IFRS and US GAAP; please refer to further discussion at Note 34.(vii)
    
    Capitalisation of financing costsInterest and other financing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalised as part of the cost of
that asset. To the extent that funds are borrowed specifically for the purpose of
obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation on
that asset is determined as the actual borrowing costs incurred on that borrowing during
the period. Capitalisation of borrowing costs ceases when all the activities necessary to
prepare the qualifying asset for its intended use or sale are substantially complete.
Interest earned on the temporary investment of borrowed funds is deducted from interest
paid on the borrowed funds in arriving at the amounts so capitalised. These costs are
amortised using the units-of-production method based on estimated recoverable gold ounces
contained in proved and probable ore reserves.For the year ended December 31, 2006 an amount of $0.7 million was capitalised (2005: $1.8
million; 2004: nil). This capitalisation relates to the gold loan drawn down (refer note
18) to the extent that the funds are applied to the construction of the flotation plant.(viii)
    
    Mine buildings, plant and equipmentMine buildings, plant and equipment are stated at cost less accumulated depreciation and
impairments losses/(reversals). Repairs and maintenance expenditures are charged against
earnings as incurred. Major improvements and replacements that extend the useful life of
an asset are capitalised. The Company applies
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the cost model in the subsequent measurement
of its property, plant and equipment. This means that no
revaluations are permitted under the Companys asset measurement policy and that property,
plant and equipment are therefore carried at cost less any accumulated depreciation and any
accumulated impairment losses/(reversals).The cost of each item of buildings, machinery and equipment is depreciated over its
expected useful life. For the majority of assets this is accomplished using the
units-of-production method based on estimated recoverable gold ounces contained in proved
and probable ore reserves, although some assets are depreciated using a percentage based on
time. Each items economic life has due regard to both physical life limitations and to
present assessments of economically recoverable reserves of the mine property (where
appropriate) and to possible future variations in those assessments. Estimates of
remaining useful lives are made on a regular basis for all assets, with annual
reassessments for major items.The total net carrying values of mine buildings, plant and equipment at each mine property
are reviewed regularly and, to the extent to which these values exceed their recoverable
amounts, that excess is fully provided against in the financial year in which this is
determined. (Refer to note 1 (x)).Major spare parts purchased specifically for particular plant and equipment are included in
the cost of the plant and equipment and are depreciated over the expected useful life of
the item of plant and equipment.Approximately 90% of all fixed assets are depreciated based on the units-of-production
method, using recoverable ounces of gold contained in proved and probable ore reserves as
the determinant. Based on the 2004 ore reserve statement less depletion to date, the
remaining life of mine is expected to be approximately 35 years with processing of economic
grade ore being completed in 2041. Assets which have an estimated useful life that is
shorter than the 35 year total production period are depreciated on a straight-line basis
over the shorter period. Examples of such assets include the Companys mining fleet,
equipment and other similar assets. Certain assets, such as the Companys processing plant
and related infrastructure, which are expected to have an estimated useful life equivalent
to the remaining life of mine, are depreciated over that period on a units-of-production
basis.
 Percentagedepreciated
    
    Percentageas
    
    depreciatedFixed asset classification
    
    units-of-use
    
    as straight lineDeferred expenditure
    
    
    100
    %
    
    
    Land & buildings
    
    
    100
    %
    
    
    Plant & equipment
    
    
    85
    %
    
    
    15
    %Total average
    
    
    90
    %
    
    
    10
    %
 The classification of Land and Buildings does not include freehold land as depreciable
assets. As at December 31, 2006, the Company does not own any freehold land, and only
occupies land by leasehold tenure. All lease costs are expensed as incurred.While it is expected that the Company will cease extracting ore at the end of the mining
period in approximately 2021, it will continue to process stockpiled ore during the
processing period until the end of the mines life in approximately 2042. Further, the
Companys annual impairment assessment of its long-lived assets, takes into consideration
the expected change in activities between the mining and processing periods and the impact
on net cash inflows during this period. At December 31 2005 the present value of net cash
inflows estimated for the entire life of the mine did not indicate any impairment (refer
note (x)).Assets depreciated using the straight-line method are depreciated over their useful life
ranging from 3 - 10 years depending on the nature of the asset. The lives of major assets
are reviewed annually.(ix)
    
    InventoriesCost comprises direct material, direct labour and transportation expenditure in bringing
such inventories to their existing location and condition, together with an appropriate
portion of fixed and variable overhead expenditure and depreciation and amortisation, based
on weighted average costs incurred during the period in which such inventories are
produced. Net realisable value is the amount estimated to be obtained from sale of the item
of inventory in the normal course of business, less any anticipated costs to be incurred
prior to its sale.Inventories of ore and metal are physically measured or estimated and valued at the
lower of cost and net realisable value.In accordance with IAS 2 Inventories, non-current ore stockpiles is defined as ore
which is not scheduled to be processed in the twelve months after the balance sheet date.
The Company believes the processing of these stockpiles will have a future economic benefit
to the Company and accordingly values these stockpiles at the lower of cost and net
realisable value. Net realisable value is assessed annually based on the product expected
to be obtained from the ore at the estimated selling price less costs as calculated for
other inventories of ore and metal, less all further costs to completion and all
anticipated costs to be incurred prior to its sale.Inventories of consumable supplies and spare parts expected to be used in production are
valued at the lower of weighted average cost, which includes the cost of purchase as well
as transportation and statutory charges, and net realisable value.
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As a result of the landslide that occurred on October 9, 2005, 38,079 ounces held within
non-current ore stockpiles were expensed at cost in 2005.Depreciation and amortisation of assets specifically used in the extraction of ore is
allocated to either stockpiles and deferred mining costs based on depreciation costs per
tonne. Depreciation, depletion and amortization costs are allocated to economic grade
stockpiles (EGS) on a contained gold pro-rata basis in the year the EGS material is placed
on the stockpile. The EGS is tested for impairment by applying a net realisable value test
in accordance with IAS 2 and the lower of cost and market principle under US GAAP. At
December 31, 2006 no impairment of EGS was considered necessary. For production processes,
depreciation and amortisation of assets specifically used in the processing of ore are
allocated to work in progress and finished goods inventory based upon depreciation costs
per contained ounces of ore produced for the period.(x)
    
    Impairment of assetsIn accordance with IAS 36 Impairment of Assets, mine properties and other non-current
assets (other than stock) are reviewed for impairment losses at each balance date for
indication that the carrying amount may not be recoverable. Impairments of assets are
recognised whenever the carrying amount of an asset exceeds its recoverable value. In
determining recoverable value, reasonable and supportable future cash flow projections of
the economic conditions that will exist over the remaining life of each asset are
developed. The recoverable amount is measured as the higher of fair value less costs to
sell and value in use. Value in use is calculated by discounting future cash
flows using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.The Company applies the cost model in the measurement and subsequent re-measurement of its
mine buildings, plant and equipment and therefore does not apply the revaluation model to
any of these assets. This means that all long-lived assets, which include deferred mining
costs disclosed at Note 13 and mine properties (being buildings, plant and equipment,
deferred expenditure and rehabilitation asset costs) as disclosed in Note 14 are carried at
cost less any accumulated depreciation and any accumulated impairment losses, or impairment
reversal. The reversal of any previous impairments is only permitted to the extent of the
written down value that would have been recorded, had there been no impairment.In 1999 and 2000, impairment losses of $357.4 million were recognized (as detailed below)
as the recoverable amount of the Companys cash generating unit (consisting of mining
properties and deferred mining costs) was less than its carrying amount. The recoverable
amount was derived from value in use calculations based on discounted cash flows with
primary assumptions detailed below.
 Long Term Gold Price
    
    Discount Rate
    
    Impairment/(Reversal)Year
    
    $oz
    
    %
    
    $ million1999
    
    $
    325
    
    
    
    7
    %
    
    $
    236.82000
    
    $
    300
    
    
    
    6
    %
    
    $
    120.62001
    
    $
    280
    
    
    
    6
    %
    
    $
    02002
    
    $
    305
    
    
    
    7
    %
    
    ($
    37.9
    )2003
    
    $
    340
    
    
    
    7
    %
    
    ($
    31.1
    )2004
    
    $
    380
    
    
    
    7
    %
    
    ($
    205.7
    )2005
    
    $
    425
    
    
    
    7
    %
    
    $
    02006
    
    $
    500
    
    
    
    7
    %
    
    $
    0
 In 2001, after applying the primary assumptions detailed no further impairment was
required.In 2004, 2003 and 2002, having applied the same principles as prior years and revisiting
critical assumptions, including life of mine and remaining reserves, impairment reversals
were credited to the income statement in accordance with IAS 36, based on the primary
assumption detailed. In 2004, all previous remaining asset impairments were fully reversed
to the extent allowed by IAS 36.In 2005 and 2006, having applied the same principles as prior years and revisiting critical
assumptions, neither impairment reversal nor impairment loss was required to be recognised
in accordance with IAS 36.The gold price assumption used by the Company is determined after consideration of numerous
factors, including the current spot price of gold, recent trends in gold prices, views of
price drivers and the market sentiments on gold prices including long-term gold price
assumptions used by peers that report mid-year. The Company also benchmarks the long-term
gold price estimate against other companies in the industry and a global gold price survey
of gold companies issued in mid-December 2006. Recent gold price averages over 2-3 years
were also considered.The critical assumptions used in the impairment assessment were based on extensive and
rigorous analysis conducted by the Company, including consideration of assessments of
proved and probable reserves conducted by competent persons, including the Companys Chief
Geologist and Chief Mining Engineer, independent reviews and other mine financial and
operational assessments conducted by independent mine consultants.The following is a summary of factors considered:
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2006
    
    2005
    
    
    2004Average spot price for the month of December
    
    $
    630
    
    
    $
    510
    
    
    
    $
    442Year-end spot price for December 31
    
    $
    634
    
    
    $
    517
    
    
    
    $
    4353 year weighted average
    
    $
    486
    
    
    $
    422
    
    
    
    $
    384Bank/Analyst long-term forecasts
    
    $
    535
    
    
    $
    424
    
    (Nov-Dec)
    
    $
    358
    
    (Oct)Global Gold Price Survey
    
    $
    515
    
    
    $
    425
    
    
    
    $
    375Rising trend for the last four years
    
    
    +95
    %
    
    
    +65
    %
    
    
    
    +47
    %
 The gold price used for impairment and reserves purposes is based on the Companys best
estimate of the gold price that is reasonable and supportable. To avoid double counting of
the Companys derivative financial instruments recognized on the Companys balance sheet,
hedged prices or the cash flows from derivative financial instruments that are being used
to hedge future revenues are not taken into account in determining future cash flows (in
accordance with IFRS and FAS 133 paragraph 34).The key change to the Companys critical assumptions in 2006 was a revision to the gold
price to $475/oz. This represents a $50/oz increase on the Companys 2005 assumptions, and
an $95/oz increase on the Companys 2004 assumptions.The ore reserves used in the Companys impairment calculations for 2006 are based on the
Companys December 31 2004 reserves statement less depletion, which confirms proved and
probable reserves of 17.5 million ounces (2005: 17.5 million ounces). A revised reserve
statement was published in January 2007 (refer to note 33).(xi)
    
    Restoration, rehabilitation and environmental expenditureIn accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a
provision is raised for anticipated expenditure to be made on restoration and
rehabilitation to be undertaken after mine closure. These costs include the costs of
dismantling and demolition of infrastructure or decommissioning, the removal of residual
material and the remediation of disturbed areas. The provision is only raised in respect
of damage incurred up to balance date.The amount of any provision recognised is the full amount that has been estimated based on
current costs required to settle present obligations, discounted using a pre-tax discount
rate, reflecting current market assessments of the time value of money and those risks
specific to the liability, of 6.05% (2005: 6.2%, 2004: 6.5%). Although estimates of future
costs are reassessed annually, given the prolonged period to mine closure, it is possible
that estimates of ultimate restoration, rehabilitation and environmental liabilities could
change as a result of changes in regulations, the extent of environmental remediation
required and the means of reclamation or cost estimates.When the liability is initially recorded a corresponding asset, which represents future
economic benefits, is raised.The unwinding of the effect of discounting the provision is recorded as a finance cost in
the income statement. The carrying amount capitalised is amortised using the units of
production method.Site rehabilitation and closure involves the dismantling and demolition of infrastructure
not intended for subsequent community use, the removal of residual materials and the
remediation of disturbed areas. Community requirements and long-term land use objectives
are also taken into account.(xii)
    
    LeasesLeases of property, plant and equipment where substantially all the risks and benefits
incidental to the ownership of the asset, but not the legal ownership are assumed by the
Company, are classified as finance leases. Finance leases are capitalised, recording an
asset and liability equal to the present value of the minimum lease payments, including any
guaranteed residual values. Leased assets are amortised over the shorter of their
estimated useful lives or the lease term. Lease payments are allocated between the
reduction of the lease liability and the lease interest expense for the period.Lease payments for operating leases, where substantially all the risks and benefits remain
with the lessor, are charged as expenses in the periods in which they are incurred.Penalties paid for early settlement of leases are expensed.(xiii)
    
    ReceivablesReceivables are carried at original invoice amount less provision made for impairment of
these receivables. A provision for impairment of receivables is established when there is
evidence that the Company may not be able to collect all amounts due according to the
original terms of receivables.
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(xiv)
    
    InvestmentsThe Group investments comprise marketable equity securities. The Group classifies its
investments as available-for-sale financial assets. They are included in non-current
assets unless management intends to dispose of the investment within 12 months of balance
sheet date.Investments are initially recognized at fair value plus transaction costs. Changes in the
fair value of monetary securities classified as available-for-sale are recognized in
equity. When securities classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments recognized in equity are included in the income
statement as gains and losses from investment securities.The fair values of quoted securities are based on current bid prices. The Group assesses
at each balance date whether there is objective evidence that a financial asset or group of
financial assets is impaired. In the case of equity securities classified as
available-for-sale, a significant or prolonged decline in the fair value of a security
below its cost is considered in determining whether the security is impaired. If any such
evidence exists for available-for-sale financial assets, the loss  measured as the
difference between the acquisition cost and the current fair value, is removed from equity
and recognized in the income statement.(xv)
    
    BorrowingsBorrowings are recognised initially at the proceeds received, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost. In compliance with the
provisions of IAS 39, the gold loan (note 18) is accounted for as borrowings on an
historical cost basis. Although the gold loan contains an embedded derivative, and would
ordinarily be subject to cash flow hedge accounting, an exemption within the Standard
allows the Company to account for the loan on an historical cost basis because subsequent
repayment will be by physical delivery of gold ounces.(xvi)
    
    Accounting for derivative financial instruments and hedging activitiesThe Company uses derivative financial instruments to hedge some of its exposure to
fluctuations in gold prices. In order to protect against the impact of falling gold
prices, the Company enters into hedging transactions which provide a minimum price to cover
non-discretionary operating expenses and sustaining capital. The majority of the Companys
production is un-hedged, which allows it to take advantage of increases in gold prices.Derivative financial instruments are initially recognised in the balance sheet at cost and
are subsequently re-measured at their fair values. On the date a derivative contract is
entered into, the Company designates the contract as a hedge against specific future
production. The method of recognising the resulting gain or loss is dependent on the
nature of the item being hedged.Derivatives that are designated against future production qualify as cash flow hedges and
are deemed highly effective. Changes in the fair value of these derivatives are recognised
in equity. Amounts deferred in equity are transferred to the income statement and
classified as revenue in the same periods during which the hedged gold sales affect the
income statement.Certain derivative instruments do not qualify for hedge accounting under the specific rules
in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for
hedge accounting under IAS 39 are recognised immediately in the income statement.When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting under IAS 39, any cumulative gain or loss existing in equity at that
time remains in equity and is recognised when the committed or forecasted production is
ultimately recognised in the income statement. If the committed or forecast production is
no longer expected to occur, the cumulative gain or loss reported in equity is immediately
transferred to the income statement.The Company only sells refined product and spot sales are not based on any provisional
terms and do not contain any embedded derivatives. The Companys forward contracts
(derivatives) are accounted for as cash flow hedges in
accordance with IAS 39.While the Company has a fixed schedule of deliveries designated for its forward contracts,
the Company is sometimes able to roll-over these contracts with its hedging counterparties,
subject to normal credit approvals. As cash flow hedges, any subsequent changes in the
fair value are effective are deferred through Other Comprehensive Income (OCI). The amounts
deferred in OCI are recognized when the forecasted delivery occurs. There is no direct
cash cost associated with a rollover, rather it is the strike price (negotiated to include
a usually insignificant cost component) for the contract, that increases.At the inception of the transaction, the Company documents the relationship between hedging
instruments and hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. This process includes linking all derivatives
designated as hedges to specific forecast gold sales. The Company also documents its
assessment, both at the hedge inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes in fair
values or cash flows of hedged items.
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In assessing the fair value of non-traded derivatives and other financial instruments, the
Company obtains a valuation from an independent external party.Forward contract prices are not directly used in the Companys reserve determination.(xvii)
    
    Share capitalOrdinary shares are classified as equity. Incremental external costs directly attributable
to the issue of new shares, other than in connection with a business combination, are shown
in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred
directly in connection with a business combination are included in the cost of acquisition.
Where the Company or its subsidiaries purchases the Companys equity share capital, the
consideration paid including any attributable incremental external costs net of income
taxes is deducted from total shareholders equity as treasury shares until they are
cancelled. Where such shares are subsequently sold or reissued, any consideration received
is included in shareholders equity.(xviii)
    
    Share based paymentsThe Group makes equity-settled share-based payments only. There are two types of
share-based payments provided by the Group:
    
    The Executive Share Plan, which provides benefits to the executives of the company; and
    
    Share issues made to local landowners through Mineral Resources Lihir Limited (MRL).The Group provides benefits to employees in the form of share-based payments, whereby
employees render services in exchange for rights over shares (equity-settled transactions).The costs of the equity-settled transactions outlined above are measured by reference to
the fair value of the equity instrument at the date at which they are granted.The fair value of share rights granted under the Executive Share Plan is recognized as an
employee benefit expense with a corresponding increase in equity. The fair value is
measured at grant date and recognized over the vesting period.The fair value at grant date is independently determined using a Monte Carlo option pricing
model that takes into account the term of the share right, the exercise price, the share
price at grant date and expected price volatility of the underlying share, the expected
dividend yield and the risk-free interest rate for the term of the share right.The fair value of the share rights granted is adjusted to reflect market vesting
conditions, but excludes the impact of non-market vesting conditions (net present value of
the company, individual performance hurdles). Non-market vesting conditions are included
in assumptions about the number of share rights that are expected to become exercisable.
At each balance date, the entity revises its estimate of the number of share rights that
are expected to become exercisable. The employee benefit expense recognized each period
takes into account the most recent estimate.The amount recognizable as an expense is adjusted to reflect the actual number of equity
instruments that vest, except where forfeiture is due to market related conditions.The Group also issues shares under the 2003 Heads of Agreement (Agreement) between the
Company and MRL (representing the equity held for the local landowners). These shares are
to be potentially issued to MRL and relate to payment for the uninterrupted right to mine
under the mining lease. An alternative additional local royalty arrangement is also being
considered.The fair value of any shares issued to MRL under the Agreement is recognised as an
intangible asset with a corresponding increase in equity. The fair value is measured at
the date the liability to issue the shares arose. The asset is amortised over the life of
mine reserves using a units-of-production method.(xix)
    
    Revenue recognitionThe Companys revenue comes from the sale of refined gold in the international market.
Generally, gold doré bars are sent to a refiner to produce bullion that meets the required
market standard of 99.95% pure gold. Under the terms of refining agreements, the gold doré
bars are refined for a fee, and the Companys share of the refined gold is credited to its
bullion account or delivered to buyers.Sales are recognised as revenue only when there has been a passing of title and
risk to the customer, and:(a)
    
    the product is in a form suitable for delivery and no further
processing is required by, or on behalf of, the Company;(b)
    
    the quantity and quality (grade) of the product can be determined
with reasonable accuracy;(c)
    
    the product has been dispatched to the customer and is no longer
under the physical control of the Company (or property in the product has earlier
passed to the customer);(d)
    
    the selling price can be measured reliably;
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(e)
    
    it is probable that the economic benefits associated with the
transaction will flow to the Company; and(f)
    
    the costs incurred or to be incurred in respect of the transaction
can be measured reliably.In the case of the Companys sales of gold bullion using forward contracts, the Company
accounts for these as cash flow hedges in accordance with IAS 39. For spot gold
transactions, sales are recorded based on the contract terms agreed with the customer
before delivery of the refined gold bullion. The terms are fixed and determinable in that
there are no provisional terms, do not contain any embedded derivatives, and specifically
include the agreed trade date, the agreed ounces of gold to be sold on that date, the
agreed price per ounce and the agreed settlement date. All these terms are determinable
before delivery of the refined gold to the customer. Revenue is not recognized on these
contracts until all of the above conditions for revenue recognition are met. To the extent
that any of these conditions are not met, the gold bullion remains in inventory.Aside from contracts transacted as deliveries into hedge commitments the Company has 4
counterparties with whom it normally transacts spot sales. Generally the terms of each
individual sale is similar in that title passes when the gold is delivered to the
counterparty and the Company no longer has possession of the gold. Settlement of the sale
is normally effected on the day of delivery unless separately agreed arrangements are made
for a specific sale. Contractual arrangements for all of the Companys sales may vary
depending on the counterparty, but all contracts specify the agreed sale price, the
delivery date and delivery requirements.The Company does not use any estimates nor apply any assumptions in recognising revenue,
nor does the Companys sales arrangements contain any provisional pricing.(xx)
    
    Interest IncomeInterest income is recognised on a time proportion basis using the effective interest rate method.(xxi)
    
    Cash and cash equivalentsFor the purpose of the statement of cash flows and balance sheet, cash includes:(a)
    
    cash on hand and at call deposits with banks or financial institutions, net
of bank overdrafts; and(b)
    
    investments in money market instruments with less than 90 days to maturity
from the date of acquisition.(xxii)
    
    Employee benefitsThe amounts expected to be paid to employees for their pro-rata entitlement to annual and
sick leave are accrued annually and measured at the amounts expected to be paid when the
liabilities are settled having regard to period of service and statutory
obligations. Long-service leave entitlements are determined in accordance with the
requirements for other long-term employee benefits.The Company contributes a portion of the employees salary package to defined contribution
plans for its employees of the employees individual selection for expatriate employees and
the PNG NASFUND for PNG national employees. A defined contribution plan is a pension plan
under which the Company pays fixed contributions into a separate entity (a fund) and will
have no legal or constructive obligations to pay further contributions if the fund does not
hold sufficient assets to pay all employees benefits relating to employee service in the
current and prior periods. For defined contribution plans, the Company pays contributions
to a privately administered pension plan on a mandatory basis. Once the contributions have
been paid, the Company has no further payment obligations. The regular contributions
constitute net periodic costs for the year in which they are due and as such are included
in staff costs.(xxiii)
    
    ProvisionsProvisions are recognised when the Company has a present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required to
settle the obligation, and a reliable estimate of the amount can be made.(xxiv)
    
    DividendsDividends are recorded in the Companys financial statements in the period in which they
are approved by the Companys directors.(xxv)
    
    Income taxTax effect accounting procedures are followed using the liability method for all temporary
differences arising between the tax bases of assets and liabilities and their carrying
values for financial reporting purposes. Income tax on temporary differences is set aside
to the deferred tax liability and deferred tax asset accounts at current enacted tax rates.
Deferred tax assets relating to deductible temporary differences and tax losses are only
carried forward as an asset to the extent that it is probable that future taxable profit
will be available against which the deductible temporary differences and tax losses can be
utilised.
 - F-12 -




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##### Table of Contents



(xxvi)
    
    Foreign currency translationAs the Companys revenue is denominated in US dollars and the majority of its fixed asset
purchases and costs are in US dollars or currencies related to US dollars, the Companys
directors have adopted the US dollar as the Companys measurement and reporting currency.Foreign currency transactions (other than US dollars) are initially translated into US
currency at the rate of exchange at the date of the transaction. At the date of the
balance sheet, amounts payable and receivable in foreign currencies are translated to US
dollars at rates of exchange current at that date. Resulting exchange differences are
brought to account in determining the profit or loss for the year.Where a foreign operation has a functional currency other than US dollars, the results and
financial position of the foreign operation are translated as follows:
 (a)
    
    assets and liabilities are translated at the closing rate at the date of the
balance sheet;(b)
    
    income and expenses are translated at exchange rates at the date of the
transactions;(c)
    
    all resulting exchange differences are recognized as a separate component of
equity.
 (xxvii)
    
    Segment reportingA business segment is a group of assets and operations engaged in providing products or
services that are subject to risks and returns that are different to those of other
business segments.A geographical segment is engaged in providing products or services within a particular
economic environment and is subject to risks and returns that are different from those of
segments operating in other economic environments. Within the geographical segment risks
associated with sales revenues are different from those associated with assets and
liabilities.(xxviii)
    
    Comparative figuresWhere necessary, comparative figures have been adjusted to conform to changes in
presentation in the current year.(xxix)
    
    Rounding of amountsThe Financial Statements have been rounded to the nearest thousand dollars.(xxx)
    
    Significant risks and uncertaintiesThe Lihir mine is subject to the provisions of the PNG Mining Act 1992 which
governs the granting of mining rights and the conditions upon which those rights may
be terminated. In particular, the Company is party to a mining development contract,
dated March 17, 1995 (the Mining Development Contract) with the PNG Government, which
sets forth the terms upon which the Company may exercise its rights under the Special
Mining Lease which governs the Lihir mine. Under certain limited circumstances, the
PNG Government may terminate the Mining Development Contract and therefore, the
Special Mining Lease. Any such termination would prohibit the continued operation of
the Lihir mine.(xxxi)
    
    Critical accounting estimates and judgmentsThe preparation of Financial Statements in accordance with International Financial
Reporting Standards requires management to make estimates and assumptions concerning the
future that affect the amounts reported in the financial statements and accompanying notes.
Estimates and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. Actual results may differ from those estimates.The most significant estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next
financial year relate to the recoverability of long-lived assets and non-current ore
stockpiles, the provision for restoration and rehabilitation obligations and the
recoverability of deferred tax assets. The resulting accounting estimates will, by
definition, seldom equal the related actual results. Management believes the assumptions
that they have adopted are reasonable and supportable.Key estimates and assumptions made in the preparation of these financial statements are
described below:Recoverability of long-lived assets

As set out in note 1 (x) certain assumptions are required to be made in order to assess the
recoverability of long-lived assets. Key assumptions include the future price of gold,
future cash flows, an estimated discount rate and estimates of ore reserves. A 10%
increase or decrease to the long-term gold price used of $500 may impact the carrying value
of long-lived assets should there not be an expected similar decrease in the costs of
inputs to the process, either through a reduction in input prices or management corrective
action. An increase in the discount rate to 8% may have a similar effect on the carrying
value of long-lived assets. In addition, cash flows are projected over the life of mine,
which is based on proved and probable ore reserves. Estimates of ore reserves in
themselves are dependent on various assumptions, in addition to those described above,
including gold cut-off grades. Changes in these estimates could materially impact on ore
reserves, and could therefore affect estimates of future cash flows used in the assessment
of recoverable amount, estimates of the life of mine and depreciation and amortisation.
 - F-13 -




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##### Table of Contents



Recoverability of non-current ore stockpiles

As set out in note 1 (ix) and note 10 certain assumptions are required to be made in order
to assess the recoverability of non-current ore stockpiles. Key assumptions include the
estimated recoverable ounces of gold available for future processing, estimated selling
price of gold, future costs of completion and selling costs. A
10% decrease in the spot price of gold, or to the future cost to complete, will not have
any effect on the carrying value of non-current ore stockpiles.Provision for restoration and rehabilitation obligations

As set out in note 1 (xi) and note 17(c) certain assumptions are required to be made in
determining the amount the Company is expected to incur to settle its obligations in
relation to restoration and rehabilitation of the mine site. Key assumptions include the
amount and timing of future cash flow estimates. A 10% increase to cost assumptions will
result in a $1.1 million increase in the liability and in the carrying value of assets. An
increase in the discount rate to 7.05% will result in a $1.9 million decrease in the
liability and in the carrying value of assets.Recoverability of deferred tax assets

See note 1 (xxv) and note 9 for key assumptions.As noted above, judgments are made in designing and applying the Companys accounting
policies, including the above policies and the policy for deferred mining costs, described
in note 1 (vi). Other than these items and the disclosures made elsewhere in these
financial statements, there were no other items of critical judgment that warrant separate
disclosure. NOTE 2: CHANGES IN ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS
   (i)

    In
August 2005, the International Accounting Standards Board
(IASB)
issued  International
Financial Reporting Standard (IFRS) 7 Financial Instruments: Disclosures. IFRS 7 revises and
enhances IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions
and IAS 32 Financial Instruments; Disclosures and
Presentation. IFRS 7 is applicable to annual
periods beginning on or after January 1, 2007. The group has not
elected to early adopt IFRS 7.(ii)

In November 2006, the IASB issued
IFRS 8 Operating Segments. IFRS 8 replaces IAS 14
Segment Reporting and aligns
segment reporting with the requirements of Statement of Financial
Accounting Standard (SFAS) 131. IFRS 8 is applicable to annual periods
beginning on or after January 1, 2009. The group has not elected to early adopt IFRS 8. NOTE 3: SPECIAL MINING LEASE
  NOTE 4: REQUIREMENTS REGARDING CASH RESERVES
   NOTE 5: DIVIDEND RESTRICTIONS
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##### Table of Contents




    
    compliance with the 1998 World Bank Environmental Health and Safety Guidelines;
    
    providing the Facility Agent and the Independent Engineer each year with the annual life of mine
plan and a certificate detailing the debt service cover ratio and the loan life cover ratio for the
relevant period; and
    
    a restriction on committing to forward sales or derivative hedging instruments which would create a
commitment of more than (i) 10% of its proven and probable reserves, and (ii) 80% of its annual exposure
to foreign exchange and interest rate market risks.
   - F-15 -




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##### Table of Contents



NOTE 6: OPERATING PROFIT
 2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000Operating profit before taxation has been
determined after crediting / (charging):SALES AND OTHER REVENUEGold sales at spot
    
    
    384,363
    
    
    
    263,919
    
    
    
    245,397Realisation of hedging instruments
    
    
    (59,486
    )
    
    
    (25,233
    )
    
    
    (6,764
    )Gold lease rate fees
    
    
    2,765
    
    
    
    5,016
    
    
    
    4,595Fair value losses
    
    
    (1,682
    )
    
    
    (5,390
    )
    
    
    8,608Realisation of deferred hedging income
    
    
    661
    
    
    
    661
    
    
    
    661Realisation of deferred hedging costs
    
    
    (17,794
    )
    
    
    (14,147
    )
    
    
    (17,829
    )Other revenue
    
    
    1,627
    
    
    
    45
    
    
    
    Total revenue
    
    
    310,454
    
    
    
    224,871
    
    
    
    234,668OPERATING EXPENSESRefining and related costs
    
    
    (928
    )
    
    
    (751
    )
    
    
    (780
    )Royalties on sales
    
    
    (6,356
    )
    
    
    (4,862
    )
    
    
    (4,864
    )Management fees
    
    
    
    
    
    
    (1,125
    )
    
    
    (1,500
    )Operating consumables
    
    
    (124,087
    )
    
    
    (108,914
    )
    
    
    (103,542
    )Contracted services
    
    
    (53,953
    )
    
    
    (45,944
    )
    
    
    (43,729
    )Staff costs
    
    
    (42,350
    )
    
    
    (33,523
    )
    
    
    (27,561
    )Mining levy
    
    
    (3,020
    )
    
    
    (6,389
    )
    
    
    (8,461
    )Insurance
    
    
    (6,297
    )
    
    
    (4,744
    )
    
    
    (5,221
    )Air travel
    
    
    (4,979
    )
    
    
    (4,896
    )
    
    
    (4,419
    )Operating lease rentals
    
    
    (1,387
    )
    
    
    (687
    )
    
    
    (2,015
    )Consultants
    
    
    (7,209
    )
    
    
    (5,262
    )
    
    
    (3,883
    )Donations and community assistance
    
    
    (8,257
    )
    
    
    (5,370
    )
    
    
    (3,636
    )Net foreign exchange gains / (losses)
    
    
    (1,212
    )
    
    
    1,358
    
    
    
    (5,900
    )Provisions for stores stock obsolescence
    
    
    (817
    )
    
    
    (982
    )
    
    
    (963
    )Provision for doubtful debts
    
    
    (366
    )
    
    
    (354
    )
    
    
    (389
    )Deferred mining costs
    
    
    56,349
    
    
    
    25,048
    
    
    
    37,865Costs deferred and transferred to inventories
    
    
    19,395
    
    
    
    42,128
    
    
    
    3,557Inventory write-off: Economic grade stockpile
    
    
    
    
    
    
    (2,920
    )
    
    
    Impairment reversal: Mine properties and
deferred mining costs
    
    
    
    
    
    
    
    
    
    
    205,723Impairment reversal/(charge) Economic grade
stockpile
    
    
    
    
    
    
    
    
    
    
    90,200Profit/(loss) on disposal of assets
    
    
    61
    
    
    
    (2,492
    )
    
    
    Other expenses
    
    
    (6,835
    )
    
    
    (10,329
    )
    
    
    (9,138
    )Depreciation and amortisation mine properties
    
    
    (37,444
    )
    
    
    (35,757
    )
    
    
    (32,929
    )Total operating expenses
    
    
    (229,692
    )
    
    
    (206,767
    )
    
    
    78,415FINANCE COSTSInterest expense on gold loan
    
    
    (1,526
    )
    
    
    (438
    )
    
    
    3,512Non-cash interest expense on rehabilitation
    
    
    (671
    )
    
    
    (608
    )
    
    
    Other finance costs
    
    
    (4,032
    )
    
    
    (2,542
    )
    
    
    (2,110
    )Total finance costs
    
    
    (6,229
    )
    
    
    (3,588
    )
    
    
    1,402
 - F-16 -




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NOTE 7: CASH AND CASH EQUIVALENTS
 2006
    
    
    2005$ 000
    
    
    $ 000Cash at bank and on hand
    
    
    21,408
    
    
    
    2,596Short term deposits with financial institutions
    
    
    25,624
    
    
    
    125,24047,032
    
    
    
    127,836
  NOTE 8: NET CASH FLOW FROM OPERATING ACTIVITIES
 2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000Reconciliation of cash flow from operating
activities to operating profit after taxOperating profit after tax
    
    
    53,837
    
    
    
    9,788
    
    
    
    329,221Add back non-cash items:Depreciation and amortization
    
    
    37,444
    
    
    
    35,757
    
    
    
    32,929Fair value losses
    
    
    1,682
    
    
    
    5,390
    
    
    
    (8,608
    )Impairment reversal  mine properties and
deferred mining costs
    
    
    
    
    
    
    
    
    
    
    (205,723
    )Impairment (reversal)/charge  economic grade
stockpiles
    
    
    
    
    
    
    
    
    
    
    (90,200
    )Amortisation of deferred hedging income
    
    
    (661
    )
    
    
    (661
    )
    
    
    (661
    )Amortisation of deferred hedging costs
    
    
    17,795
    
    
    
    14,147
    
    
    
    17,829Provision for doubtful debts
    
    
    366
    
    
    
    354
    
    
    
    389(Profit)/loss on disposal of assets
    
    
    (61
    )
    
    
    2,492
    
    
    
    (49
    )Increase in deferred mining non-cash
    
    
    (6,668
    )
    
    
    (3,297
    )
    
    
    (3,115
    )Change in operating assets and liabilities:Increase/(decrease) in provision for income
taxes payable
    
    
    340
    
    
    
    
    
    
    
    Increase/(decrease) in provision for deferred
income tax
    
    
    21,792
    
    
    
    5,949
    
    
    
    (14,736
    )(Increase)/decrease in debtors and prepayments
    
    
    131
    
    
    
    689
    
    
    
    1,187Increase in inventories
    
    
    (19,819
    )
    
    
    (46,762
    )
    
    
    (3,236
    )Increase in deferred mining costs cash
    
    
    (49,681
    )
    
    
    (21,751
    )
    
    
    (34,750
    )Increase/(decrease) in creditors
    
    
    (722
    )
    
    
    5,029
    
    
    
    8,504Increase in provisions
    
    
    2,915
    
    
    
    2,418
    
    
    
    1,370Net cash flow from operating activities
    
    
    58,690
    
    
    
    9,542
    
    
    
    30,351
 - F-17 -




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##### Table of Contents



NOTE 9: INCOME TAX
  2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000INCOME TAX EXPENSECurrent tax
    
    
    311
    
    
    
    1,295
    
    
    
    (111,412
    )Under / (over) provided in prior years
    
    
    29
    
    
    
    
    
    
    
    340
    
    
    
    1,295
    
    
    
    (111,412
    )Deferred tax
    
    
    23,327
    
    
    
    4,654
    
    
    
    96,676Under / (over) provided in prior years
    
    
    (1,535
    )
    
    
    
    
    
    
    21,792
    
    
    
    4,654
    
    
    
    96,676Total income tax expense
    
    
    22,132
    
    
    
    5,949
    
    
    
    (14,736
    )
  Profit before tax
    
    
    75,969
    
    
    
    15,737
    
    
    
    314,485Prima facie income tax expense on operating profit
at 30%
    
    
    22,791
    
    
    
    4,721
    
    
    
    94,345Tax effect of amounts which are not deductible
(taxable) in calculating taxable income- Expenses not deductible for tax purposes
    
    
    922
    
    
    
    8
    
    
    
    2,391- Section 72A double deductions
    
    
    (75
    )
    
    
    (75
    )
    
    
    (60
    )23,638
    
    
    
    4,654
    
    
    
    96,676Recognition of previously unrecognized deferred tax
asset
    
    
    
    
    
    
    
    
    
    
    (111,412
    )Under (over) provided in prior years
    
    
    (1,506
    )
    
    
    1,295
    
    
    
    Tax expense / (benefit)
    
    
    22,132
    
    
    
    5,949
    
    
    
    (14,736
    )
 2006
    
    
    2005$ 000
    
    
    $ 000DEFERRED INCOME TAXDeferred tax assets:- Deferred tax asset to be recovered within 12 months
    
    
    20,658
    
    
    
    14,268- Deferred tax asset to be recovered after more than
12 months
    
    
    152,476
    
    
    
    138,580173,134
    
    
    
    152,848Deferred tax liabilities:- Deferred tax liabilities to be recovered within 12
months
    
    
    (2,581
    )
    
    
    (6,538
    )- Deferred tax liabilities to be recovered after
more than 12 months
    
    
    (84,327
    )
    
    
    (58,571
    )(86,908
    )
    
    
    (65,109
    )Balance at beginning of year
    
    
    87,739
    
    
    
    84,812Credited / (charged) to the income statement
    
    
    (21,792
    )
    
    
    (5,949
    )Tax charged to equity
    
    
    20,279
    
    
    
    8,876Balance at end of year
    
    
    86,226
    
    
    
    87,739
 - F-18 -




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##### Table of Contents



Movements in deferred tax assets and deferred tax liabilities:
 ProvisionsDeferred tax assets:
    
    Inventory
    
    
    of assets
    
    
    Derivatives
    
    
    Tax losses
    
    
    Other
    
    
    TotalAt January 1 2006
    
    
    1,590
    
    
    
    6,185
    
    
    
    78,952
    
    
    
    65,613
    
    
    
    508
    
    
    
    152,848Credited / (charged) to the
income statement
    
    
    (1,590
    )
    
    
    898
    
    
    
    505
    
    
    
    231
    
    
    
    (159
    )
    
    
    (115
    )Credited / (charged) to equity
    
    
    
    
    
    
    7
    
    
    
    20,385
    
    
    
    9
    
    
    
    
    
    
    
    20,401At December 31 2006
    
    
    
    
    
    
    7,090
    
    
    
    99,842
    
    
    
    65,853
    
    
    
    349
    
    
    
    173,134
 Acceleratedtax
    
    
    Consumable
    
    
    Deferred
    
    
    PrepaidDeferred tax liabilities:
    
    depreciation
    
    
    stores
    
    
    mining
    
    
    insurance
    
    
    Other
    
    
    TotalAt January 1 2006
    
    
    (30,976
    )
    
    
    (6,414
    )
    
    
    (27,594
    )
    
    
    (125
    )
    
    
    
    
    
    
    (65,109
    )Charged/(credited) to the
income statement
    
    
    (8,791
    )
    
    
    4,003
    
    
    
    (16,905
    )
    
    
    (46
    )
    
    
    62
    
    
    
    (21,677
    )(Credited)/charged to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122
    )
    
    
    (122
    )At December 31 2006
    
    
    (39,767
    )
    
    
    (2,411
    )
    
    
    (44,499
    )
    
    
    (171
    )
    
    
    (60
    )
    
    
    (86,908
    )
  NOTE 10: DERIVATIVE FINANCIAL INSTRUMENTS
 2006
    
    
    2005
    
    
    2005Derivative financial instruments
    
    $ 000
    
    
    $ 000
    
    
    $ 000Current assets- Forward contracts
    
    
    269
    
    
    
    543
    
    
    
    298- Put Options
    
    
    
    
    
    
    
    
    
    
    175269
    
    
    
    543
    
    
    
    473Non-current assets- Forward contracts
    
    
    2,419
    
    
    
    4,236
    
    
    
    19,3821,7512,419
    
    
    
    4,236
    
    
    
    21,133Current liabilities- Forward contracts
    
    
    35,984
    
    
    
    36,531
    
    
    
    40,915- Calls options sold
    
    
    25,553
    
    
    
    4,262
    
    
    
    10,88461,537
    
    
    
    40,793
    
    
    
    51,799Non-current liabilities- Forward contracts
    
    
    251,745
    
    
    
    192,224
    
    
    
    179,615- Call options sold
    
    
    22,209
    
    
    
    34,933
    
    
    
    23,777273,954
    
    
    
    227,157
    
    
    
    203,392
 - F-19 -




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##### Table of Contents



Forward Sales
    
    Put Options Bought
    
    Call Options SoldOunces
    
    Price
    
    Ounces
    
    Price
    
    Ounces
    
    Price0-3 months
    
    47,500
    
    $327.56
    
    19,000
    
    $315.00
    
    19,000
    
    $307.003-6 months
    
    10,000
    
    $339.40
    
    19,000
    
    $315.00
    
    19,000
    
    $307.006-9 months
    
    15,000
    
    $326.40
    
    19,000
    
    $315.00
    
    19,000
    
    $307.009-12 months
    
    42,500
    
    $333.20
    
    19,000
    
    $315.00
    
    19,000
    
    $307.002008
    
    145,000
    
    $327.12
    
    
    
    $0.00
    
    
    
    $0.002009(1)
    
    240,000
    
    $371.67
    
    
    
    $0.00
    
    
    
    $0.002010(1)
    
    240,000
    
    $371.67
    
    
    
    $0.00
    
    
    
    $0.002011(1)
    
    120,000
    
    $371.67
    
    13,000
    
    $375.00
    
    13,000
    
    $375.002012
    
    
    
    $0.00
    
    26,000
    
    $375.00
    
    26,000
    
    $375.002013
    
    
    
    $0.00
    
    26,000
    
    $375.00
    
    26,000
    
    $375.00860,000
    
    $358.62
    
    141,000
    
    $342.66
    
    141,000
    
    $338.35
 
 (1)
    
    The gross price for the forwards in these years is shown. The price net of fees is $350.00.         - F-20 -




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000Forward contracts
    
    
    (63,153
    )
    
    
    (53,476
    )
    
    
    (40,183
    )Deferred hedging gains
    
    
    1,930
    
    
    
    1,965
    
    
    
    6,117Deferred taxation
    
    
    17,876
    
    
    
    12,075
    
    
    
    15,682(43,347
    )
    
    
    (39,436
    )
    
    
    (18,384
    )
 NOTE 11: INVENTORIES
 2006
    
    
    2005$ 000
    
    
    $ 000CURRENTStores
    
    
    47,636
    
    
    
    43,567Less: Provision for obsolescence
    
    
    (6,116
    )
    
    
    (5,299
    )41,520
    
    
    
    38,268Production work in progress
    
    
    2,094
    
    
    
    2,824Finished goods
    
    
    4,804
    
    
    
    4,584Ore stockpiles
    
    
    26,877
    
    
    
    36,03675,295
    
    
    
    81,712NON-CURRENTOre stockpiles
    
    
    141,730
    
    
    
    115,494141,730
    
    
    
    115,494
    - F-21 -




---



##### Table of Contents



NOTE 12: RECEIVABLES
 2006
    
    
    2005$ 000
    
    
    $ 000CURRENTOther amounts receivable from third parties
    
    
    7,586
    
    
    
    7,926Less: Provision for doubtful debts
    
    
    (2,945
    )
    
    
    (2,579
    )4,641
    
    
    
    5,347NON-CURRENTOther amounts receivable from third parties
    
    
    400
    
    
    
    476400
    
    
    
    476
   NOTE 13: DEFERRED MINING COSTS
 2006
    
    
    2005$ 000
    
    
    $ 000NON-CURRENTDeferred mining costs
    
    
    148,330
    
    
    
    91,981148,330
    
    
    
    91,981Tonnes deferred (000s tonnes)
    
    
    72,089
    
    
    
    46,041Strip ratio
    
    
    2.91
    
    
    
    2.91
 The unit cost rate for the deferred tonnes is $2.06 (2005: $2.00).
 Movements:
 2006
    
    
    2005$ 000
    
    
    $ 000Carrying amount at start of year
    
    
    91,981
    
    
    
    66,933- Overburden costs attributed to ore mined during
the period (cash)
    
    
    (42,227
    )
    
    
    (50,782
    )- Overburden costs attributed to ore mined during
the period (non-cash)
    
    
    (5,667
    )
    
    
    (7,698
    )- Total costs of material mined during the period
(cash)
    
    
    91,908
    
    
    
    72,533- Total costs of material mined during the period
(non-cash)
    
    
    12,335
    
    
    
    10,995Carrying amount at end of year
    
    
    148,330
    
    
    
    91,981
 - F-22 -




---



##### Table of Contents



NOTE 14: MINE PROPERTIES
 2006
    
    
    2005$ 000
    
    
    $ 000CAPITAL WORKS IN PROGRESSCost brought forward
    
    
    66,895
    
    
    
    65,966Additions
    
    
    180,711
    
    
    
    99,492Transfers
    
    
    (42,587
    )
    
    
    (98,563
    )Costs carried forward
    
    
    205,019
    
    
    
    66,895PLANT AND EQUIPMENTCost brought forward
    
    
    670,024
    
    
    
    620,652Transfers from capital works in progress
    
    
    26,747
    
    
    
    55,437Additions
    
    
    7,003
    
    
    
    Disposals
    
    
    (2,544
    )
    
    
    (6,065
    )Cost carried forward
    
    
    701,230
    
    
    
    670,024Depreciation brought forward
    
    
    (225,568
    )
    
    
    (202,284
    )Charge for the year
    
    
    (24,463
    )
    
    
    (27,005
    )Disposals
    
    
    2,513
    
    
    
    3,721Depreciation carried forward
    
    
    (247,518
    )
    
    
    (225,568
    )Net book value
    
    
    453,712
    
    
    
    444,456LAND AND BUILDINGSCost brought forward
    
    
    117,697
    
    
    
    80,132Transfers from capital works in progress
    
    
    1,107
    
    
    
    37,565Cost carried forward
    
    
    118,804
    
    
    
    117,697Depreciation brought forward
    
    
    (25,280
    )
    
    
    (22,824
    )Charge for the year
    
    
    (3,075
    )
    
    
    (2,456
    )Depreciation carried forward
    
    
    (28,355
    )
    
    
    (25,280
    )Net book value
    
    
    90,449
    
    
    
    92,417DEFERRED EXPENDITURECost brought forward
    
    
    277,342
    
    
    
    271,781Transfers from capital works in progress
    
    
    14,733
    
    
    
    5,561Disposals
    
    
    (1,182
    )
    
    
    Cost carried forward
    
    
    290,893
    
    
    
    277,342Depreciation brought forward
    
    
    (84,595
    )
    
    
    (78,346
    )Charge for the year
    
    
    (9,773
    )
    
    
    (6,249
    )Disposals
    
    
    1,182
    
    
    
    Depreciation carried forward
    
    
    (93,186
    )
    
    
    (84,595
    )Net book value
    
    
    197,707
    
    
    
    192,747REHABILITATIONCost brought forward
    
    
    6,207
    
    
    
    6,242Additions / (deductions)
    
    
    616
    
    
    
    (35
    )Cost carried forward
    
    
    6,823
    
    
    
    6,207
 - F-23 -




---



##### Table of Contents



2006
    
    
    2005$ 000
    
    
    $ 000Amortisation brought forward
    
    
    (2,376
    )
    
    
    (2,329
    )Charge for the year
    
    
    (133
    )
    
    
    (47
    )Amortisation carried forward
    
    
    (2,509
    )
    
    
    (2,376
    )Net book value
    
    
    4,314
    
    
    
    3,831Total mine properties
    
    
    951,201
    
    
    
    800,346
  NOTE 15: AVAILABLE-FOR-SALE FINANCIAL ASSETS
   2006
    
    
    2005$ 000
    
    
    $ 000Other listed securities:Equity securities
    
    
    33,001
    
    
    
    33,001
    
    
    
    
 NOTE 16: ACCOUNTS PAYABLE
 2006
    
    
    2005$ 000
    
    
    $ 000CURRENTTrade creditors and accruals
    
    
    46,140
    
    
    
    33,950Amounts payable to related parties
    
    
    
    
    
    
    476Other payables
    
    
    427
    
    
    
    26546,567
    
    
    
    34,691
 NOTE 17: PROVISIONS
 2006
    
    
    2005$ 000
    
    
    $ 000CURRENTEmployee provisions
    
    
    6,427
    
    
    
    5,3496,427
    
    
    
    5,349NON CURRENTEmployee provisions
    
    
    3,164
    
    
    
    2,616Rehabilitation provision
    
    
    11,097
    
    
    
    9,80814,261
    
    
    
    12,424
 - F-24 -




---



##### Table of Contents



2006
    
    
    2005$ 000
    
    
    $ 000Employee provisions currentAnnual leave
    
    
    2,883
    
    
    
    2,427Sick leave
    
    
    625
    
    
    
    559Service bonus
    
    
    1,267
    
    
    
    2,092Short term incentives
    
    
    1,207
    
    
    
    193Long service leave current
    
    
    445
    
    
    
    786,427
    
    
    
    5,349
    2006
    
    
    2005$ 000
    
    
    $ 000Employee provisions non-currentLong service leave
    
    
    2,188
    
    
    
    2,192Service bonus
    
    
    976
    
    
    
    4243,164
    
    
    
    2,616
  2006
    
    
    2005$ 000
    
    
    $ 000Rehabilitation provisionCarrying amount at start of year
    
    
    9,808
    
    
    
    9,235- additional / (reduction in) provision for changes in
estimated cash outflows
    
    
    414
    
    
    
    (1,868
    )- additional provision due to ground disturbance
    
    
    204
    
    
    
    451- life of mine variation
    
    
    
    
    
    
    1,382- interest charge
    
    
    671
    
    
    
    608Carrying amount at end of year
    
    
    11,097
    
    
    
    9,808
 NOTE 18: BORROWINGS AND FINANCE FACILITIES
 2006
    
    
    2005$ 000
    
    
    $ 000CURRENTProject financing facility
    
    
    26,940
    
    
    
    Ballarat Goldfields facility
    
    
    35,595
    
    
    
    62,535
    
    
    
    NON CURRENTProject financing facility
    
    
    218,580
    
    
    
    215,520218,580
    
    
    
    215,520
 (a) Project Financing Facility
  - F-25 -




---



##### Table of Contents



Delivery (in ounces)
    
    First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth Quarter
    
    Full Year2007
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    60,0002008
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    15,000
    
    
    
    25,000
    
    
    
    100,0002009
    
    
    
    50,000
    
    
    
    35,000
    
    
    
    30,000
    
    
    
    15,000
    
    
    
    130,0002010
    
    
    
    40,000
    
    
    
    25,000
    
    
    
    15,000
    
    
    
    20,000
    
    
    
    100,0002011
    
    
    
    40,000
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    90,000
    (b) Ballarat Goldfields Facility
  Tranche A)
    
    A$45 million to finance the acquisition of Ballarat Goldfields NL shares under the
Private Placement pursuant to the Share Subscription agreement (note 15) including associated
transaction costs, interest and fees in relation to the facility and any transaction costs
associated with the merger;Tranche B)
    
    an amount of A$5 million to be made available to cover expenses following successful
completion of the merger.
    - F-26 -




---



##### Table of Contents



Ballarat
    
    Ballarat
    
    
    
    
    
    
    
    
    
    Revolving
    
    RevolvingGoldfields
    
    Goldfields
    
    Gold
    
    Gold
    
    Credit
    
    CreditFacility
    
    Facility
    
    Loan
    
    Loan
    
    Facility
    
    Facility
    
    Total
    
    TotalUS$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000Repayment Maturity
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005CurrentLess than one year
    
    
    35,595
    
    
    
    
    
    
    
    26,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,535
    
    
    
    Non-currentBetween one and two years
    
    
    
    
    
    
    
    
    
    
    44,900
    
    
    
    26,940
    
    
    
    
    
    
    
    
    
    
    
    44,900
    
    
    
    26,940Between two and three years
    
    
    
    
    
    
    
    
    
    
    58,370
    
    
    
    44,900
    
    
    
    
    
    
    
    
    
    
    
    58,370
    
    
    
    44,900In excess of three years
    
    
    
    
    
    
    
    
    
    
    85,310
    
    
    
    143,680
    
    
    
    30,000
    
    
    
    
    
    
    
    115,310
    
    
    
    143,600
    
    
    
    
    
    
    
    188,580
    
    
    
    215,520
    
    
    
    30,000
    
    
    
    
    
    
    
    218,580
    
    
    
    215,520Total
    
    
    35,595
    
    
    
    
    
    
    
    215,520
    
    
    
    215,520
    
    
    
    30,000
    
    
    
    
    
    
    
    281,115
    
    
    
    215,520Weighted average interest rate
    
    
    8.1
    %
    
    
    
    
    
    
    2.6
    %
    
    
    2.0
    %
    
    
    7.3
    %
    
    
    
    
    
    
    2.3
    %
    
    
    2.0
    %
 NOTE 19: SHARE CAPITAL
 2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000(a) Issued and paid up capitalOrdinary sharesOpening balance
    
    
    1,027,504
    
    
    
    1,027,504
    
    
    
    1,025,288Shares reclassified as treasury shares(1)
    
    
    (435
    )
    
    
    
    
    
    
    Shares issued
    
    
    
    
    
    
    
    
    
    
    2,286Share issue transaction costs
    
    
    
    
    
    
    
    
    
    
    (70
    )Closing balance
    
    
    1,027,069
    
    
    
    1,027,504
    
    
    
    1,027,504
 2006
    
    
    2005
    
    
    2004Number of shares 000(b) Issued and paid up capitalOpening balance
    
    
    1,284,225
    
    
    
    1,284,225
    
    
    
    1,282,334Shares reclassified as treasury shares
    
    
    (176
    )
    
    
    
    
    
    
    Shares issued
    
    
    
    
    
    
    
    
    
    
    1,891Closing balance
    
    
    1,284,049
    
    
    
    1,284,225
    
    
    
    1,284,225
 (1)
    - F-27 -




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##### Table of Contents



NOTE 20: RESERVES AND RETAINED PROFITS
 2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $000(a) ReservesHedging reserve  cash flow hedges
    
    
    (256,123
    )
    
    
    (225,692
    )
    
    
    (162,153
    )Share based payments reserve
    
    
    5,421
    
    
    
    
    
    
    
    Fair value reserve
    
    
    17
    
    
    
    
    
    
    
    Foreign currency translation reserve
    
    
    (4
    )
    
    
    
    
    
    
    (250,689
    )
    
    
    (225,692
    )
    
    
    (162,153
    )Movements:Hedging reserve  cash flow hedgesBalance January 1
    
    
    (225,692
    )
    
    
    (162,153
    )
    
    
    (206,548
    )Forward contracts
    
    
    (40,563
    )
    
    
    (65,119
    )
    
    
    (38,062
    )Call options sold
    
    
    (9,478
    )
    
    
    (1,593
    )
    
    
    (4,840
    )Deferred hedging gains / (losses)
    
    
    (774
    )
    
    
    (5,703
    )
    
    
    17,221Deferred taxation
    
    
    20,384
    
    
    
    8,876
    
    
    
    70,076Balance December 31
    
    
    (256,123
    )
    
    
    (225,692
    )
    
    
    (162,153
    )Share based payments reserveBalance January 1
    
    
    
    
    
    
    
    
    
    
    Share rights expensed
    
    
    5,543
    
    
    
    
    
    
    
    Deferred taxation
    
    
    (122
    )
    
    
    
    
    
    
    Balance December 31
    
    
    5,421
    
    
    
    
    
    
    
    Fair value reserveBalance January 1
    
    
    
    
    
    
    
    
    
    
    Treasury share mark-market revaluation
    
    
    17
    
    
    
    
    
    
    
    Balance December 31
    
    
    17
    
    
    
    
    
    
    
    Foreign currency translation reserveBalance January 1
    
    
    
    
    
    
    
    
    
    
    Currency translation differences
arising during the year
    
    
    (13
    )
    
    
    
    
    
    
    Deferred taxation
    
    
    9
    
    
    
    
    
    
    
    Balance December 31
    
    
    (4
    )
    
    
    
    
    
    
    (b) Accumulated Profits/(losses)Movements in retained profits / (losses)
were as follows:Balance January 1
    
    
    (18,340
    )
    
    
    (28,128
    )
    
    
    (357,349
    )Net profit for the year
    
    
    53,837
    
    
    
    9,788
    
    
    
    329,221Balance December 31
    
    
    35,497
    
    
    
    (18,340
    )
    
    
    (28,128
    )
 - F-28 -




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##### Table of Contents



NOTE 21: REMUNERATION AND BENEFITS
  2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000Garnaut, Ross
    
    
    210
    
    
    
    122
    
    
    
    121Siaguru, Anthony (deceased April 16 2004)
    
    
    
    
    
    
    
    
    
    
    21Kamit, Winifred
    
    
    70
    
    
    
    44
    
    
    
    Loudon, Geoff
    
    
    70
    
    
    
    44
    
    
    
    45Cassidy, Peter
    
    
    70
    
    
    
    44
    
    
    
    45Swan, Neil (resigned October 1 2005)
    
    
    
    
    
    
    476
    
    
    
    456Arthur Hood (appointed October 1 2005)
    
    
    1,064
    
    
    
    121
    
    
    
    Bruce Brook (appointed December 4 2005)
    
    
    70
    
    
    
    3
    
    
    
    John OReilly (resigned December 31 2006)
    
    
    70
    
    
    
    4
    
    
    
    
    2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000Short-term employee benefits
    
    
    2,227
    
    
    
    2,750
    
    
    
    1,555Post-employment benefits
    
    
    178
    
    
    
    293
    
    
    
    232Termination benefits
    
    
    1,106
    
    
    
    
    
    
    
    Share-based payments
    
    
    885
    
    
    
    
    
    
    
    4,396
    
    
    
    3,043
    
    
    
    1,787
 (c)
    
    The number of employees, not including directors, whose remuneration and benefits exceeded
the equivalent of PNG Kina 100,000 for 2006 fall into the following bands:
 Remuneration and benefit band
    
    Number of employees$
    
    2006
    
    2005
    
    2004$30,001 -   $40,000
    
    
    48
    
    
    
    11
    
    
    
    6$40,001 -   $50,000
    
    
    25
    
    
    
    7
    
    
    
    5$50,001 -   $60,000
    
    
    17
    
    
    
    6
    
    
    
    7$60,001 -   $70,000
    
    
    14
    
    
    
    2
    
    
    
    6$70,001 -   $80,000
    
    
    7
    
    
    
    3
    
    
    
    5$80,001 -   $90,000
    
    
    11
    
    
    
    4
    
    
    
    3$90,001 -   $100,000
    
    
    8
    
    
    
    5
    
    
    
    5$100,001 - $110,000
    
    
    7
    
    
    
    10
    
    
    
    6$110,001 - $120,000
    
    
    10
    
    
    
    4
    
    
    
    7$120,001 - $130,000
    
    
    6
    
    
    
    9
    
    
    
    9$130,001 - $140,000
    
    
    7
    
    
    
    5
    
    
    
    3$140,001 - $150,000
    
    
    5
    
    
    
    9
    
    
    
    1$150,001 - $160,000
    
    
    5
    
    
    
    7
    
    
    
    7$160,001 - $170,000
    
    
    6
    
    
    
    6
    
    
    
    5$170,001 - $180,000
    
    
    6
    
    
    
    7
    
    
    
    3$180,001 - $190,000
    
    
    8
    
    
    
    
    
    
    
    $190,001 - $200,000
    
    
    2
    
    
    
    3
    
    
    
    1
 - F-29 -




---



##### Table of Contents



Remuneration and benefit band (continued)
    
    Number of employees$
    
    2006
    
    2005
    
    2004$200,001 - $210,000
    
    
    1
    
    
    
    3
    
    
    
    $210,001 - $220,000
    
    
    5
    
    
    
    3
    
    
    
    2$220,001 - $230,000
    
    
    
    
    
    
    2
    
    
    
    1$230,001 - $240,000
    
    
    3
    
    
    
    1
    
    
    
    1$240,001 - $250,000
    
    
    1
    
    
    
    1
    
    
    
    1$260,001 - $270,000
    
    
    1
    
    
    
    
    
    
    
    1$270,001 - $280,000
    
    
    1
    
    
    
    
    
    
    
    1$280,001 - $290,000
    
    
    1
    
    
    
    1
    
    
    
    1$320,001 - $330,000
    
    
    1
    
    
    
    
    
    
    
    $390,001 - $400,000
    
    
    
    
    
    
    1
    
    
    
    $450,001 - $460,000
    
    
    1
    
    
    
    
    
    
    
    $470,001 - $480,000
    
    
    
    
    
    
    1
    
    
    
    $700,001 - $710,000
    
    
    1
    
    
    
    
    
    
    
    
 NOTE 22: RETIREMENT BENEFITS
   NOTE 23: AUDITORS REMUNERATION
  2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000(a) Assurance servicesAudit servicesPricewaterhouseCoopers, PNG Firm
    
    
    340
    
    
    
    249
    
    
    
    218PricewaterhouseCoopers, Other Overseas Firms
    
    
    115
    
    
    
    105
    
    
    
    147Total remuneration for audit services
    
    
    455
    
    
    
    354
    
    
    
    365Other assurance servicesPricewaterhouseCoopers, PNG Firm
    
    
    58
    
    
    
    52
    
    
    
    PricewaterhouseCoopers, Other Overseas Firms
    
    
    54
    
    
    
    59
    
    
    
    Total remuneration for other assurance services
    
    
    112
    
    
    
    111
    
    
    
    Total remuneration for assurance services
    
    
    567
    
    
    
    465
    
    
    
    365(b) Taxation servicesPricewaterhouseCoopers
    
    
    79
    
    
    
    129
    
    
    
    27Total remuneration for taxation services
    
    
    79
    
    
    
    129
    
    
    
    27
 - F-30 -




---



##### Table of Contents



NOTE 24: CAPITAL AND LEASING COMMITMENTS
 Operating lease commitments
  2006
    
    
    2005$ 000
    
    
    $ 000Payable- not later than one year
    
    
    971
    
    
    
    356- later than one year but not later than 2 years
    
    
    749
    
    
    
    356- later than two years but not later than 5 years
    
    
    1,302
    
    
    
    546- later than 5 years
    
    
    2,327
    
    
    
    2,4945,349
    
    
    
    3,752
  Capital expenditure commitments
 2006
    
    
    2005$ 000
    
    
    $ 000Capital expenditure commitments contracted for:Payable- not later than one year
    
    
    68,264
    
    
    
    86,28768,264
    
    
    
    86,287
  NOTE 25: CONTINGENT LIABILITIES
  NOTE 26: FINANCIAL RISK MANAGEMENT
       - F-31 -




---



##### Table of Contents



NOTE 27: SEGMENT REPORTING
 Primary Reporting (Business Segments)
  Secondary Reporting (Geographical Segments)
 Acquisition of SegmentSegment Sales Revenue
    
    Segment Assets
    
    Assets
    
    Segment Liabilities$ 000
    

$ 000
    

$ 000
    

$ 0002006
    
    
     2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Papua New Guinea
    
    
    
    
    
    
    
    
    
    
    1,411,486
    
    
    
    1,288,666
    
    
    
    185,913
    
    
    
    99,410
    
    
    
    310,782
    
    
    
    259,806Australia
    
    
    273,464
    
    
    
    175,019
    
    
    
    84,572
    
    
    
    30,740
    
    
    
    34,802
    
    
    
    82
    
    
    
    324,672
    
    
    
    231,853North America
    
    
    12,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Europe
    
    
    25,310
    
    
    
    47,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asia
    
    
    13,823
    
    
    
    16,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,727
    
    
    
    44,275Unallocated
(non-cash deferred
hedging
realisation)
    
    
    (17,134
    )
    
    
    (13,486
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Group
    
    
    307,744
    
    
    
    225,200
    
    
    
    1,496,058
    
    
    
    1,319,406
    
    
    
    220,715
    
    
    
    99,492
    
    
    
    684,181
    
    
    
    535,934
  NOTE 28: RELATED PARTY TRANSACTIONS
      - F-32 -




---



##### Table of Contents



2006
    
    
    2005$ 000
    
    
    $ 000Rio Tinto Plc, until October 10 2005, supplied
management services and bore expenses on behalf of the
Company which were subsequently recharged to the Company- Secondment of management
    
    
    
    
    
    
    995- Technical services
    
    
    
    
    
    
    1,680
    
    
    
    2,675LMC management fee
    
    
    
    
    
    
    1,125Anthony Garnaut, a relative of a director, provided
consulting services to the Company on an arms length
basis.
    
    
    
    
    
    
    18
 NOTE 29: EARNINGS PER SHARE
  2006
    
    
    2005
    
    
    2004$ 000
    
    
    $ 000
    
    
    $ 000Net profit attributable to ordinary shareholders
    
    
    53,837
    
    
    
    9,788
    
    
    
    329,221Weighted average number of ordinary shares
(thousands)
    
    
    1,284,049
    
    
    
    1,284,225
    
    
    
    1,284,082Basic EPS (cents/share)
    
    
    4.2
    
    
    
    0.8
    
    
    
    25.6Diluted number of ordinary shares (thousands)
    
    
    1,284,225
    
    
    
    1,284,225
    
    
    
    1,284,082Diluted EPS (cents/share)
    
    
    4.2
    
    
    
    0.8
    
    
    
    25.6
 NOTE 30: DIVIDENDS PER SHARE
  NOTE 31: INVESTMENTS IN SUBSIDIARIES
 Name of subsidiary
    
    % ownership interest
    
    Country of incorporationNiugini Mining Limited
    
    100%
    
    Papua New GuineaNiugini Mining Australia Pty Ltd
    
    100%
    
    AustraliaLihir Management Company Limited
    
    100%
    
    Papua New GuineaLihir Business Development Limited
    
    100%
    
    Papua New GuineaLihir Services Australia Pty Ltd
    
    100%
    
    AustraliaLihir Australian Holdings Pty Ltd
    
    100%
    
    Australia
     - F-33 -




---



##### Table of Contents



NOTE 32: SHARE BASED PAYMENTS
 Lihir Gold Limited Executive Share Plan
       Per ShareRight
    
    
    
    
    
    
    
    
    
    Number
    
    Number
    
    NumberExercise
    
    Indicative
    
    
    
    
    
    
    
    
    
    Issued
    
    exercised
    
    lapsedDate of
    
    Expiry
    
    Price
    
    value
    
    Hurdle
    
    Number at
    
    during
    
    during
    
    during
    
    Number atGrant
    
    Date
    
    $
    
    $
    
    Conditions
    
    Jan-1-06
    
    Period
    
    period
    
    period
    
    Dec-31-06Aug-06
    
    Sep-15-15
    
    
    0.00
    
    
    
    2.35
    
    
    
    1
    
    
    
    
    
    
    
    45,147
    
    
    
    40,632
    
    
    
    4,515
    
    
    
    Aug-06
    
    Sep-15-15
    
    
    0.00
    
    
    
    2.35
    
    
    
    2
    
    
    
    
    
    
    
    45,147
    
    
    
    
    
    
    
    
    
    
    
    45,147Aug-06
    
    Sep-15-15
    
    
    0.00
    
    
    
    2.21
    
    
    
    3
    
    
    
    
    
    
    
    67,719
    
    
    
    67,719
    
    
    
    
    
    
    
    Aug-06
    
    Sep-15-15
    
    
    0.00
    
    
    
    2.21
    
    
    
    4
    
    
    
    
    
    
    
    67,720
    
    
    
    67,720
    
    
    
    
    
    
    
    Oct-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    2.37
    
    
    
    1,2
    
    
    
    
    
    
    
    8,028
    
    
    
    
    
    
    
    
    
    
    
    8,028Oct-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.69
    
    
    
    3
    
    
    
    
    
    
    
    6,018
    
    
    
    
    
    
    
    
    
    
    
    6,018Oct-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    0.73
    
    
    
    4
    
    
    
    
    
    
    
    6,020
    
    
    
    
    
    
    
    
    
    
    
    6,020Sep-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    2.30
    
    
    
    1,2
    
    
    
    
    
    
    
    178,988
    
    
    
    
    
    
    
    
    
    
    
    178,988Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    2.16
    
    
    
    3
    
    
    
    
    
    
    
    113,343
    
    
    
    
    
    
    
    
    
    
    
    113,343Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.95
    
    
    
    4
    
    
    
    
    
    
    
    113,348
    
    
    
    
    
    
    
    
    
    
    
    113,348Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.05
    
    
    
    3
    
    
    
    
    
    
    
    12,409
    
    
    
    
    
    
    
    
    
    
    
    12,409Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    0.79
    
    
    
    4
    
    
    
    
    
    
    
    16,530
    
    
    
    
    
    
    
    
    
    
    
    16,530Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.19
    
    
    
    3
    
    
    
    
    
    
    
    4,120
    
    
    
    
    
    
    
    
    
    
    
    4,120Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.98
    
    
    
    3
    
    
    
    
    
    
    
    4,364
    
    
    
    
    
    
    
    
    
    
    
    4,364Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.53
    
    
    
    4
    
    
    
    
    
    
    
    4,364
    
    
    
    
    
    
    
    
    
    
    
    4,364Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    2.44
    
    
    
    1,2
    
    
    
    
    
    
    
    54,612
    
    
    
    
    
    
    
    
    
    
    
    54,612Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.32
    
    
    
    3
    
    
    
    
    
    
    
    40,959
    
    
    
    
    
    
    
    
    
    
    
    40,959Dec-06
    
    Dec-31-15
    
    
    0.00
    
    
    
    1.38
    
    
    
    4
    
    
    
    
    
    
    
    40,959
    
    
    
    
    
    
    
    
    
    
    
    40,959
   Weighted average price atDate of grant
    
    Number exercised
    
    
    Exercise date
    
    
    exercise date (i)Aug-06
    
    
    176,071
    
    
    Dec 1 2006
    
    $2.37
 
 i.
    
    Purchased over a 5 day period due to restrictions on the volume that could be traded
on any one day.
 - F-34 -




---



##### Table of Contents



Fair value of share rights granted
    i.
    
    Exercise price: Nilii.
    
    Expected volatility: 43%iii.
    
    Risk-free interest rate: 6.05%iv.
    
    Expected life of right (years): 10 yearsv.
    
    Weighted average share price at grant date: $2.07vi.
    
    Expected dividend yield: 0%
   Expenses arising from share-based payment transactions
  2006
    
    2005$US 000
    
    $US 000Executive share plan
    
        488
    
            
   1.
    
    Individuals are set key performance indicators (KPIs) based around the Companys
performance in developing corporate management and structures in line with Board policies
to raise the long-term value of the Company, including through project and geographic
diversification. The performance condition will be assessed by the Board.2.
    
    This performance condition will be assessed by the Board against changes in the net
present value of the Company. This assessment is to have regard to the amount and timing
of net expected cash flows, as indicated by reserves, costs and other relevant factors.Certain potential sources of change in the companys net present value will not be included
in the assessment of this performance condition as they have been assessed by the Board to
be beyond the individuals control and the control of the management team generally. The
sources for which adjustments are to be made to date are changes in the gold price,
variations in the hedge delivery programme, hydrocarbon pricing (HFO, diesel and
lubricants), inflation and changes in exchange rates between the US dollar and the
Australian dollar or PNG kina.3.
    
    This performance condition will be assessed by the Board by reference to the performance of
the:
 
    
    Companys total shareholder return or TSR over the performance period from
the VWAP Month Employed until the testing date using the VWAP (volume weighted average
share price) for the either 20 trading days up to and excluding September 16 2006/07
for the Managing Directors share rights or for December 2006 for all other share
rights; and
    
    Average total shareholder return of the Comparator Group using the
Comparator Groups VWAP for the same time periods as applicable above.
  
    
    is greater by 10% or more, all of the rights subject to this condition will vest; or
    
    does not exceed the Comparator Groups, no rights subject to this condition will vest; or
    
    is greater by less than 10% a straight-line calculated proportion of the
rights subject to this condition will vest.
 - F-35 -




---



##### Table of Contents



Total shareholder return or TSR is, broadly, share price growth and dividends reinvested,
excluding the impacts of franking credits and taxations.Comparator Group (Sept 05 grant and Jan 06 grants)
Prior to March 2006:
Newmont, Barrick, Newcrest, Anglo Gold, Oxiana, Goldfields (South Africa), Placer Dome, Rio
Tinto Limited, Harmony and CroesusAfter March 2006:Newmont, Barrick, Newcrest, Anglo Gold, Oxiana, Goldfields (South Africa), Kingsgate and
Sino Gold.Comparator Group (Sept 06 grant):
Newmont, Barrick, Newcrest, Anglo Gold, Oxiana, Goldfields (South Africa), Kingsgate and
Sino Gold.4.
    
    This performance condition will be assessed to the extent to which the Companys
total shareholder return increases over the performance period using the VWAP Month for
each participant as the starting share value for the TSR until the testing date using the
VWAP for either 20 trading days up to and excluding September 16 2006/07 for the Managing
Directors share rights or for December 2006 for all other share rights.If the companys TSR over the performance period increases by:
 
    
    15% or more, the participant is entitled to all of the TSR growth share rights vesting;
    
    5% or less, the participant will not be entitled to any TSR growth share rights vesting; or
    
    More than 5% but less than 15%, the participant will be entitled to a pro
rated number of TSR growth share rights vesting calculated on a straight line basis.
  NOTE 33: SUBSEQUENT EVENTS
 Reserve and Resource
  Contingent liability  Niugini Mining (Australia) Pty Limited  arts  Roderick Salfinger
  Ballarat Goldfields NL Merger
  - F-36 -




---



##### Table of Contents



Cost of Acquisition and purchase price allocation
 $MEquity Instruments issued (111,995,996)
    
    
    312.7Cash
    
    
    33.0Direct costs
    
    
    3.4Cost of acquisition
    
    
    349.1Comprising:Mine Properties
    
    
    27.5Intangibles
    
    
    356.4Deferred Mining Costs
    
    
    19.8Net working capital
    
    
    25.1Deferred tax
    
    
    (79.7
    )Total
    
    
    349.1
   NOTE 34: RECONCILIATION TO US GAAP
  a.
    
    Project financingPrior to 1997, certain equity issuance and other offering costs were capitalized as a part of
mine properties for IFRS purposes. US GAAP requires equity issuance costs to be offset against
shareholders equity.b.
    
    Borrowing cost capitalization as part of mine propertiesUnder IFRS, interest incurred on funds that are borrowed specifically for the purpose of
obtaining a qualifying asset is capitalized.Under US GAAP SFAS 34 Capitalization of Borrowing Cost, the amount of interest cost to be
capitalised for qualifying assets is intended to be that portion of the interest cost incurred
during the assets acquisition periods that theoretically could have been avoided (for example,
by avoiding additional borrowings or by using the funds expended for the assets to repay
existing borrowings) if expenditures for the assets had not been made.c.
    
    Depreciation of mine propertiesDepreciation expense as calculated under US GAAP differs from depreciation expense as
calculated under IFRS due to the difference in the carrying values of mine properties. The
carrying value of mine properties as determined under IFRS was $951 million, $800 million, and
$739 million, as of December 31, 2006, 2005 and 2004, respectively. The carrying value of mine
properties as determined under US GAAP was $697 million, $536 million, and $464 million, as of
December 31, 2006, 2005, and 2004, respectively. The difference in carrying values of mine
properties results from the differences described in Notes 34(a), 34(b), and 34(d). The
reduced carrying values result in adjustments to depreciation expense of $9.2 million, $9.2
million, and $3.0 million for 2006, 2005, and 2004 respectively.d.
    
    Impairment: Mine propertiesUnder IAS 36, the impairment test for determining the recoverable amount of a non-current asset
is the higher of net selling price and its value in use. Value in use is the net present value
of cash flows expected to be realised from the asset, assessed based on the current condition
of the asset. Under IFRS, impairment losses may be reversed in subsequent periods.Under SFAS 144, an impairment loss is recognized if the carrying amount of a long-lived asset
(asset group) exceeds the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset (asset group). An impairment loss is measured as the
excess of the carrying amount of the long-lived asset (asset group) over its fair value. Fair
value has been estimated using present value techniques. Under US GAAP, impairment reversals
are not permitted.No impairments or impairment reversals occurred in 2006 or 2005. In 2004, as a result of
significant changes in the critical assumptions used to determine the value in use, including
increases in the life of mine and reserves and increases in the estimated long term gold price,
the directors resolved to partially reverse impairments recognized in 2000 and 1999 to the
value of $205.7 million. In determining the value in use, the Company used the long term gold
price assumptions of $380 for the year ended 2004 and a pre-tax real discount rate of 7%. As a
result of the reversal in 2004, all the impairments recognized in 2000 and 1999, excluding the
amount that would have been depreciated of $82.7 million, have been reversed for IFRS as the
impairment write-back is limited to the amount that would have been the written down value of
the assets had there been no impairment.
 - F-37 -




---



##### Table of Contents



Under SFAS 144, a long-lived asset (asset group) is tested for recoverability whenever events
or changes in circumstances indicate that its carrying amount may not be recoverable. An
impairment loss is recognized if the carrying amount of a long-lived asset (asset group) is not
recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset
group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset (asset group). An impairment loss is
measured as the excess of the carrying amount of the long-lived asset (asset group) over its
fair value. Fair value has been estimated using present value techniques. Under US GAAP,
impairment reversals are not permitted.e.
    
    Impairment: Economic grade stockpileUnder IAS 2, the carrying value of ore stockpiles are assessed each year and carried at the
lower of cost and net realisable value. Reductions in the carrying value from cost to net
realizable value are recognized as an expense in the period incurred through the recognition of
impairment provisions. Subsequent increases in net realizable value are recorded through the
reversal of previously recognized impairment provisions up to original cost.Under US GAAP, the economic grade stockpile is carried at the lower of cost or market. Market
means current replacement cost, except that market should not exceed net realizable value.
Losses are recognized in the period incurred. Under US GAAP, subsequent increases in net
realizable value or reversal of previously recognized losses are not permitted.In 2004, following the improvement in the gold price environment and improvements to the plant
and operating conditions, the directors resolved to reverse previously recognized impairments
on the basis that the current estimated net realizable value was higher than zero cost
previously recognized under IFRS. The reinstatement to cost resulted in a non-recurring gain
of $90.2 million in 2004. Under US GAAP, the cost of the existing stockpile at December 31,
2004 continues to be recorded at zero.No impairments or impairment reversals were recognized in 2006 or 2005.f.
    
    Stripping costs incurred during productionUnder IFRS, the Company defers stripping costs as described in Note 1(vi). Stripping costs
include direct expenditures for stripping, drilling, blasting and related depreciation expense.
In March 2005, the Financial Accounting Standards Board (FASB) ratified Emerging Issues Task
Force (EITF) Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the
Mining Industry. EITF No. 04-6 addresses the accounting for stripping costs incurred during
the production phase of a mine and refers to these costs as variable production costs that
should be included as a component of inventory to be recognized in costs applicable to sales in
the same period as the revenue from the sale of the inventory. As a result, capitalization of
post-production stripping costs is appropriate only to the extent product inventory exists at
the end of a reporting period. The guidance in EITF No. 04-6 is effective for the first
reporting period in fiscal years beginning after December 15 2005, with early adoption
permitted. The Company elected to adopt EITF No. 04-6 effective January 1 2006. In line with
this, all deferred stripping costs have been expensed as a cost of inventory. The impact of the
change on January 1 2006 was a cumulative effect adjustment to decrease opening retained
earnings by $52.4 million. This was represented by a write off of deferred stripping costs
($92.0 million) and other adjustments to the balance sheet comprising increases in ore
stockpiles ($16.2 million), gold in process ($0.4 million) and finished goods ($0.4 million)
and decreases in deferred tax liability ($27.6 million) and deferred tax asset ($5.0 million).The following table shows on a pro forma basis the effect that adoption of EITF No. 04-6 would
have on net income (after tax) under US GAAP for the fiscal years ended December 31, 2005 and
2004 respectively:
 2005
    
    2004$000
    
    $000Net income under US GAAP as previously reported
    
    
    21,845
    
    
    
    141,614Pro forma adjustment to income if the policy of not
deferring stripping costs had been adopted as of
January 1, 2004
    
    
    (12,806
    )
    
    
    (21,258
    )Pro forma net income
    
    
    9,039
    
    
    
    120,356Proforma Net Income Earnings Per Common Share  Basic ($ per share)
    
    
    0.01
    
    
    
    0.09Proforma Net Income Earnings Per Common Share  Diluted ($ per share)
    
    
    0.01
    
    
    
    0.09Impact of the adjustment:Net Earnings Per Common Share  Basic ($  per share)
    
    
    (0.01
    )
    
    
    (0.02
    )Net Earnings Per Common Share  Diluted ($  per share)
    
    
    (0.01
    )
    
    
    (0.02
    )
 g.
    
    Cumulative effect of change in accounting policy in 2004In 2004, the Company changed its method of accounting for deferred mining costs. Up until
2004, deferred mining in relation to the Minifie pit was determined on a phase basis consistent
with the characteristics of that pit. From January 1, 2004, the Company changed the
amortisation basis to deferred mining costs on a pit basis, principally to more accurately
reflect the costs of accessing future ore reserves from the Lienetz pit, which is the pit
relating to current mining operations. The impact of this change is reflected in the 2004
reconciliation.h.
    
    Deferred income taxes and valuation allowancesThe accounting for the deferred income taxes under IFRS and
US GAAP is substantially consistent,
except for the accounting for valuation allowances. Under IFRS, deferred tax assets are not
recognized unless realization of the deferred tax assets is probable. Under US GAAP, deferred
tax assets are recognized and to the extent that realization of the deferred tax assets is not
considered more likely than not (greater than 50% likelihood of realization) are subject to a
valuation allowance.As of December 31, 2004, the Company determined that based on the weight of available evidence
including increased long term gold price, improved operating conditions and plans, and three
years of cumulative book earnings under both IFRS and US GAAP, that the valuation allowances
provided against deferred tax assets
 - F-38 -




---



##### Table of Contents



(temporary differences, tax credits and incentives, and tax loss carry forwards) should be
reversed because realization of the deferred tax assets was more likely than not. The
difference in the deferred tax amounts recognized under IFRS and US GAAP is a result of the
GAAP differences described above.In regards to the classification of deferred taxes between current and non-current, for IFRS
purposes all deferred tax asset and liabilities are classified as non-current.. Under US GAAP,
the classification of a deferred tax between current and non-current is dependent upon when the
deferred tax is expected to be utilised/owed. For example, if the deferred tax asset is
expected to be able to reduce the next years tax expense, then it would be classified as a
current deferred tax asset. As a result of the classification differences, a reclass was
required in the reconciliation of the IFRS financial statements for US GAAP.For US GAAP purposes, current and non-current deferred tax assets and liabilities must be
separately disclosed.i.
    
    Deferred tax benefit under US GAAPImpairment reversals of mine properties and economic grade stockpiles are not permitted under
US GAAP. In 2004, this resulted in an increase to the net deferred tax asset under US GAAP.
Previously, the Company recognized a full valuation allowance against the deferred tax asset
related to this temporary difference. This has been fully reversed in 2004 following the
Companys determination that there will be sufficient future taxable income to utilise the
benefit and the tax loss carry-forwards. Also included in this line is the deferred tax effect
of the IFRS to USGAAP reconciling items for 2005 and 2006.j.
    
    Deferred mining costs:Under both IFRS and US GAAP (through 2005), the Company deferred stripping costs as described
in Note 1 (vi). Stripping costs included direct expenditures for stripping, drilling, blasting
and related depreciation expense. Until April 17, 2000, all mining operations were outsourced
to a third party. Subsequent to that date, the Company began conducting direct mining
operations on its own behalf. As disclosed in the 2004 financial statements, beginning from
April 17, 2000 and through 2002, certain of these mining costs were expensed in the income
statement in error rather than being included in deferred mining costs pursuant to the
Companys accounting policy. In 2004, the error was identified and the Company restated the
previously issued 2002 US GAAP reconciliations to include the deferral of the direct costs
incorrectly expensed.Under IFRS, the financial statements were not restated because the correction of this error
would not have an impact on net income or shareholders equity at and for the year ended
December 31, 2002 because any additional mining costs capitalized in 2002 would have resulted
in a corresponding reduction in the reversal of the impairment loss recognized in that year.k.
    
    Subsequent eventAs discussed in Notes 18 and 33, Lihir completed the acquisition of an Australian gold mine
development company, Ballarat. The acquisition became effective on February 26, 2007. Under
US GAAP, as this acquisition occurred prior to the issuance of these financial statements, but
after the balance sheet date, thus the acquisition is considered a significant non-adjusting
subsequent event that requires disclosure.Management will continue to assess the impact of SFAS 141 Business Combinations and it is
likely that GAAP differences will arise in relation to this acquisition.l.
    
    Recently Issued Accounting PronouncementsIn November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 151, Inventory Costs  an amendment of ARB No. 43. SFAS 151
adopts the IASB view related to inventories that abnormal amounts of idle capacity and spoilage
costs should be excluded from the cost of inventory and expensed when incurred. SFAS 151 was
effective for fiscal years beginning after June 15, 2005 and was to be applied prospectively.
Adoption of SFAS 151 did not have an impact on the Companys financial statements.In December 2004, the FASB issued SFAS No. 123 (Revised), Share-Based Payment (SFAS 123R).
SFAS 123R supersedes Accounting Principles Board opinion No. 25. Under US GAAP, the Group has
applied the fair value recognition provisions of SFAS 123R since January 1, 2006. As this is
the first year the share plan was established, there are no additional adjustments required in
the current period as a result of this application.In May 2005, the FASB issued Accounting Changes and Error Corrections (SFAS 154), which deals
with all voluntary changes in accounting principles and changes required by an accounting
pronouncement if that pronouncement does not include specific transition provisions. SFAS 154
replaces APB Opinion 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in
Interim Financial Statements. This Statement requires retrospective application of a change in
accounting principle to prior periods financial statements, unless it is impracticable to
determine either the period-specific effects of the cumulative effect of the change, in which
case the change in principle is applied as if it were adopted prospectively from the earliest
date practicable. Corrections of an error require adjusting previously issued financial
statements. SFAS 154 was effective for accounting changes and correction of errors made in
fiscal years beginning after December 15, 2005. This standard is consistent with the entitys
accounting policy under IFRS and there was no impact of adopting this standard.In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprises financial statements in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48
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is effective in fiscal years beginning after December 15,
2006. We are currently evaluating the effect that the
adoption of FIN 48 will have on our US GAAP consolidated results of operations and financial
condition and have not yet reached final conclusions.In June of 2006, the FASB ratified the consensus reached by the Emerging Issues Tax Force in
Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That is, Gross versus Net Presentation) (EITF
06-3). The scope of EITF 06-3 includes any tax assessed by a governmental authority that is
directly imposed on a revenue-producing activity between a seller and a customer and may
include, but is not limited to, sales, use, value added, and some excise taxes. EITF 06-3
also concluded that the presentation of taxes within its scope on either a gross (included in
revenues and costs) or net (excluded from revenues) basis is an accounting policy decision
subject to appropriate disclosure. EITF 06-3 is effective for periods beginning after December
15, 2006. The Company currently presents these taxes on a net basis.In September 2006, the FASB issued, Fair Value Measurements (SFAS 157), which establishes a
framework for measuring fair value and expands disclosures about fair value measurements. SFAS
157 is effective for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. We have not yet determined the impact of SFAS 157 will have on our US GAAP
consolidated results of operations and financial condition.In September of 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108, Considering the Effect of Prior Year Misstatements when Qualifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides interpretive
guidance on the consideration of the effects of prior year misstatements in quantifying current
year misstatements for the purpose of a materiality assessment. SAB 108 is effective for
companies with fiscal years ending after November 15, 2006 and is required to be adopted by the
Company in the fiscal year ending December 31, 2006. The adoption of SAB 108 did not have a
material effect on the Companys consolidated financial statements.In February 2007, the FASB issued The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB 115 (SFAS 159). SFAS 159 provides an
alternative measurement treatment for certain financial assets and financial liabilities, under
an instrument-by-instrument election, that permits fair value to be used for both initial and
subsequent measurement, with changes in fair value recognized in earnings. While SFAS 159 is
effective beginning January 1, 2008, earlier adoption is permitted as of January 1, 2007,
provided that the entity also adopts all of the requirements of SFAS 157. We are currently
evaluating whether we will adopt SFAS 159 early, and the impact SFAS 159 may have on our
consolidated financial statements.
 2006
    
    
    2005Reference
    
    $000
    
    
    $000Shareholders Equity in accordance with IFRS
    
    
    
    
    811,877
    
    
    
    783,472Project financing costs
    
    a
    
    
    (11,470
    )
    
    
    (11,470
    )Mine
properties  capitalized interest
    
    b
    
    
    5,831
    
    
    
    5,272Depreciation of mine properties
    
    c
    
    
    13,353
    
    
    
    4,127Mine properties  impairment provision reversal
    
    d
    
    
    (256,414
    )
    
    
    (256,414
    )EGS  impairment
    
    e
    
    
    (90,200
    )
    
    
    (90,200
    )Adjustment to beginning balance for adoption of EITF 04-6
    
    f
    
    
    (74,927
    )
    
    
    Adjustment
to beginning balance for adoption of EITF 04-6 (Deferred income tax)
    
    f
    
    
    22,478
    
    
    
    Additional deferred charges to inventory
    
    f
    
    
    25,839
    
    
    
    Recognition of deferred waste as a charge
    
    f
    
    
    (56,349
    )
    
    
    Deferred income tax
    
    h
    
    
    110,823
    
    
    
    107,656Shareholders Equity under US GAAP
    
    
    
    
    500,841
    
    
    
    542,443
 2006
    
    
    2005
    
    
    2004Reference
    
    
    US $000
    
    
    US $000
    
    
    US $000Net income under IFRS
    
    
    
    
    
    
    53,837
    
    
    
    9,788
    
    
    
    329,221Mine properties  capitalized interest
    
    
    b
    
    
    
    559
    
    
    
    3,661
    
    
    
    Depreciation of mine properties
    
    
    c
    
    
    
    9,226
    
    
    
    9,205
    
    
    
    2,974Mine
properties  Impairment reversal
    
    
    d
    
    
    
    
    
    
    
    
    
    
    
    (205,723
    )EGS Impairment reversal
    
    
    e
    
    
    
    
    
    
    
    
    
    
    
    (90,200
    )Deferred mining costs
    
    
    j
    
    
    
    
    
    
    
    
    
    
    
    (3,123
    )Adjustment of deferred charges to inventory
    
    
    f
    
    
    
    25,839
    
    
    
    
    
    
    
    Recognition of deferred waste as a charge
    
    
    f
    
    
    
    (56,349
    )
    
    
    
    
    
    
    Deferred tax benefit adjustment for US GAAP
    
    
    i
    
    
    
    3,167
    
    
    
    (808
    )
    
    
    108,465Net income under US GAAP
    
    
    
    
    
    
    36,279
    
    
    
    21,845
    
    
    
    141,614
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2006
    
    
    2005Consolidated Balance Sheet under US GAAP
    
    Reference
    
    $000
    
    
    $000AssetsCurrent assetsCash and cash equivalents
    
    
    
    
    47,032
    
    
    
    127,836Derivative financial instruments
    
    
    
    
    269
    
    
    
    543Inventories
    
    f
    
    
    95,959
    
    
    
    81,712Receivables
    
    
    
    
    4,641
    
    
    
    5,347Prepayments
    
    
    
    
    5,514
    
    
    
    3,696Deferred tax assets
    
    h
    
    
    49,451
    
    
    
    14,268Total current assets
    
    
    
    
    202,866
    
    
    
    233,402Non-current assetsDerivative financial instruments
    
    
    
    
    2,419
    
    
    
    4,236Inventories
    
    e, f
    
    
    73,760
    
    
    
    25,294Receivables
    
    
    
    
    400
    
    
    
    476Deferred mining costs
    
    f
    
    
    
    
    
    
    91,981Mine properties
    
    a, b, c, d
    
    
    702,501
    
    
    
    541,861Available-for-sale financial assets
    
    
    
    
    33,001
    
    
    
    Deferred tax assets
    
    h
    
    
    172,717
    
    
    
    215,260Total non-current assets
    
    
    
    
    984,799
    
    
    
    879,108Total assets
    
    
    
    
    1,187,664
    
    
    
    1,112,510Liabilities and shareholders equityCurrent liabilitiesDerivative financial instruments
    
    
    
    
    61,537
    
    
    
    40,793Accounts payable
    
    
    
    
    46,567
    
    
    
    34,691Provisions
    
    
    
    
    6,427
    
    
    
    5,349Income tax payable
    
    
    
    
    320
    
    
    
    Current Deferred tax liability
    
    
    
    
    2,582
    
    
    
    6,538Borrowings
    
    
    
    
    62,535
    
    
    
    Total current liabilities
    
    
    
    
    179,968
    
    
    
    87,371Non-current liabilitiesDerivative financial instruments
    
    
    
    
    273,954
    
    
    
    227,157Provisions
    
    
    
    
    14,261
    
    
    
    12,424Borrowings
    
    
    
    
    218,580
    
    
    
    215,520Deferred tax liability
    
    
    
    
    60
    
    
    
    27,595Total non-current liabilities
    
    
    
    
    506,855
    
    
    
    482,696Total liabilities
    
    
    
    
    686,823
    
    
    
    570,067Shareholders equityShare capital
    
    
    
    
    1,027,069
    
    
    
    1,027,504Reserves
    
    
    
    
    (250,689
    )
    
    
    (225,692
    )Accumulated losses
    
    a, b, c, d, e, f, g
    
    
    (275,539
    )
    
    
    (259,369
    )Total shareholders equity
    
    
    
    
    500,841
    
    
    
    542,443Total liabilities and shareholders equity
    
    
    
    
    1,187,664
    
    
    
    1,112,510
 - F-41 -




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2006
    
    
    2005Reference
    
    
    $000
    
    
    $000Deferred tax assets:The balance comprises temporary differences attributable to :Inventory
    
    
    
    
    
    
    14,192
    
    
    
    Provisions
    
    
    
    
    
    
    7,090
    
    
    
    6,185Depreciation and Impairment
    
    
    
    
    
    
    34,843
    
    
    
    78,270Tax losses
    
    
    
    
    
    
    65,853
    
    
    
    65,613Other
    
    
    
    
    
    
    349
    
    
    
    508Amount recognized directly in equityDerivatives qualified as cash flow hedges
    
    
    
    
    
    
    99,841
    
    
    
    78,952222,168
    
    
    
    229,528Deferred tax liabilitiesThe balance comprises temporary differences attributable to :Amounts recognized in profit or lossDeferred mining costs
    
    
    
    
    
    
    
    
    
    
    27,594Prepaid insurances
    
    
    
    
    
    
    171
    
    
    
    125Consumables
    
    
    
    
    
    
    
    
    
    
    6,414Other
    
    
    
    
    
    
    60
    
    
    
    Derivative financial instruments
    
    
    
    
    
    
    2,411
    
    
    
    2,642
    
    
    
    34,133Net Deferred tax assets
    
    
    
    
    
    
    219,526
    
    
    
    195,395
 2006
    
    
    2005
    
    
    2004Statement of changes in equity under US GAAP
    
    Reference
    
    
    $000
    
    
    $000
    
    
    $000Paid up capitalBalance at January 1
    
    
    
    
    
    
    1,027,504
    
    
    
    1,027,504
    
    
    
    1,025,288Shares issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,286Share issue transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Shares reclassified as treasury shares
    
    
    
    
    
    
    (435
    )
    
    
    
    
    
    
    Balance at December 31
    
    
    
    
    
    
    1,027,069
    
    
    
    1,027,504
    
    
    
    1,027,504ReservesBalance at January 1
    
    
    
    
    
    
    (225,692
    )
    
    
    (162,153
    )
    
    
    (206,548
    )Share based payments reserve
    
    
    
    
    
    
    5,543
    
    
    
    
    
    
    
    Fair value reserve
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    Foreign currency translation reserve
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    Changes in fair value of derivatives that qualify as
cash flow hedges
    
    
    
    
    
    
    (50,815
    )
    
    
    (72,415
    )
    
    
    (25,681
    )Deferred tax benefit
    
    
    
    
    
    
    20,271
    
    
    
    8,876
    
    
    
    70,076Balance at December 31
    
    
    
    
    
    
    (250,689
    )
    
    
    (225,692
    )
    
    
    (162,153
    )Accumulated lossesBalance at January 1
    
    
    
    
    
    
    (259,369
    )
    
    
    (281,214
    )
    
    
    (422,828
    )Net income / (loss)
    
    
    
    
    
    
    36,279
    
    
    
    21,845
    
    
    
    141,614Change in accounting policy
    
    
    f
    
    
    
    (52,449
    )
    
    
    
    
    
    
    Balance at December 31
    
    
    
    
    
    
    (275,539
    )
    
    
    (259,369
    )
    
    
    (281,214
    )Shareholders equity under US GAAP
    
    
    
    
    
    
    500,841
    
    
    
    542,443
    
    
    
    584,137EPS under US GAAPNet Income
    
    
    
    
    
    
    36,279
    
    
    
    21,845
    
    
    
    141,614Net Earnings Per Common Share  Basic ($  per share)
    
    
    
    
    
    
    0.03
    
    
    
    0.02
    
    
    
    0.11Net Earnings Per Common Share  Diluted ($  per share)
    
    
    
    
    
    
    0.03
    
    
    
    0.02
    
    
    
    0.11
  - F-42 -




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##### Table of Contents



(in thousands)
    
    
    
    2006
    
    2005
    
    2004Basic
    
    
    
    
    
    
    1,284,049
    
    
    
    1,284,225
    
    
    
    1,284,082Diluted
    
    
    
    
    
    
    1,284,225
    
    
    
    1,284,225
    
    
    
    1,284,082
 - F-43 -




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SUPPLEMENTAL SCHEDULE
 Supplemental schedule  Valuation and qualifying accounts
 2006
    
    
    2005
    
    
    2004$000
    
    
    $000
    
    
    $000Provision for Doubtful DebtsBalance, beginning of year
    
    
    2,578
    
    
    
    2,225
    
    
    
    1,836Additions: charges to costs and expenses
    
    
    367
    
    
    
    353
    
    
    
    389Write-offs
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    2,945
    
    
    
    2,578
    
    
    
    2,225Provision for Stores Stock ObsolescenceBalance, beginning of year
    
    
    5,299
    
    
    
    4,317
    
    
    
    3,354Additions: charges to costs and expenses
    
    
    817
    
    
    
    982
    
    
    
    963Write-offs
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    6,116
    
    
    
    5,299
    
    
    
    4,317Deferred Tax Valuation AllowanceBalance, beginning of year
    
    
    
    
    
    
    
    
    
    
    169,139Additions: (credited)/charged against income tax
    
    
    
    
    
    
    
    
    
    
    (109,333
    )Additions: credited to equity
    
    
    
    
    
    
    
    
    
    
    (59,806
    )Balance, end of year
    
    
    
    
    
    
    
    
    
    
    
 - F-44 -




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##### Table of Contents



Item 19. Exhibits
 Exhibit 1
    
    Constitutionof Lihir Gold Limited, effective as of April
28, 1998 (incorporated by reference to Lihirs annual
report on Form 20-F for the fiscal year ended December 31,
2000).Exhibit 4 (a)
    
    Syndicated Facilities Agreementbetween Lihir, ABN AMRO
Australia Limited, ABN AMRO Bank N.V. (Australia Branch),
Australia and New Zealand Banking Group Limited, Bayerische
Hypo-und Vereinsbank AG, BNP Paribus, Bank of Western
Australia Limited, Commonwealth Bank of Australia,
Macquarie Bank Limited, National Australia Bank Limited,
Natexis Banques Populaires, Societe General, Société
Génerale Australia Branch, WestLB AG, and Westpac Banking
Corporation dated September 13, 2005 incorporated by
reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 2005).Exhibit 4 (b)
    
    Refinancing Coordination Deed 2005between Lihir, ABN AMRO
Australia Limited, ABN AMRO Bank NV, Commonwealth Bank of
Australia, Macquarie Bank Limited, Société Génerale and
Société Génerale Australia Branch, dated September 13,
2005. (incorporated by reference to Lihirs annual report
on Form 20-F for the fiscal year ended December 31, 2005).Exhibit 4 (c)
    
    Amending Deed (Security Trust Deed)between Lihir Niugini
Mining Limited, Niugini Mining (Australia) Pty Ltd, ABN
AMRO Australia Limited, ABN AMRO Bank NV, Commonwealth Bank
of Australia, Macquarie Bank Limited, Société Génerale and
Société Génerale Australia Branch, Mitsui & Co. Precious
Metals Inc., and J. Aron & Company dated September 13, 2005
(incorporated by reference to Lihirs annual report on Form
20-F for the fiscal year ended December 31, 2005).Exhibit 4 (d)
    
    Lihir Gold Security Trust Deedbetween Lihir, Niugini
Mining Limited, Niugini Mining (Australia) Pty Ltd, ABN
AMRO Australia Limited, ABN AMRO Bank NV, Citibank N.A.,
and J. Aron & Company dated November 22, 2000 (incorporated
by reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 2000).Exhibit 4 (e)
    
    Lihir Gold Limited Offshore Chargebetween Lihir and ABN
AMRO Australia Limited dated September 13, 2005
(incorporated by reference to Lihirs annual report on Form
20-F for the fiscal year ended December 31, 2005).Exhibit 4 (f)
    
    Lihir Gold Deed of Security (PNG) 2005between Lihir and
ABN AMRO Australia Limited dated September 13, 2005
(incorporated by reference to Lihirs annual report on Form
20-F for the fiscal year ended December 31, 2005).Exhibit 4 (g)
    
    Lihir Gold Mortgage of Bullion Accountbetween Lihir and
ABN AMRO Australia Limited dated September 13, 2005
(incorporated by reference to Lihirs annual report on Form
20-F for the fiscal year ended December 31, 2005).Exhibit 4 (h)
    
    Special Mining Lease, dated as of March 17, 1995, between
Lihir and the PNG Government (incorporated by reference to
Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (i)
    
    Mining Development Contract, dated as of March 17, 1995,
between Lihir and the PNG Government (incorporated by
reference to Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (j)
    
    Share Sale and Purchase Agreementbetween Rio Tinto Western
Holdings Limited and Lihir dated October 10, 2005
(incorporated by reference to Lihirs annual report on Form
20-F for the fiscal year ended December 31, 2005).Exhibit 4 (k)
    
    Technical and Procurement Services Agreementbetween
Technological Resources Pty Ltd, Rio Tinto Services Limited
and Lihir dated October 10, 2005 (incorporated by reference
to Lihirs annual report on Form 20-F for the fiscal year
ended December 31, 2005).Exhibit 4 (l)
    
    General Termination and Release Deedbetween Lihir, Lihir
Management Company Ltd, Rio Tinto Western Holdings Ltd and
Rio Tinto plc dated October 10, 2005 (incorporated by
reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 2005).Exhibit 4 (m)
    
    Compensation Agreement for Land, Crops, Water and Air,
dated as of April 26, 1995, between Lihir Management
Company, Lihir Mining Area Landowners Association
Incorporated, Block Executives (for and on behalf of the
Landowners), Catholic Mission (Kavieng Property Trust) and
the United Church in PNG and the Solomon Islands
(incorporated by reference to Lihirs Form F-1 filed
September 6, 1995).




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##### Table of Contents



Exhibit 4 (n)
    
    Putput and Ladolam Relocation Agreementdated as of April
26, 1995, between Lihir Management Company, Lihir Mining
Area Landowners Association Incorporated and the persons
named in various schedules to the agreement (incorporated
by reference to Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (o)
    
    Integrated Benefits Package Review Status Statementbetween
Nimamar Rural Local Level Government, Lihir Mining Area
Landowners Association, the State of Papua New Guinea, New
Ireland Provincial Government and Lihir dated November 9,
2005 (incorporated by reference to Lihirs annual report on
Form 20-F for the fiscal year ended December 31, 2005).Exhibit 4 (p)
    
    Amended and Restated Lihirian Equity Settlement Agreement
dated January 27, 2006 between Mineral Resources
Development Company Limited, Mineral Resources Lihir
Limited and the European Investment Bank Bank (incorporated
by reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 2005).Exhibit 4 (q)
    
    Patent and Know-How License Agreementdated August 5, 1995
between Sherritt Inc and Lihir Management Company Limited
for and on behalf of Lihir, together with amendment thereto
dated August 18, 1995 (incorporated by reference to Lihirs
annual report on Form 20-F for the fiscal year ended
December 31, 2003).Exhibit 4
(r)
    
    Number not usedExhibit 4 (s)
    
    Agreement for the Servicesof Professor Ross Garnaut as
Chairman of Lihir, dated April 26, 2004 between Lihir and
Maccullochella Pty Ltd. (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year
ended December 31, 2003).Exhibit 4 (t)
    
    Facility Agreementbetween Lihir Australian Holdings Pty
Limited and Australia and New Zealand Banking Group Limited
dated October 17, 2006.Exhibit 4 (u)
    
    Deed of Chargebetween Lihir Australian Holdings Pty
Limited and Australia and New Zealand Banking Group Limited
dated October 19, 2006.Exhibit 4 (v)
    
    Parent Deposit Agreementbetween Lihir Gold Limited and
Australia and New Zealand Banking Group Limited dated
February 12, 2007.Exhibit 4 (w)
    
    Management Services Agreement (PNG)between Lihir Services
Australia Pty Limited and Lihir Gold Limited dated May 9,
2006.Exhibit 4 (x)
    
    Management Services Agreement (Australia) between Lihir
Services Australia Pty Limited and Lihir Gold Limited dated
May 9, 2006.Exhibit 4 (y)
    
    Merger Implementation Agreementbetween Lihir Gold Limited,
Lihir Australian Holdings Pty Limited and Ballarat
Goldfields NL dated October 17, 2006.Exhibit 4 (z)
    
    Share Subscription Agreementbetween Lihir Australian
Holdings Pty Limited and Ballarat Goldfields NL dated
October 17, 2006.Exhibit 4 (aa)
    
    Deed Pollbetween Lihir Gold Limited the holders of fully
paid ordinary shares in Ballarat Goldfields N.L. dated
December 12, 2006.Exhibit 8
    
    Significant subsidiariesExhibit 12 (a)
    
    302 Certification by Chief Executive OfficerExhibit 12 (b)
    
    302 Certification by Chief Financial OfficerExhibit 13 (a)
    
    906 Certification by Chief Executive OfficerExhibit 13 (b)
    
    906 Certification by Chief Financial Officer




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##### Table of Contents



Exhibit 8
 List of Principal Subsidiaries
 
    
    Niugini Mining Limited, incorporated under the laws of Papua New
Guinea, became a 100% owned subsidiary of Lihir on February 2,
2000.
 
    
    Niugini Mining (Australia) Pty Limited, incorporated under the
laws of Australia, is a 100% owned subsidiary of Niugini Mining
Limited.
 
    
    Lihir Management Company Limited, incorporated under the laws of
Papua New Guinea, became a 100% owned subsidiary of Lihir on
October 10, 2006.
 
    
    Lihir Business Development Limited, incorporated under the laws of
Papua New Guinea, is a 100% owned subsidiary of Lihir Management
Company Limited.
 
    
    Lihir Services Australia Pty Limited, incorporated under the laws
of Australia on September 2, 2005, became a 100% owned subsidiary
of Lihir on November 7, 2005.
 
    
    Lihir Australian Holdings Pty Limited, incorporated under the laws
of Australia on September 4, 2007, became a 100% owned subsidiary
of Lihir on October 16, 2007.
 
    
    Ballarat Goldfields NL, incorporated under the laws of Australia,
became a 100% owned subsidiary of Lihir Australian Holdings Pty
Limited on March 8, 2007, with effective control being February
26, 2007.
 
    
    Berringa Resources Pty Limited, incorporated under the laws of
Australia, is a 100% owned subsidiary of Ballarat Goldfields NL.
 
    
    Ballarat West Goldfields Pty Limited, incorporated under the laws
of Australia, is a 100% owned subsidiary of Ballarat Goldfields
NL.
 
    
    New Resources Pty Limited, incorporated under the laws of
Australia, is a 100% owned subsidiary of Ballarat Goldfields NL.
 
    
    Corpique (No. 21) Pty Limited, incorporated under the laws of
Australia, is a 100% owned subsidiary of Ballarat Goldfields NL.