<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 20-F/A
                                 AMENDMENT NO. 2

[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                                       OR

[X]  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

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from _________ to _________

                         Commission file number: 2-6860

                               LIHIR GOLD LIMITED

                                Papua New Guinea

                            7th Floor, Pacific Place,
                     Cnr Champion Parade and Musgrave Street
                       Port Moresby, NCD, Papua New Guinea

                                   ----------

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

                                   ----------

 Securities registered or to be registered pursuant to Section 12(g) of the Act:

<TABLE>
<S>                                                        <C>
Lihir Gold Limited Ordinary Shares of no par value         NASDAQ National Market*

American Depositary Shares, each of which represents ten   NASDAQ National Market
Lihir Gold Limited Ordinary Shares and which are
evidenced by American Depositary Receipts
</TABLE>

                                   ----------

*    Not for trading but only in connection with the registration of the
     American Depositary Shares representing such shares, pursuant to the
     requirements of the Securities and Exchange Commission.

                                   ----------

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act:

                                      None

                                   ----------

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the Annual
Report (at December 31, 2006).

<TABLE>
<S>                                                   <C>
Lihir Gold Limited Ordinary Shares of no par value:   1,284,048,639 fully paid shares
Lihir Gold Limited Treasury "B"  Shares               161,527,405
Lihir Gold Limited Restricted Executive Shares        176,071
</TABLE>

<PAGE>

                                   ----------

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

                                                                [X] Yes   [ ] No

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.

                                                                [ ] Yes   [X] No

Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

                                                                [X] Yes   [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12-2b of the Exchange Act. (Check
one):

Large accelerated filer [X]   Accelerated filer [ ]   Non-accelerated filer [ ]

Indicate by check mark which financial statement item the registrant has elected
to follow.

                             Item 17 [ ]   Item 18 [X]

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).

                                                                [ ] Yes   [X] No

<PAGE>

                                EXPLANATORY NOTE

Lihir Gold Limited is filing this Amendment No. 2 on Form 20-F/A to the Annual
Report on Form 20-F for the fiscal year ended December 31, 2006, which was
originally filed with the Securities and Exchange Commission on April 16, 2007
and amended on Amendment No.1 which was filed on April 20, 2007. This amendment
No.2 amends Items 4, 5 and 18, each of which is amended by replacing such Item
in its entirety. Item 4 is amended to correctly reference the use of Industry
Guide 7 in the preparation of reserves. Item 5 is amended to correct the Tabular
Disclosure of Contractual Obligations for a typographical error against the
Capital expenditure commitments line, including updating totals and sub-totals.
Item 18 is amended to:

     -    correct the reference to the financial statements on which
          PricewaterhouseCoopers audited; and,

     -    provide additional detail under the heading "Note 1: Statements of
          Significant Accounting Policies, (xviii) Share Based Payments" to
          describe the share based payment to MRL

     -    amend line item descriptor in "Statement of Changes in Equity" to read
          "Share rights (net of tax)"

     -    amend line item "Share rights expensed" in "Note 20: Reserves and
          Retained Profits: (A) Reserves, Movements, Share based payments
          reserve" to show an expense of $382,000

     -    add new line item "Referred share rights" in "Note 20: Reserves and
          Retained Profits: (A) Reserves, Movements, share based payments
          reserve" to show an amount of $5,161,000.

This Amendment does not reflect events that have occurred after the April 16,
2007 filing date of the Annual Report on Form 20-F, or modify or update the
disclosures presented in the original Form 20-F, except to reflect the
amendments described above.

<PAGE>

ITEM 4. INFORMATION ON THE COMPANY

See "Certain Definitions" and "Glossary of Certain Technical Terms" at the end
of this Annual Report for the definitions of certain terms used in this Annual
Report.

A. HISTORY AND DEVELOPMENT OF THE COMPANY

(I) INTRODUCTION

Lihir Gold Limited is a corporation incorporated in 1995 under the laws of PNG
and registered under the Companies Act of PNG ("Companies Act"). The registered
office of the Company is located at Seventh Floor, Pacific Place, Cnr. Champion
Parade and Musgrave Street, Port Moresby, PNG. The telephone number of the
registered office is +675 321 7711. The Company's website is www.lihir.com.pg.
The Company owns and operates a gold mine located on Lihir Island in the New
Ireland province of PNG and is developing the Ballarat project in the State of
Victoria in Australia.

LIHIR MINE

The initial exploration and development work on the Lihir mine was conducted by
a joint venture beginning in 1982. A subsidiary of Rio Tinto plc (referred to
collectively with its subsidiaries and affiliates, as "Rio Tinto"), one of the
participants in the joint venture, prepared a feasibility report on the Lihir
mine dated March 1992 and amended in September 1993, October 1994 and May 1995,
which was reviewed and audited by Micon International Limited. The joint
venture, which undertook almost nine years of test drilling and numerous
geological and other studies on the Lihir mine, spent a total of $147 million on
exploration and pre-development activities in relation to the Lihir project. In
October 1995, the Company acquired the assets relating to the Lihir mine from
the joint venture and issued and sold ordinary shares in a global offering.
Production of gold from oxide ore commenced in May 1997. In October 1997, the
Company completed construction of the processing and related facilities for the
Lihir mine and commenced production of gold from sulphide ore.

Of the former participants in the joint venture (or their assignees), only
Mineral Resources Lihir Limited still holds an interest in the Company. Rio
Tinto completed the sale of all of its shares in the Company in 2005 and no
longer holds any interest in Lihir. The Company has been advised that the shares
were sold to a range of institutional investors. Niugini Mining Limited, an
original joint venture participant, was acquired under a scheme of arrangement
and is now a wholly-owned subsidiary of the Company. Mineral Resources Lihir
Limited has sold down a proportion of its holding and, the Company understands
that as at the date of this Annual Report, its holding amounts to 42,117,082
shares, or 3.02% of the Company's ordinary issued capital.

No options over the Company's shares remain outstanding. See "Item 7. Major
Shareholders and Related Party Transactions - A. Major Shareholders - Share
Options".

Until October 2005, the Company was managed by Lihir Management Company Limited,
a wholly-owned subsidiary of Rio Tinto, pursuant to a management agreement dated
March 17, 1995. Rio Tinto acquired a managing interest in the joint venture in
1989, and the joint venture had been managed by Lihir Management Company Limited
since that time. Since October 2005, the Company has been under independent
management following termination of the management agreement. As part of the
termination of the management arrangement, the Company acquired all of the
shares of Lihir Management Company Limited. See "Item 10 - Additional
Information - C. Material Contracts - Termination of Rio Tinto management
arrangements in 2005".

The company has entered into two management services agreement with Lihir
Services Australia Pty Limited ("LSA"), a wholly owned subsidiary. Under the
agreements, the Company engages LSA to provide or procure the provision of
various services. LSA charges the Company a fee for providing those services
under the two agreements.

The assets acquired from the joint venture included the Special Mining Lease,
which gives the Company exclusive mining rights within the leased area of Lihir
Island for 40 years from 1995. The Lihir mine relates to the mineral deposits
located within the area covered by the Special Mining Lease. The Company also
holds the Exploration License (EL485), which provides the Company with the
exclusive right to explore for gold and other minerals on the remainder of Lihir
Island for a renewable two year period. An application for renewal of the
exploration licence was made in April 2006 ahead of the expiry date of September
13, 2006. A decision on the renewal has been delayed as a consequence of the
establishment of the Mineral Resources Authority. Under the provisions of the
Mining Act 1992, the term of the exploration licence is deemed to be extended
automatically pending the making of a decision on the renewal application. See
"Item 10. - Additional Information - C. Material Contracts - Related Agreements
with PNG Government".

(II) CAPITAL EXPENDITURES

The feasibility report for the Lihir project originally estimated that a total
of $673 million (in mid-1995) in capital expenditures would be required for
pre-production development and construction of the Lihir mine, excluding the
$147 million in exploration and pre-development expenditures made by the joint
venture participants prior to the global offering in 1995. This was subsequently
re-estimated to be $780 million (in mid-1996), when the definitive estimate for
construction was completed. This increase represented a number of changes in
scope, particularly in the areas of financing costs, mine and operations
development, and working capital, inflation and the decision to move to the
early processing of oxide ore. The actual cost of construction was $792 million,
which reflected some further changes to scope, such as a re-design of the
tailings disposal system, and some increases associated with accommodation and
other supporting infrastructure.


                                      -1-

<PAGE>

Capital expenditure over the last three financial years, as discussed in Note 14
to the financial statements, has been as follows:

CAPITAL EXPENDITURE FOR LIHIR MINE IN 2004 - 2006

<TABLE>
<CAPTION>
(IN US$ MILLIONS)    2006   2005   2004
-----------------   -----   ----   ----
<S>                 <C>     <C>    <C>
Projects            148.3   49.0   47.6
Mining               23.7   34.9   27.4
Processing           15.7   15.6   12.7
                    -----   ----   ----
Total               187.7   99.5   87.7
                    -----   ----   ----
</TABLE>

Capital expenditure in fiscal year 2006 totaled $187.7 million and included the
following major items (a) $100.2 million for the ongoing construction of the
flotation plant expansion plus an associated $17.0 million for additional mining
equipment required as a direct result of this expansion, (b) $27.3 million to
complete the 20MW expansion of the geothermal power station, (c) $13.0 million
for a range of mine technical projects, including geothermal resource
investigation and drilling, depressurization, and de-watering wells, (d) $6.3
million for the purchase of two replacement barges and the rebuild/refurbishment
of two existing barges and (e) $4.4 million for the refurbishment of shovels,

Capital expenditure in fiscal year 2005 totaled $99.5 million and included the
following major items (a) $20.4 million to complete the construction of a 30
megawatt geothermal power station, (b) the commencement of the project to
construct a flotation plant to expand the Company's processing capacity with
expenditure of $15.2 million after feasibility studies costing an initial $2.8
million (c) $12.7 million for a range of mine technical projects, including
geothermal resource investigation and drilling, depressurization, and
de-watering wells, (d) $9.5 million for the purchase of new mining equipment or
refurbishment of existing mining equipment, (e) $7.9 million for a 20 megawatt
geothermal power plant expansion, (f) $6.7 million for the purchase of a fifth
barge and the rebuild/refurbishment of two existing barges, (g) $4.7 million for
a gravity gold separation circuit to further improve gold recovery, and (h) $4.4
million for the autoclave process and other process plant improvements.

Capital expenditure in fiscal year 2004 included the following major items (a)
$38.5 million for the initial construction of a 30 megawatt geothermal power
station, (b) $15.4 million on the progressive replacement of the mining fleet,
(c) $6.4 million to construct and install an additional high-rate grinding
thickener, and (d) in excess of a further $5 million for a range of mine
technical projects, most notably geothermal resource investigation, Kapit
depressurization, and the drilling of steam wells. These expenditures were
funded from an equity capital raising conducted by the Company in November 2003
and from operating cash flows.

For fiscal year 2007 at Lihir, capital expenditure of $129 million is projected.
This estimate includes (a) $46 million to complete the flotation plant expansion
plus an associated $5 million for additional mining equipment required as a
direct result of the expansion, (b) $30 million for geothermal and de-watering
wells, to allow mining of deeper Lienetz benches, and associated drilling
equipment, (c) $7 million for replacement blast hole drills and mining
equipment, (d) $7 million for upgrades and increases to accommodation
infrastructure, (e) $7 million for stockpile development, (f) $4 million for the
continued sealing of some community roads on Lihir Island, meeting a commitment
made to the community under the Integrated Benefits Package at the commencement
of the project, the relocation of Kapit village and some upgrades to Putput
village housing, (g) $2 million for major overhauls performed on excavators, (h)
$2 million to complete the 20 megawatt expansion of the geothermal power station
and (i) $2 million for new mine maintenance infrastructure required as a result
of the fleet expansion over the last 2 years and continuing in 2007. In
addition, approximately $7.5 million is expected to be expended on a Feasibility
Study into the expansion of the process plant, and a further $7.5 million on
exploration activities associated with expansion of the geothermal power steam
resource

Total funding of the development plan for the Ballarat East Project has been
estimated at approximately A$120 million with A$40 million funded by Lihir in
October 2006 and with the additional A$80 million funding required during 2007
and 2008.

Expenditures from 2005 to 2007 for the flotation plant are being funded from the
proceeds of the gold loan transacted in September 2005 and from operating cash
flows, whilst other capital expenditure for the Lihir mine in 2007 is expected
to be funded from operating cash flows

The Company is actively reviewing a number of options, including sales of new
shares in the Company, for the on-going funding of Ballarat and future capital
expenditure at Lihir.

B. BUSINESS OVERVIEW

Lihir's operations consist of a significant single mine on Lihir Island in Papua
New Guinea that produces gold dore (a mixture of gold and other metals) as its
sole product and the Ballarat gold mining project being developed in Victoria,
Australia. With respect to the Lihir mine, gold is mined and processed on Lihir
Island. After refining by AGR Matthey in Perth, Western Australia, the gold is
'sold spot location London' through the international gold market or delivered
into hedge contracts with fourteen selected hedge counter-parties (specifically
ABN-AMRO Australia Limited, Australia and New Zealand Banking Group Limited,
Bank of Scotland, Banque Nationale de Paris Paribas, Commonwealth Bank of
Australia, Bayerische Hypo-und Vereinsbank AG, Macquarie Bank Limited, Natexis
Banques Populaires, National Australia Bank Limited, Societe Generale Australia,
WestLB AG, Westpac Banking Corporation, Goldman Sachs JB Were Pty Ltd, and
Mitsui). The gold market is not generally regarded as being influenced by
seasonal factors. See "Item 3. Key


                                      -2-

<PAGE>

Information - Risk Factors" for a discussion of gold prices and "Item 5.
Operating and Financial Review and Prospects - "A. Operating Results".

Lihir's licenses to operate and mine in PNG are subject to the PNG Mining Act
1992 and the Mining Development Contract dated March 17, 1995 with the PNG
Government. See "Item 10. Additional Information - C. Material Contracts - PNG
Mining Laws, Related Agreements with PNG Government". Lihir's use of patented
process technologies, including Dynatech Corporation's (formerly Sherritt)
pressure oxidation process and Anglo-American Research Laboratories' elution
system, are secured through life-of-mine license agreements. See "Item 10.
Additional Information - C. Material Contracts - Operations Agreements".

The Ballarat project comprises four granted Mining Licences, aggregating to an
area of 22.1km(2), and a single granted Exploration Licence comprising a
semi-contiguous area of 126km(2) all granted in the state of Victoria,
Australia. All tenements are held 100% by Ballarat and are in good standing.

DESCRIPTION OF OPERATIONS

OVERVIEW

The following is a summary of Lihir's current operations. Given the size, scope
and long remaining production life of Lihir, changes in operations may be made
in the future, and these changes could be material. See "Item 3. Key Information
- D. Risk Factors" for a discussion of possible risks to Lihir's operations.

The mining of the Lihir ore body is based on open pit mining of three main
linked pits. Most of the ore is refractory sulphide ore that must be oxidized
before the gold can be leached through cyanidation. Pressure oxidation
technology licensed from Dynatec Corporation, (formerly Sherritt), is used to
treat the refractory ore. In 2005, construction of an additional 3Mt per year
capacity flotation circuit with expanded grinding, flotation and oxygen
capacities was approved and commenced. The flotation circuit commenced
commissioning in the first quarter of 2007. The advantage of the flotation
expansion is as follows:

-    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.

The in-pit reserves with the new flotation circuit are slightly larger than
those for the current plant configuration without flotation. This is due to
increased pit volume and reduced cut-off grade, both of which result from
reduced processing costs with the expansion. Simplified process flow charts are
shown below prior to and after the addition of the new circuit.

                            CURRENT PLANT FLOWCHART

                                  (FLOWCHART)

PLANT

                     FLOWCHART AFTER FLOTATION INSTALLATION

                                  (FLOWCHART)

Until 2004, the main gold-producing pit was Minifie. Production from Minifie has
been scaled back since early 2005 as relative gold grades declined. The second
pit, Lienetz, is being developed in a series of phases to produce the majority
of gold ore from 2005 until 2015. The third pit, Kapit, is scheduled to commence
development in 2010, and is expected to produce ore from 2015 onwards and, with
further cutbacks during this period to both Minifie and Lienetz, complete the
mining period.

Based on the current reserve estimate and mine plan, and including the flotation
expansion, production is expected to average over 800,000 ounces per year until
2010.

MINING


                                      -3-

<PAGE>

GENERAL. The open pit mine is expected to produce an average of approximately
11.0 million tonnes of ore per year for most of the mining period, with a rapid
decline from 2017 until estimated mining closure in 2022. Ore production has
averaged 10.4 million tonnes over the last four years. Total annual extraction
of ore plus waste is planned to range from 50 to 60 million tonnes per year from
2006 to 2016 and decrease rapidly thereafter.

The ultimate pit shell contains approximately 693 million tonnes of material, of
which approximately 212 million tonnes are proven and probable reserves in-pit
and 509 million tonnes are waste, for an overall waste/ore stripping ratio of
2.3. Most waste material will be disposed of offshore in deep water within the
confines of the Special Mining Lease area.

Mining of sulphide ore commenced in the Minifie area because of its higher grade
and shallower depth, and has been extended over time to encompass the Lienetz
and Kapit areas. During 2003 and 2004 most of the mine production was from the
Minifie pit. Production of ore from the high grade Phase 5 in the Lienetz pit
started in the final quarter of 2004 and it was the main ore source in 2005
until mid 2006. Phase 7 development commenced in April 2005 and was the main
source of ore for the second half of 2006 and into 2007. Phase 6 development
commenced in July 2006 and will be the main ore source for the second half of
2007.

Material moved during 2006, 2005 and 2004 is shown in the table.

<TABLE>
<CAPTION>
                                      2006     2005     2004
                                     ------   ------   ------
<S>                                  <C>      <C>      <C>
High-Grade Sulphide Ore (K tonnes)    4,204    3,518    5,036
High-Grade Sulphide (g Au/t)           5.51     6.11     5.11
Low-Grade Sulphide Ore (K tonnes)     3,751    5,857    6,550
Low-Grade Sulphide Ore (g Au/t)        2.27     2.05     2.23
Total Ore (K tonnes)                  7,955    9,375   11,586
Total Ore (g Au/t)                     3.98     3.57     3.52
Total Waste                          48,195   32,177   35,170
Total Material                       56,150   41,552   46,756
</TABLE>

PIT DESIGN AND PLANNING. Pit design is a two-stage process. The first stage
develops pit shells that group material into zones of equivalent value (on an
undiscounted basis). The second stage schedules the material from these shells
and selects the shell that yields the highest value as the basis for detailed
design. Pit optimization uses processing and fixed costs projected at the time
with a processing recovery approximating 90%.

Detailed designs are developed for all phases (push backs) out to and including
the ultimate pit shell. These detailed designs are then scheduled with cut-off
grade optimization to provide a life of mine plan. Detailed medium and
short-term plans are then developed.

Pit face slope angles range from 15o to 26o in soil-strength material, 33o to
35o in weak rock, and 50o in hard rock. In areas that are predominantly waste,
mining is carried out on 12-meter benches. In all other areas, 6-meter benches
are primarily used.

The mining sequence was determined with a view to maximizing the life of mine
value of the deposit using computer techniques, engineered designs and
experience. This resulted in 14 mining phases with a variable mill feed cut-off
grade for direct process ore for each year of the mining period.

PRODUCTION SCHEDULING. Because of the nature of the ore deposits, it is not
possible to mine only higher-grade material during the mining period. In order
to maximize project value, the mining and production schedule is structured to
deliver the maximum amount of higher-grade ore to the process plant as soon as
possible, consistent with an orderly mining schedule. In addition to mining
higher ore grade blocks first, a variable mill feed cut-off grade is established
for each year. Ore with a grade equal to or greater than the applicable annual
mill feed cut-off grade is sent directly to the process plant, while ore with a
grade below the cut-off grade but (above the waste cut-off grade) is stockpiled
for later processing.

The annual mill feed grade is expected to lie in the range 3.0 g Au/t to 6.8 g
Au/t during the mining period and varies with availability of high grade ores
from the pit and consideration of suitable lower grade material to be processed
in the new flotation circuit, with an overall grade of approximately 4.7 g Au/t
for the entire period.

The cut-off grade optimization process incorporates costs associated with break
even cut-off grade and with the cost of mining and milling parameters including
drill and blast costs, loading and haulage costs, mining overheads, mill
throughputs, mill blending strategies, mill recoveries, sulphur content, ore
depth and haul distance. The cut-off grade optimization process will consider
the combinations of these mining and process plant physical and cost variables
to derive the optimum cut off grade to maximize business value. The mine
planning phase then considers the optimum cut -off grade with practical issues
of blending and additional mill throughput constraints of hardness index,
sulphur ranges and material types. The autoclave throughput to sulphur grade
relationship varies with pulp density, which is dependent on the settling
characteristics of the ore. In general, the softer (high clay) ores yield a
lower pulp density than the harder (fresh rock) ores. Work index or hardness of
the material, determines the rate of feed through the grinding circuits. The
heat required to maintain the operating pressures and temperatures in the
autoclaves is derived from oxidation of the sulphides. Oxidation of the
sulphides (and, hence, liberation of the gold) takes a finite period of time and
thus residence time may constrain throughput. The mill feed constraints are
represented by the general curves in the following graphics.


                                      -4-

<PAGE>

PLANT OPTIMISATION FOR SELECTED PULP DENSITY AND SULPHUR GRADES

                              (PERFORMANCE CHART)

                SULPHIDE SULPHUR GRADE IN AUTOCLAVE FEED SOLIDS

ASSUMPTIONS:

50 minutes residence time
30 deg. C feed temperature pre heat recovery
90 deg. C max feed temperature post heat recovery
Oxygen utilisation = 90%
Quench water added to compartment 1a, 1b and 1c = 7m(3)/h/autoclave


                                      -5-

<PAGE>

PLANT OPTIMISATION FOR SELECTED HARDNESS/WORK INDEX AND SULPHUR GRADES

                              (PERFORMANCE CHART)

The resultant primary cut-off grades from the design process for plant feed
during the "mining period" by years are shown in the following table.


                                       -6-

<PAGE>

CUT-OFF GRADE STRATEGY FOR PLANT FEED

                (CUT-OFF GRADE STRATEGY FOR PLANT FEED GRAPHIC)

The stockpile cut-off grade is used to determine if lower value ore should be
stockpiled for later processing in the stockpile processing period or wasted,
and thus has imputed costs that refer to post mining period hauling and
processing costs. The mining cost for the stockpile processing period material
is sunk into the determination of direct feed material during the mining period.
For example, the cut-off grade for the primary direct feed for the mill,
incorporating the flotation circuit, varies from 2.2 to 4.5 g/t with an average
of 3.1g/t over the mining period. The stockpile cut off grade to determine the
stockpiled material for processing during the stockpile processing period was
1.45g/t for 2006. Therefore, on average, ore between 1.45g/t and 3.1g/t is
stockpiled for later use.

FURTHER INFORMATION ON METALLURGICAL RECOVERY

The planned metallurgical recovery is determined from current historical
operating experience and realistically expected future plant performance. It has
been shown to be a logarithmic average by all material types that varies with
gold grade. Reviews undertaken on stockpile material conclude that for lower
grade ores the existing logarithmic recovery function is reasonably justified
for estimating Ore Reserves under current and future plant operating conditions.
However test work is being undertaken to further evaluate the varying recovery
relationships by material type including stockpile material.

This relationship is described by:

                    RECOVERY = (0.033*LN(ORE GRADE)+0.8576)

For feed ore during mining period the recovery is approximately 88% to 92%
whilst the recovery of material through the stockpile processing period is
approximately 84% to 87%.

SULPHIDE CONTENT. While the average sulphide content of the reserves is 5.1%,
the sulphur content is highly variable. Therefore, significant effort is
committed to controlling blending of plant feed to maximize throughput by
sequencing mine development and stockpile interchange strategies. The ore blend
and sulphur target varies depending on ore type, ore reactivity, the number of
operating autoclaves (target sulphur for complete oxygen utilization is lower
when three autoclaves are on line), age of stockpiled ore, ore settling
characteristics and gold grade and relative performance characteristics between
feeding either direct to the autoclaves or the flotation plant. The long term
average plant feed sulphur grades for the flotation plant expansion are within
the operating range for whole of ore feeding to the process plant. However,
interruptions to the mine plan can have a significant impact on ore processed
due to the resultant lack of flexibility to allow for alternative blending
strategies.

ECONOMIC GRADE ORE STOCKPILES. All ore grading below the applicable annual mill
feed cut-off grade (but above the waste cut-off grade) will be stockpiled for
processing after open pit mining ceases. In addition, the PNG Government
required that ore with grades above 1.6g/t be stockpiled within the early years
of mine production. This permitted cut-off grade increased to 2.0g/t during
2003. At the completion of the mine period, the economic grade material will be
fed to the process plant during the stockpile processing period. Throughputs and
recovery are based on current operating practices, but the behaviour of this ore
for overall plant recovery and sulphur grade, after being stockpiled for periods
in excess of 15 years, is uncertain.


                                      -7-

<PAGE>

WASTE ROCK DISPOSAL. Because of the lack of suitable land, the potential for
seismic activity, high rainfall and the potential for acidic run-off, the
Company and the PNG Government concluded that land-based disposal of waste rock
was not a viable option and that the preferred option, in terms of cost and
environmental acceptability, continues to be the use of the waste rock to build
the base of the stockpile in Luise Harbour and to dispose of surplus or
unsuitable material offshore. The acidic characteristics of the waste rock are
neutralized in sea water. The waste disposal facility comprises five bottom dump
self-propelled barges and two loading docks of three bays each in a single wharf
structure.

DEWATERING AND GEOTHERMAL CONTROL. The Lihir mine poses unique geothermal and
dewatering mining conditions. The gold resource is associated with a residual
geothermal system and is located adjacent to the sea. The pit must be dewatered
to keep the water table below the operating level of the mine, for which purpose
there are 16 operating dewatering wells. Dewatering operations have successfully
maintained dry pit operating conditions with the base of the Minifie pit now
reaching 155m below sea level and Lienetz 128m below sea level.

While the Luise Caldera, in which the mine is located, is no longer an active
volcanic centre, the residual geothermal effects must be made safe by reducing
temperatures and pressures in the vicinity of the pit, in order that high
temperature waters and steam generation do not pose a threat to the safety of
operators. Since 1999, 11 deep wells (greater than 1000m depth), 25 shallow
wells (400-600m) and 94 surface wells (less than 400m) have been completed with
13 deep wells and 62 surface wells discharging steam. Steam discharge has now
been continuous since 2000, with wells in the west Minifie and Lienetz areas
operating during this period and in the Kapit area from late 2004. Wells in the
Lienetz area were commissioned in early 2003 and are increasing steam discharge
levels ahead of the continuing development of the Lienetz pit. The second phase
of installing surface steam discharge wells for Lienetz continued in 2005 and
will be ongoing for the life of the mine. The first stage of discharging steam
from the Kapit area has been installed as a trial drill program with monitoring
being conducted to gather information on final discharge design.

Power generation using geothermal steam has been demonstrated to be a viable
option for Lihir. A six-megawatt pilot plant was commissioned in April 2003.
This plant is fed on steam from the shallow steam relief wells already completed
as part of the mining development. A 30 megawatt plant was commissioned in 2005
with construction of an additional 20 megawatt plant completed in February 2007.
Geophysical and well investigations are being used to determine steam production
capacity from the Luise Caldera steam resource. These indicate an ultimate power
generating potential in excess of that currently operating and under
construction, with studies being undertaken to define the further extent of this
potential.

BLASTING. Lihir has engaged a contractor, Orica, to provide all products, labour
and equipment to carry out the required blasting operations. This includes
procurement, transport, manufacture, storage and management of all explosive
material and the design, provision, repair and maintenance of magazines,
manufacturing facilities with a capacity of 40 tonnes of emulsion per day, and
mobile explosive delivery units. The contractor measures and records hole data
(including temperature), primes holes, loads explosives down the holes, ties-in
and initiates the shots, and is responsible for legal compliance during
manufacture, and blasting (including post-blast inspection and dealing with
misfires and secondary blasting). Since the ground temperatures are typically
above 100 degrees Celsius, explosive emulsions used are desensitized to heat by
special formulation and blending with glass micro balloons. New formulations are
currently under development in anticipation of the need to blast in higher
ground temperatures. See "Item 10. Additional Information - C.Material Contracts
- Operations Agreements".

MINE DRAINAGE. The average annual recorded rainfall at the Lihir mine site is
approximately 3,750 millimeters, and has ranged from 2,800 to 5,400 millimeters,
with a maximum one-hour intensity of 65 millimeters. For this reason,
considerable attention has been paid to the design of appropriate facilities for
mine drainage. This includes a system of surface diversion ditches designed to
intercept storm water flows before they enter the open pit. A system of in-pit
collection ditches and sumps has also been incorporated into the design of each
of the phases of pit development. Despite these design provisions, mine
production has to be suspended during periods of intense rainfall.

MINING EQUIPMENT. The major mining equipment selected for the Lihir mine has
been sized for the levels of production and operating conditions contemplated by
the current life of mine plan. Most of the mining fleet was purchased from the
mining contractor on April 17, 2000 on termination of contract mining
arrangements. The transition from operator mining to owner mining was smooth
with the majority of the contractor equipment and staff transferring to Lihir at
this time. The primary excavation fleet now consists of five 23 cubic meter
capacity, and one 14 cubic meter capacity, hydraulic shovels. Material haulage
utilizes a matching fleet of 34 rear dump haul trucks, each with a capacity of
136 tonnes. In addition to this a support fleet of smaller shovels, five 100
tonne trucks and ancillary equipment is employed.

The recent worldwide upswing in mining activity has resulted in shortages and
longer lead times for truck tires, major change out components, new equipment
and experienced maintenance workers and operators. It is not known how these
supply conditions will change over time. It is also unknown if sufficient 136
tonne radial truck tires can be procured during 2007 and thereafter due to
capacity shortages from the three main tire manufacturers. Retreaded tyres,
second hand tyres and lower rated tyres are all being trialed on site while a
focus has been maintained on improving radial tyre life. Shortages in radial
tires will have a material effect on mining operations for Lihir and for the
mining industry in general, however there has not been a material negative
impact to cost effectiveness and mining efficiency during 2006. Increased oil
prices had a materially negative effect on the cost of operating equipment
during 2005 which continued in 2006. See "Item 3. Key Information - D. Risk
Factors".

PROCESSING

GENERAL. The Company's processing plant is located in an area known as Putput,
close to the mine at the mouth of Luise Harbour. Lihir ore is termed refractory,
meaning that conventional extraction of gold by cyanidation is not viable
without pre-treatment. The Lihir process plant incorporates a pressure oxidation
pre-treatment step using autoclaves to release the gold. This in turn is
followed by conventional cyanidation.


                                      -8-

<PAGE>

The plant's facilities first crush and grind the ore into slurry suitable for
pressure oxidation. A small flotation plant is sometimes used to concentrate a
portion of the slurry as required. The ore is then subjected to pressure
oxidation, counter-current decantation ("CCD"), neutralization, carbon-in-leach
("CIL"), and tailings disposal. Gold is recovered from the CIL process through
carbon stripping, electro winning and smelting.

The processing plant was initially designed to treat 375 tonnes of ore per hour
at a design sulphur grade of 7.2%. A design autoclave operating time of 89% of
total time was used resulting in a plant capacity of 2.9 million tonnes per
year. The processing plant was upgraded in 1999 to include a second oxygen plant
and a small flotation plant. Three autoclave heat recovery vessels, used to
pre-heat autoclave feed were installed in 2001 along with a twelfth power
generator. In 2002 a pebble crushing circuit was installed in the grinding area
to increase grinding capacity, and three additional autoclave feed pumps were
installed in 2003. In 2004, a new carbon regeneration kiln was installed to
increase gold recovery from the CIL circuit. In 2005, a gravity circuit was
installed to maximize recovery from hard blast ores which testwork indicated
contain significant proportions of gravity recoverable gold. This circuit was
commissioned in 2006, however negligible amounts of gravity recoverable gold
have been recovered to date due to relatively small amounts of hard blast ores
being processed. As higher proportions of hard blast ores are encountered at
depth in the Lienitz and Minifie pits the gravity circuit will be operated to
assess the extent that gravity recoverable gold exists.

A total of 4.34 million tonnes of ore were processed through the plant in 2006
to produce 650,811 ounces of gold. Plant throughput was a project to date
record.

The Company has commenced commissioning of a 3 Mtpa capacity flotation circuit
and associated upgrade aimed at maximizing autoclave capacity and improving the
economics of processing lower grade ores. The upgrade will include a secondary
crusher, a grinding and flotation plant, increased autoclave feed tank capacity,
additional 10 t/h oxygen plant, additional lime slaker and gold desorption
circuits. Ores of lower grade and sulphur content grade will be targeted for
treatment in the new circuit which will be upgraded in flotation cells to
produce a gold containing concentrate. This concentrate will be mixed with
ground ore from the existing grinding circuit to provide the optimal feed for
the autoclave circuit. Upgrading of the oxygen supply and gold desorption
circuits will be required to allow for the increased gold production capability.
Commissioning of the flotation circuit commenced in the first quarter of 2007.

CRUSHING. Run-of-mine stockpiling and primary crushing facilities, incorporating
a gyratory crusher, are located at the Ladolam Creek area, approximately 500
meters east of the ore bodies. All other processing facilities are located at
Putput, approximately one kilometer southeast of the Ladolam Creek area. Soft
ore can be processed separately through a toothed-roll crusher.

A secondary crusher is being installed as part of the flotation plant upgrade to
increase the crushing circuits capacity to a nominal 6.5 Mtpa.

STOCKPILING AND BLENDING. A series of conveyors transport the crushed ore to a
stockpile of approximately 100,000 tonnes capacity located at the Putput
processing plant. Ore is reclaimed from the stockpile via under pile feeders and
conveyed into the semi-autogenous grinding ("SAG") mill. Ore that does not flow
freely through the under pile feeders is reclaimed by front-end loader and fed
through a separate feeder.

As part of the planned upgrade the stockpile area is being enlarged to allow
stockpiling and segregation of flotation feed ores ("FGO") and direct feed (High
grade ore - "HGO") ores to be reclaimed and processed in the respective milling
circuits. A loader will provide ore to a feed bin which will provide ore to the
FGO milling circuit.

GRINDING AND THICKENING. Water is combined with the ore feeding the SAG mill to
form slurry. Steel balls and the ore itself grind the ore down to a fine
particle size. Coarse pebbles rejected from the SAG mill are conveyed and
crushed separately in the pebble crushing circuit before returning to the SAG
mill feed stream. SAG mill discharge slurry is pumped to cyclone classifiers
that separate coarse from fine particles. Coarse material is directed into a
ball mill for further fine grinding before reclassification, whilst fine
material continues on to a thickener. In the thickener, water is recovered and
flocculant is used to assist the settling of solids. Thickened slurry is pumped
to the pressure oxidation circuit. An additional thickener was installed early
in 2005 to allow the plant to better deal with clay-rich ores from the Lienetz
pit.

A second grinding circuit consisting of a SAG and ball mill is being installed
to grind flotation feed ores. Product from the new grinding circuit will report
to a new rougher flotation circuit which will separate and concentrate gold
containing sulphide minerals into a flotation concentrate. Flotation concentrate
will be thickened to 50% solids density prior to blending with thickened HGO ore
in the Pressure Oxidation feed tanks.

PRESSURE OXIDATION. The Lihir pressure oxidation circuit utilizes Dynatec
Corporation (formerly Sherritt) patented technology and is typical of pressure
oxidation autoclave circuits used to treat refractory gold ores elsewhere in the
world. Feed slurry is first pre-heated to between 60 and 90 degrees Celsius in
heat recovery vessels before being pumped under high pressure into three
horizontal, six-compartment autoclave vessels. Inside the autoclave, slurry is
subjected to an operating pressure of 2,650 kPa and a temperature of 200 - 210
degrees Celsius. Pure oxygen added into the autoclaves causes rapid oxidation of
sulphide minerals, and consequent release of gold particles, to occur. Autoclave
discharge slurry is depressurized into a flash vessel where temperature and
pressure are reduced to atmospheric conditions. Resultant steam produced in the
flash vessels is used to pre-heat autoclave feed in direct contact heat recovery
vessels. Carbon dioxide, nitrogen and residual oxygen is vented from the
autoclaves into the atmosphere.

High-pressure gaseous oxygen for the pressure oxidization process is provided
via two cryogenic oxygen plants located adjacent to the processing plant. Liquid
oxygen is also produced and stored for backup and emergency requirements.


                                      -9-

<PAGE>

A third cryogenic oxygen plant is being installed to increase daily oxygen
production to 82 tonnes per day.

ENERGY. Power is supplied by 12 diesel generators, each of 6.3 megawatts. The
Company is increasingly turning to geothermal power to meet energy requirements.
A six megawatt geothermal plant was commissioned in April 2003 and a 30 megawatt
plant was commissioned in 2005. Construction of a further 20 megawatt expansion
has been completed and commissioning commenced in February 2007.

Following completion of the planned plant upgrade, a total of 75 megawatts of
energy will be required to meet all the operating needs and allow for an
appropriate spinning reserve (or operating power margin to allow for routine
maintenance activities). It is anticipated at present that 56 megawatts will be
sourced from geothermal energy and the remaining 19 megawatts from diesel
generators.

CCD WASHING AND NEUTRALIZATION. Oxidized slurry passes through a two-stage CCD
thickener circuit where it is washed with process water and seawater. Slurry
acidity is then further neutralized by the addition of milk-of-lime, which is
prepared from imported quicklime, in a slaking circuit. In this way, slurry pH
level is increased to an appropriate level for cyanide leaching. Dilution water
is added to reduce slurry viscosity in preparation for CIL processing. During
2004, a by-pass line was added to the CCD thickener to allow maintenance
activities to occur with minimal production effects.

A currently disused grinding thickener is being converted to a third CCD
thickener to further reduce slurry acidity and lime consumption. The third CCD
thickener is expected to come on line in 2007.

A second lime slaking facility is being installed as part of the upgrade to
ensure sufficient lime is available to neutralize acidic slurry from the CCD
washing circuit.

CIL PROCESSING. Gold is recovered from the oxidized slurry in a CIL circuit. The
circuit consists of eight large, agitated tanks. In the second tank, sodium
cyanide is added to the slurry to begin leaching gold into solution. Coarse,
granular carbon is added to subsequent tanks to adsorb dissolved gold. Agitation
ensures that the slurry, cyanide and carbon are well mixed and suspended so that
most gold containing particles are leached and the gold is adsorbed onto carbon.
Slurry flow progresses through the tanks whilst carbon, retained by screens, is
pumped in a counter-current direction and progressively loads with adsorbed
gold.

GOLD RECOVERY. Loaded carbon is recovered from the CIL circuit and stripped of
gold in a continuous elution system. This involves soaking gold-loaded carbon in
a hot caustic / cyanide solution, causing gold to desorb from carbon back into
solution, and then rinsing the carbon with hot dematerialized water. Stripped
carbon is then regenerated by heating in an atmosphere of steam, before being
returned to the CIL circuit.

Gold bearing solution from the elution process is circulated through
electrowinning cells where gold is recovered from solution through
electro-plating to produce a gold sludge. Finally, the sludge is dried and
smelted in a furnace to produce dore bars. The gold recovery facility was
originally designed to treat up to 20 tonnes per day of loaded carbon. This was
increased to 28 tonnes per day in 2004.

A new desorption circuit is being installed to increase the loaded carbon
treatment rate up to 40 tonnes per day, due to the expected increase in gold
production following commissioning of the flotation circuit.

The overall ore treatment process is designed to recover between 88% and 94% of
contained gold, depending on ore type. Overall plant recovery for 2006 was
90.2%.

TAILINGS DISPOSAL. Plant tailings are first treated to detoxify remaining free
cyanide through the mixing of a portion of the iron-bearing wash solution from
the CCD circuit with CIL circuit tailings. Iron in solution reacts with the
cyanide in the detoxification circuit to form a stable iron/cyanide complex. The
balance of the CCD wash liquor is combined with power plant and oxygen plant
cooling water streams before combining with the detoxified tailings stream in a
junction box. Tailings from the new flotation circuit currently under
construction will also report to the above junction box.

The combined streams are subsequently discharged into the ocean via a pipeline
at a depth of 128 meters, which is below the surface mixed layer of the ocean.
The surface mixed layer, which is the uppermost layer of the ocean that is
constantly mixed by wind and wave action, varies with location and time, with a
maximum depth of 98 meters being recorded to date at Lihir. Being denser than
the receiving seawater, tailings discharged below the surface mixed layer move
down the steep submarine slope and will not rise to the surface. See
"Environmental Considerations" below for a discussion of this method of tailings
disposal

ECONOMIC GRADE ORES. Lower grade ores from the mine have been stockpiled for
future processing. Weathering and natural oxidation of stockpiled ores has the
potential to inhibit autoclave throughput by reducing the grade of sulphide in
the ore. To mitigate this effect, a number of measures have been taken:

     -    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. The original project design incorporated a lime plant
treating local limestone. While tests of the local limestone confirmed its
chemical suitability, it was also indicated that the limestone may prove too
friable for


                                      -10-

<PAGE>

calcining in conventional shaft or rotary lime kilns. As a result the processing
plant utilizes imported quicklime transported to site in 20 tonne containers.

INFRASTRUCTURE. Little or no infrastructure existed on Lihir Island prior to the
commencement of activity by the Company and development of the Lihir mine
required a significant program of infrastructure construction. Besides the
processing plant and barge loading facilities for waste rock disposal,
infrastructure now includes a main administration office, an
analytical/environmental laboratory, a training building, a warehouse, plant and
mine maintenance workshops and emergency response facilities.

Infrastructure for the workforce includes housing and camp accommodation, and
related community facilities such as a school, medical center, supermarkets, an
open market and a police station. Camp infrastructure comprises a mix of
accommodation types with a total capacity of 2,600 beds, as well as associated
messing and recreation facilities, and plants for water and sewerage treatment.
This infrastructure was upgraded during 2006 to meet the additional demand
arising from major construction activities on site. In addition, approximately
90 dwellings are in place to house full-time residential personnel.

A wharf has been constructed at Putput for general cargo ships and tankers. An
airstrip and terminal facilities have been constructed on the northern portion
of the island. The existing road connecting the airstrip and the project site
was improved and a ring road around the island was installed.

Fresh water is required in the processing plant and in the grinding circuit to
reduce the chloride content of the ore. Potable water is also required. The
nearest available source of water in sufficient quantity is the Londolovit
River, where a run off weir scheme has been constructed. A water treatment plant
(installed in 2003 and upgraded in 2006) serves to improve water quality. Water
is now also being accessed for the processing plant from the pit area itself.

Communications at the site, within the island and with the external world has
been provided through the installation of a satellite link providing public
access to the national telephone network. Marine and aeronautical radio systems
are also installed.

LOGISTICS

Operational consumables, supplies and maintenance parts are sourced from major
suppliers within PNG and the Asia Pacific region. Petroleum products are sourced
from Singapore and Fiji, cyanide from Korea, and quicklime from New Zealand.
Majority of supplies are consolidated at Lihir's forwarding agency and
transported by regular shipments from Brisbane, Australia. Supplies are
generally secured through contracts varying between one and five years'
duration.

WORKFORCE

At December 2006, the Company employed 1,587 people. Of this number, 567 or 36%
were Lihirian, 834 or 54% other Papua New Guinean nationals and 186 or 10% were
expatriates from various other countries. A great deal of work at the site is
undertaken by third party contractors, or business partners, with the major
employers in this group being locally owned companies. The total workforce,
including business partners, totaled in excess of 3,700 people including
personnel associated with construction of the flotation expansion. The Company
continues to sponsor regular professional and developmental training, both
in-house and externally. See "Item 6 - Directors, Senior Management and
Employees - D. Employees."

COMMUNITY AFFAIRS

Lihir is the collective name for a group of four islands with a total
population, at last count in December 2006, of approximately 13,900 Lihirians,
and approximately 4,400 immigrants from other parts of Papua New Guinea (PNG).

Lihir is over 900 kilometers from Port Moresby and at least two hours' travel by
motorized boat from the nearest land mass (New Ireland, Tanga or Tabar islands).
Because of this relative geographic isolation, the Lihir community is fairly
self-contained. Comprehensive land tenure and genealogy studies were conducted
prior to the mine's development and records are updated annually. The people of
Lihir share a common language and the same clan structure, factors which
assisted in the original conduct of the compensation negotiations and project
approval by the community.

In 1995, a comprehensive set of benefits and compensation arrangements known as
the Integrated Benefits Package ("IBP") were agreed between the Company, the
three levels of government and the people of Lihir. The IBP details the
commitments made by the various stakeholders to the community in terms of
infrastructure and support, community development, compensation, and relocation
of certain families from within the Special Mining Lease. The IBP contains in
one volume all of the commitments made to the people of Lihir in return for
their allowing the project to proceed on their land.

The IBP is based on four chapters including: 1) Destruction (relocation and
compensation); 2) Development (royalty payments, equity participation, community
infrastructure, facilities and services, business development, human
development, village development); 3) Security (trust funds, long term
development plans, long term investment plans, training and localization); and
4) Rehabilitation (progressive rehabilitation and mine closure provisions). The
IBP was signed on Lihir on April 26, 1995, by Lihir Management Company Limited
(initially on behalf of the joint venture but with an acknowledgment that it
would subsequently be on behalf of Lihir Gold Limited), by the three levels of
government (National, Provincial and Local) and by representatives of the
various groups of landowners and residents on Lihir Island. It satisfied the
requirements of the PNG Mining Act for compensation arrangements to be in place
before mining commenced. The IBP was endorsed by the PNG Registrar of Mines
prior to signature by the parties.


                                      -11-

<PAGE>

The compensation provisions of the IBP (Chapter 1) provide for compensation to
be paid to the landowners for cleared, damaged or otherwise affected land, for
loss of economic plants, for loss of man-made structures, for loss of marine
resources and wildlife, for discoloration or other adverse effects on creek
water and seawater, for disturbance of burial grounds and sacred sites and for
other miscellaneous effects of the Lihir mine. Additional land use payments and
compensation has been, and as required will continue to be, paid to landowners
in the Ladolam pit and Putput plant site areas for loss of access to land and
loss of other resources as a result of the Lihir project. In addition, the
compensation agreement provides that the landowners will be paid royalties per
cubic meter for sand, gravel and coronus material excavated from their land.

Provision of benefits for future generations of landowners and of relocatees was
a significant issue during the negotiations. Therefore IBP Chapters 2 and 3
provide for the establishment of trusts for the long term benefit of landowners
and residents and their children, and contain acknowledgments by the landowners
and residents that these agreements properly and adequately provide for their
compensation, (statutory and otherwise). In the event of a dispute formal
mediation and arbitration procedures are provided for in the agreements. More
importantly, the IBP provides for a regular process of review on a five year
cycle to provide an opportunity to keep the agreement consistent with the
changing circumstances on the island over time.

The original IBP is now over ten years old and since 1995 the mine has developed
into a fully functioning operation. In June 2001 the Company, the local
community of Lihir, the PNG national, New Ireland provincial and Lihir local
level governments jointly commenced a full review of the IBP to assess its
effectiveness and how it might be improved to serve the various parties better
in the future.

Lihir Gold has a strong commitment to the communities in which it operates. In
2006, the Company commenced implementation of a new 100 million Kina (US$33
million), five-year IBP for the Lihirian community. The IBP facilitates health,
education and community development programs on Lihir, with the benefits
distributed island-wide. The current version of the IBP agreement, which has not
yet been concluded and signed, contemplates that the Company will continue to
support the sustainable development of the Lihirian community. The parties to
the agreement acknowledge that the IBP agreement is a starting point and that it
signifies a commitment to a process to develop a series of programmes, each of
which still requires detailed planning to attain the development objectives.
Even though the agreement has not been signed, Lihir Gold has made the initial
payments contemplated under the IBP.

As part of that process, Lihir Gold has sought to maintain the Lihirian
community's involvement with and interest in the Lihir project. To that end, one
element of the IBP agreement is a proposal that Lihir Gold issue additional
shares to Mineral Resources Lihir Limited ("MRL") which has held equity in the
Company since Lihir Gold was publicly listed in 1995. MRL holds shares in the
Company on trust for adult Lihirian landowners pursuant to the terms of the
Lihirian Equity Trust. Since 2005, MRL has sold part of its interest in Lihir
Gold. This was initially done to fund loan repayments, in the absence of Lihir
Gold dividends being paid. More recently, further sales were made following MRL
obtaining Court orders in November 2006 enabling the terms of the Lihirian
Equity Trust to be varied. After MRL's initial sell down to fund its loan
repayments was complete (but prior to MRL's most recent sales after the terms of
the Trust were amended) Lihir Gold stated that it proposed to issue 3,284,499
additional shares to MRL for nil consideration in the interests of maintaining
the Lihirian direct engagement with the project. Also under discussion are a
greater role by the Lihirian community in contract mining and other business
opportunities. The discussions on this and other issues are continuing within
the context of the IBP agreement which, as noted above, sets the framework for
ongoing negotiation and discussion.

The Company has made substantial annual financial contribution by way of
compensation, community development, royalties, wages and other payments to the
Lihirian community as shown in the table below.

<TABLE>
<CAPTION>
                        2006   2005   2004   2003   2002   2001
                        ----   ----   ----   ----   ----   ----
<S>                     <C>    <C>    <C>    <C>    <C>    <C>
Kina 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
</TABLE>

Even though the Company puts significant effort into addressing landowner
issues, it cannot guarantee that specific disputes will not disrupt operations
in the future. See "Risk Factors-Item 3 - Key Information - Risk Factors".

BUSINESS DEVELOPMENT - The Company provides direct support for business
development to the local community through its business development office
("BDO"). BDO assists the local business community to develop realistic,
sustainable commercial opportunities. BDO assistance to local businesses has
included the development of business plans, managerial advice, preparation and
lodgment of VAT, group tax and company returns, secretarial support and business
training. In some cases, small loans have also been provided. More than 120
small businesses operate on Lihir, most of which have received some form of
assistance from BDO.

BDO continues to provide advice and assistance to local businesses to assist
them to maintain financial records and to otherwise comply with the PNG
Companies Act and Business Group Registration Act.

Many local businesses continue to benefit from the Company's outsourcing program
for non-core activities by providing goods and services to the Lihir project.
This is undertaken by means of a transparent and formalized tender process.
Local business development creates employment and generally contributes to the
local economy. Payments to local businesses and contractors amounted to
approximately $46 million for supplies and services performed in 2006.

EDUCATION ASSISTANCE - In 2006, the Company continued to assist Lihirian
students through a range of programs. Assistance was provided for four Lihirian
students at secondary schools outside of Lihir, 319 students attending top-up
schools on Lihir and direct monetary grants were made to 33 local schools. Full
scholarships were also granted to four undergraduates to undertake degree and
diploma courses at tertiary educational institutions and two at vocational
school.


                                      -12-

<PAGE>

OCCUPATIONAL HEALTH AND SAFETY

Lihir operates in a unique and challenging work environment. The Company is
committed to having a workforce free of injury and occupational illness; and
ensuring employees, business partners and the community benefit from the
Occupational Health and Safety ("OH&S") management plans developed for its Lihir
operations.

Since taking over management of the site in October 2005, 2 significant
incidents have occurred. The first one was the Kapit landslide in early October
2005, the second being a geothermal outburst in April 2006. Below is a brief of
these two incidents.

KAPIT LANDSLIDE

At approximately 03.00hrs on the morning of October 9, 2005 a landslide occurred
in the Kapit Caldera, impacting the Londolovit to mine site road from the Kapit
incinerator area north to near Kapit Village. About 3.2Mbcm of earth was cut
from the original topography with 2.2Mbcm of fill being displaced eastward above
sea level. It is thus estimated about 1Mcm of material ended up in Luise Harbor.
There was a material flow of around 150m at the southern end and 350m at the
northern end in an easterly direction.

The landslide and resultant surge wave created when the land mass entered the
harbour resulted in two people being listed as missing. One employee was an
engineering geologist who was monitoring the slip. The other was an employee of
WTB (Western Tug and Barge) who was on board the Lucinda tug which was moored
approximately two kilometers away in the Lihir barge maintenance harbor.

Neither body was recovered and a coroner's certificate was issued for both men
stating they had died as a result of the landslide.

PHASE 7 GEOTHERMAL OUTBURST

On the night of April 29, 2006 Shovel 67 was working on the northern face of the
956 final ramp. The shovel was operated by a contract shovel operator by the
name of John Tukas.

At shift-change (around 06.00hrs) on the morning of April 30, 2006 Shovel 67 was
tramming away from the face. Whilst the shovel was tramming in reverse an
outburst occurred at the 956 final ramp location. The outburst showered dust and
small rocks over a large radius, covering the shovel with debris and pushing-in
the Shovel side-window (boom-side).

The operator John Tukas received thermal burns to the upper part of his body and
was hospitalized as a result. John has now recovered and is able to resume work
at the Lihir mine.

Comprehensive investigations were carried out after both incidents and all
recommendations have been implemented, including providing additional resources
to monitor and manage potential slip areas and geothermal outburst areas.

DEWATERING

The pit development is currently below the water table. The 2007 dewatering
program will commission more wells that will depress the water table further
mitigating the ground water inflows into the pit. The presence of hot water does
not increase the risk of another outburst, as these are caused by accumulation
of steam pressure. The steam depressurization program and intrusion of seawater
have also reduced the hot water temperature. The safety hazard associated with
hot water is geysering from blast holes, which can be mitigated by the use of
special covers.

MOVING FORWARD

Both lead and lag indicators are used to measure Lihir's safety performance.
Some of the lead indicators used are number of audits and inspections completed,
percentage of corrective actions closed out, SOP development and review as well
as the number of Job Safety Observations ("JSOs") completed. JSOs are an
integral part of Lihir's behavioral (or cultural) based, safety program. In late
2006, Lihir embarked on a three year program to further improve the safety
culture at its Lihir operation. Lag indicators used are the traditional measures
of injury frequency rates. Lihir measure both lost time injuries ("LTI") and
serious injuries, (which is the total of lost time and medical treatable
injuries, other than first aid). The frequency rates are based on 1,000,000
exposure hours to align with and benchmark ourselves against Australian mining
companies.

In 2006 exposure hours increased with the construction of the new 20 MGW
geothermal plant and the flotation expansion project. By focusing on the
positive performance indicators Lihir managed to reduce actual LTI numbers by
half and reduce the LTI frequency rate ("LTIFR") by nearly two thirds.

LIHIR LTIS AND LTIFR BY YEAR

<TABLE>
<CAPTION>
        1998   1999   2000   2001   2002   2003   2004   2005   2006
        ----   ----   ----   ----   ----   ----   ----   ----   ----
<S>     <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
LTI       12     11     11     16     11     12     13     12      5
LTIFR   2.05   1.70   1.75   2.30   1.80   1.50   1.50   1.53   0.53
</TABLE>

Site wide OH&S safety plans are developed and cascade down through the business
to departmental and sectional levels. Key performance areas and key performance
indicators are then benchmarked and reported on using a balanced score card. The
scorecards are updated monthly and reported across the departments and site so
employees can keep


                                      -13-

<PAGE>

track of our safety performances. Employees participate in setting the
departmental and sectional targets and then "act like owners" to ensure our lead
indicators are met, thus reducing the lag indicators.

Improvements for 2007 also include a strong focus on occupational health issues.
Key areas have been identified such as fatigue and programs are now being
implemented to reduce the affects of occupational health related incidents.
Lifestyle issues are also included and include problem areas such as
hypertension, diabetes and obesity. The aim is to improve the employee's health
and lifestyle and the flow on from this will be seen in increased productivity.

The Occupational Health and Safety Management System ("OHSMS") is currently
being updated and aligned with the Lihir Integrated Management System ("LIMS").
The update is to ensure the OHSMS is current and meets the business needs.

Strong robust systems alongside a positive safety culture where employees act
like owners will ensure Lihir achieves its safety vision of "No Injuries to
Anyone Ever".

COMMUNITY HEALTH - An important benefit provided to the Lihirian community is
improved health care. Currently the Company provides medical services to
employees, contractors and their dependents as well as to the local people
through the Lihir Medical Center at Londolovit, which offers outpatient,
inpatient and preventative health care services. The Medical Center also
provides support through the provision of drugs and services to all the
government and mission run health facilities throughout the Lihir Group of
islands.

Attendance at the Lihir Medical Center during 2006 continued to show an
increasing trend, with more than 68,000 outpatient reviews conducted for the
period. The likely reasons for the increased attendance include, an increase in
the number of people living in the mine affected areas principally through
immigration, poor functionality of the public health system throughout the Lihir
islands, more recently an increase in the size of the Company's workforce and
finally the preferential recruitment of Lihirians which is increasing the number
of dependents who are eligible for free medical care. To help improve the
functionality of government health facilities, a series of initiatives have been
implemented including regular aid post visits by the Company's medical staff, in
house capacity building for aid post workers. Medical staff will continue to
encourage Lihirian students to pursue health related studies as a long term
sustainability initiative.

PROCESSING PERIOD AFTER 2021

Pursuant to the Company's current mine plan, economic grade material will be
stockpiled during the life of the mining operation reaching maximum levels
estimated at 106 million tonnes in 2021. This stockpile material is projected to
have an average grade of 2.1g/t. After applying recoveries of approximately 85%
- 87% based on current operating practices, for higher grade ore being processed
first, production is forecast to average approximately 300,000 ounces per annum
during the post-mining processing period commencing in 2022. The ultimate amount
of material stockpiled and processed may vary depending on future cut-off grades
policies adopted, error estimation inherent with proven and probable reserves
categories, and the overall contained sulphur levels of long term stockpiles.

Under current mine plans based on the 2004 Reserves, the open pit mining period
is forecast to wind down over 2021 and 2022, with 2023 being the first full year
post mining and 2041 being the last full year of processing with, a small amount
being scheduled for 2042. The Company's mine plans may vary in the future,
having effects on stockpiled quantities and the mining and processing periods.

Annual gold production in ounces during the production period following the
mining period is estimated as follows:

<TABLE>
<CAPTION>
SYMBOL        PRODUCTION PARAMETER             UNIT         VALUE
------   -----------------------------   ---------------   -------
<S>      <C>                             <C>               <C>
A        Estimated Stock Pile Material   Mtonnes               113
B        Plant Annual Throughput         Mtonnes               5.6
         (calculation = A/B)             years                  20
C        Gold Grade - average            Au g/t               2.15
D        Plant Recovery                  %                    86.7%
E        Conversion                      grams to ounces   31.1035
</TABLE>

                  APPROXIMATE ANNUAL PRODUCTION OUNCES 335,000
                            (CALCULATION = B*C*D/E)]

During the period of open pit mining, higher grade ore will be fed directly into
the processing plant and the lower, economic grade stockpile ore will be either
fed as flotation expansion feed stock or be stockpiled for processing during the
period after open pit mining ceases. Approximately 113 million tonnes of
stockpile materials is estimated to exist at the end of the mining period in
2021, to give a post mining processing period of over 20 years with cessation of
processing operations around 2042.

LIHIR PROCESS PLANT EXPANSION OPTION STUDY

The current mine production of ore significantly exceeds the process plant
capacity, with the excess ore stockpiled for reclaiming and processing in
future. Accordingly, during 2006 a study into the options for expanding the
Lihir process plant was undertaken. Various options to achieve process plant
capacity increases were examined during the options study, and various
technologies considered for processing the additional ore. Capital and operating
cost estimates were developed to allow a financial analysis of each of the
options considered. The results indicated that the optimum option for expansion
was one where the existing pressure oxidation process technology already in use
at the mine would


                                      -14-

<PAGE>

continue to be utilised. The selected option involves utilising a larger
diameter autoclave than the existing autoclaves, such that the capacity of the
unit would be twice that of each of the existing units. This option provided the
least technical risk and greatest return on capital expended. The annual
throughput capacity of the process plant is targeted to increase to
approximately 11 - 12 million tonnes as a result, depending on among other
things, the sulphur content of the ore feed, and a corresponding increase of
gold production of up to 350,000 ounces. Capital expenditure requirements for
the additional plant and equipment were estimated to be approximately $500 -
$550 million. Additional capital for expansion of the geothermal power
generating capacity that would be required to meet the expanded plant power draw
was estimated to be around $100 million. A feasibility study into the selected
expansion option will be undertaken in order to more accurately estimate capital
and operating costs, and to commence work required for regulatory approvals. In
addition, exploration to expand the required additional geothermal power steam
reserves will also commence in 2007. The feasibility study is expected to be
completed early in 2008, and pending the finalisation of the study, it is
envisaged that construction would commence in 2008, potentially enabling the new
infrastructure to be in full operation during 2010.

RECENT DEVELOPMENTS

ACQUISITION OF BALLARAT GOLDFIELDS NL

On February 26, 2007, the Company gained effective control of an Australian gold
mine development company, Ballarat Goldfields through a scheme of arrangement
which was approved by Ballarat's shareholders and the Supreme Court of Victoria.
The acquisition of all the shares of Ballarat was completed on March 8, 2007
when the Company issued Lihir shares to Ballarat shareholders. Under the scheme
of arrangement, Ballarat's shareholders received five Lihir shares for every 54
Ballarat shares held, valuing Ballarat at approximately A$445.8 million at the
date of acquisition, based on its fully diluted share capital with former
Ballarat shareholders holding around 8% of the issued capital of Lihir.

Ballarat was established in 1984. During the period from 1984 to 2000, Ballarat
focused on exploration drilling, feasibility studies and development of the
Ballarat East field, which is located at Ballarat in the state of Victoria,
Australia, some 100 kilometers west of Melbourne. In 2002, Ballarat shareholders
appointed a new board, and the company was recapitalized. Ballarat is currently
focused on the underground development of the Ballarat East field, as well as
its three other exploration projects in the Ballarat region: Ballarat West and
Berringa, which were acquired in 1998, and Ballarat South, which was acquired in
2004. Ballarat is a development stage property that has not recorded any gold
sales to date.

The development of an underground decline at Ballarat East recommenced in
December 2004. As of December 31, 2006, a total of five kilometers of
development had been completed. The initial development plan involved twin
declines which are known as the Sulieman and the Woah Hawp declines. The
Sulieman decline is designed to act as a drilling platform and in the future
will become the main return ventilation airway for the mine. As of December 31,
2006, development of the Sulieman decline had reached a depth of 330 meters for
a total length of approximately 2 kilometers from the portal. The Woah Hawp
decline will allow access to gold mineralization we believed to be located in
the northern and middle sections of the field. As of December 31, 2006, its
development had reached a depth of 345 meters for a total advance of
approximately one kilometer.

On September 7, 2006, following discovery of the high grade Blue Whale fault at
depth, Ballarat announced a revised development plan which focuses on the mining
of deeper resources, required adjustments to the capital works and deferred
production from 2007 to 2008. The revised development plan estimated a capital
requirement of approximately A$120 million to fund shaft development, decline
and mine development and surface infrastructure.

During Ballarat's financial year ended June 30, 2006, Ballarat commenced
construction of the process plant for the Ballarat East project. Construction of
the first stage of the plant was completed in December 2006.

The area where all of Ballarat's exploration projects are located, the Ballarat
district, has historically yielded over 12 million ounces of gold, making it the
second largest field in Victoria, and the fifth largest in Australia in terms of
production to date. The majority of gold mining occurred between 1851 and 1917,
after which the field closed due to poor economic conditions and labor shortages
brought about by the First World War. A feature of the historic mining activity
is that the gold deposits were mined by numerous companies and individuals who
had rights to various sections of land over Ballarat. This fragmented ownership
across the field often resulted in multiple companies mining the same ore body,
and as a result a comprehensive understanding of the geological structure of the
field was not possible. Since then, only minor works had been undertaken until
Ballarat consolidated the leases across the goldfield and developed a new,
comprehensive geological model which has identified and attempted to estimate
the exploration potential amongst and beneath the historic workings of the
Ballarat East field.

Lihir believes that its acquisition of Ballarat will strengthen the future of
Ballarat's operations by providing the financial resources required to take the
Ballarat East project to full development, which will diversify the Company's
operations, add a new revenue stream, in a new geographic area, and provide a
significant avenue for potential production growth.


                                      -15-

<PAGE>

C. ORGANIZATIONAL STRUCTURE

Lihir Gold Limited is a corporation incorporated in 1995 under the laws of PNG
and registered under the Companies Act. The registered office of the Company is
located at Seventh Floor, Pacific Place, Cnr. Champion Parade and Musgrave
Street, Port Moresby, NCD, PNG while the Company has a corporate office located
in Brisbane, Queensland, Australia. The Company owns and operates a gold mine
located on Lihir Island in the New Ireland province of PNG and is developing the
Ballarat project in the State of Victoria in Australia.

The Lihir gold mine is owned directly by Lihir Gold Limited. Until October 10,
2005, the Company and the Lihir operation were managed by Lihir Management
Company Limited, a company incorporated in PNG, which was, until that time, a
wholly-owned subsidiary of Rio Tinto. As part of the termination of the Rio
Tinto management arrangements, the Company acquired all of the shares of Lihir
Management Company Limited. See "Item 10. Additional Information - C. Material
Contracts - Termination of Rio Tinto management arrangements in 2005". Lihir
Management Company Limited has one wholly-owned subsidiary, Lihir Business
Development Limited, which is incorporated in PNG.

As a result of a merger effected on February 2, 2000, Niugini Mining Limited,
incorporated in PNG, became a 100% owned subsidiary of the Company. Niugini
Mining Limited's shares in the Company were converted to Class B shares and, as
at the date of this report, Niugini Mining Limited holds 161,527,405 Class B
shares in the Company. Niugini Mining (Australia) Pty Ltd, incorporated in
Australia, is a 100% owned subsidiary of Niugini Mining Limited. Niugini Mining
(Australia) Pty Ltd is the sole subsidiary of Niugini Mining Limited. Neither
company has continuing operations. However, contingent liabilities relate to
both companies. See Notes 25 to the financial statements.

On November 7, 2005, Lihir Services Australia Pty Ltd was acquired and became a
wholly-owned subsidiary of the Company. The entity was incorporated and
registered in Australia on September 2, 2005. Lihir Services Australia Pty Ltd
has entered into a services agreement with Lihir to provide certain management
and related services.

On October 16, 2006, Lihir Australian Holdings Pty Ltd ("LAH") was acquired and
became a wholly-owned subsidiary of the Company. This entity was incorporated
and registered in Australia on September 4, 2006.

On March 8, 2007 LAH completed the acquisition of all the shares of an
Australian gold mine development company, Ballarat Goldfields NL ("Ballarat")
through a scheme of arrangement which was approved by Ballarat's shareholders
and the Supreme Court of Victoria. See "Item 4. Information on the Company - B.
Business Overview - Recent Developments".

New Resources Pty Ltd, Berringa Resources Pty Ltd, Ballarat West Goldfields Pty
Ltd and Corpique (No. 21) Pty Ltd are wholly-owned subsidiaries of Ballarat.
These entities were incorporated and are registered in Australia.


                                      -16-

<PAGE>

                                  (FLOWCHART)

D. PROPERTY, PLANT AND EQUIPMENT

Lihir is the sole owner and licensed holder for gold mining, processing, and
associated infrastructure assets on Lihir Island, PNG. See "Business Overview -
Description of Operations". As at December 31, 2006, the facilities have a
replacement value of approximately $816 million.

MINING RIGHTS

Lihir holds the Special Mining Lease which gives the exclusive right to mine and
produce gold from the Luise Caldera area on Lihir Island, including the site of
the processing plant on Putput Point. The Special Mining Lease is governed by
the Mining Development Contract. The Special Mining Lease can be terminated only
if the Mining Development Contract is properly terminated. For a discussion of
applicable PNG mining laws and the specific terms and conditions of the Special
Mining Lease, Exploration License and Mining Development Contract, see "Item 10.
Additional Information - C. Material Contracts - PNG Mining Laws and Related
Agreements with PNG Government".

Under the PNG Mining Act 1992, a developer may apply for a lease for mining
purposes, or LMP, to cover ancillary areas required to support a mining
operation. A mining lease is required for any quarrying operations outside the
Special Mining Lease. Lihir has been granted two leases for mining purposes, one
which covers the accommodation and commercial center, the Londolovit reservoir
and the Lakunbut dam and the other which covers the airstrip. The Company has
also


                                      -17-

<PAGE>

been granted two mining leases for a hard rock quarry and limestone quarry.
These leases are joined by three mining easements that provide corridors for
road access and power line and water supply.

The Special Mining Lease covers 1,739 hectares and includes the Luise Caldera,
Luise Harbour and part of Putput Point. As such, it covers the ore body,
processing plant, stockpiles and marine facilities. The LMP for the
accommodation and commercial center covers 674 hectares in the Londolovit area
and the LMP for the airstrip covers 34 hectares. The mining lease for the hard
rock quarry covers 47.7 hectares while the mining lease for the limestone quarry
covers 23.7 hectares.

LIHIR ISLAND (ANIOLAM ISLAND)

Aniolam Island (also known and commonly referred to as Lihir Island) is the
largest of the Lihir Group of four islands. It is located 925 kilometers
directly northeast of the PNG capital of Port Moresby. The Lihir Group of
islands forms part of the province of New Ireland.

Lihir Island is a volcanic seamount that rises steeply from sea level to about
600 meters above sea level. It is approximately oval in shape, roughly 22
kilometers long from north to south and 14.5 kilometers from east to west at its
widest points. There is a caldera from what is believed to be a no longer active
volcano (the "Luise Caldera"), which adjoins a harbour (the "Luise Harbour") on
the east coast of the island. All of the known ore deposits of the Lihir mine
are located in the Luise Caldera.

Lihir Island experiences a high level of rainfall, averaging about 3,750
millimeters per year with a range between 2,800 and 5,400 millimeters
experienced during operations to date. It has an annual mean relative humidity
of about 82%. The temperature generally varies between 20(0)C and 30(0)C (68(0)F
and 86(0)F). Lihir Island is north of the area most affected by cyclones.
Natural vegetation is mostly rain forest.

Prior to the development of the Lihir mine, Lihir Island was largely
undeveloped. Subsistence agriculture was the principal occupation of most
Lihirians, supplemented by some cash crops such as copra.

GEOLOGY

Lihir Island is made up of five Miocene-Pleistocene volcanic units, of which
three are recognizable volcanic craters (including the Luise Caldera) and two
are sequences of mafic volcanic rock that pre-date the three volcanoes. The
volcano that formed the Luise Caldera was the most recent major volcanic event
on the island. It was formed in the Pleistocene age, less than one million years
ago. Remnant geothermal activity is present in the Luise Caldera, evidenced by
hot springs and fumaroles. Studies of groundwater circulation suggest there is
no magma present below the Luise Caldera.

The Luise Caldera is a well-defined, elliptically shaped caldera, which rises
steeply to several peaks over 600 meters above sea level. The caldera is open to
the northeast where it is breached by the sea to form Luise Harbour. Luise
Caldera measures approximately 5.5 kilometers by 3.5 kilometers. Currently
defined gold mineralization occurs within an area of about 2.0 by 1.5 kilometers
near the centre of the caldera.


                                      -18-

<PAGE>

                                     (MAP)

Exploration work since 1983 has defined several adjacent and partly overlapping
mineral deposits in the Luise Caldera, the principal ones being Lienetz,
Minifie, Coastal, Borefields and Kapit. Of these, the largest is Minifie, which
is about 1,000 by 600 meters with mineralization extending from the surface (50
meters above sea level) to 250 meters below sea level. The Lienetz deposit north
of Minifie is about 800 by 400 meters, and extends from the surface (140 meters
above sea level) to 300 meters below sea level. The smaller Coastal deposit
adjoins Lienetz on the northeast, separating it from the sea. The Borefields
zone extends to the north-east along the Minifie structure and is an extension
of the Minifie mineralization. The Kapit deposit, extending 300 to 400 meters
north of Lienetz, is about 450 by 300 meters with mineralization extending from
near surface to 250 meters below sea level. Drilling in 2002 and 2003 extended
the limits of Lienetz to the North West, confirmed physical connection between
Lienetz and Kapit and extended the current knowledge of the Kapit deposit. By
February 2004, the Kapit deposit had been sufficiently explored by drilling,
geotechnical, geothermal and economic studies to partially convert the resource
to reserves.

The bulk of the known gold mineralization is located in Minifie, Lienetz and
Kapit. All of the deposits are connected by areas of low-grade mineralization.
An analysis of the structural patterns has led to the hypothesis that the
Lienetz, Coastal and Kapit areas are part of a single mineralization system,
with a separate feeder system accounting for the Minifie and Borefields
mineralization. The Coastal and Borefields pits are not currently included in
the defined reserves.


                                      -19-

<PAGE>

                                   (GRAPHIC)

Based on exploration work to date, gold appears to be the only metal of economic
significance present within the Luise Caldera. Gold occurs primarily as
sub-micron size particles in sulphide minerals. Sulphide content is relatively
high, with the average sulphur grade of the reserves being 6.15%. The main
sulphide material is pyrite, with the marcasite form present as an accessory
mineral. Arsenopyrite is rare. Some, limited free gold is increasingly apparent.
Oxidation layers range in thickness from minimal in low lying areas such as
Minifie to a maximum of 70 meters over the higher parts of Lienetz and Coastal
and Kapit.

The mineral deposits in the Luise Caldera are hosted by volcanics, intrusives
and breccias, and there has been extensive alteration of these rocks within the
caldera. Two major alteration episodes have been identified, an earlier and
deeper "porphyry style" event resulting in potassic alteration grading laterally
to propylitic alteration and a later and higher level epithermal event producing
argillic, advanced argillic and phyllic alteration. Because the intensive
alteration has destroyed much of the original host rock lithology, the deposits
have been classified into a series of ore types based on alteration, hardness,
degree of brecciation and similar factors. While this is more a metallurgical
classification than a geologic one, it has proved useful in determining many of
the mining and processing characteristics of the ore body and host rocks. The
ore types are roughly sub-horizontal and form a fairly consistent vertical
sequence. The general sequence is that of clay-rich rock, grading into white
mica-rock, then felspar-biotite and, at depth, into felspar-biotite-anhydrite.
Within and on the boundaries of the ore types, geological structure is also a
major influence in the localisation of higher grades in the ore body.

RESERVES ESTIMATES

During 2003 and 2004, an intensive resource definition and extension drilling
program was undertaken at Lihir, which partially converted the Kapit deposit
into reserves. Potential exists to further extend the Company's reserve on
Lihir.

Development of the Kapit deposit will require the construction of a coffer dam
in the shallows of Luise Harbour. A substantial geothermal depressurization
program will be required prior to mining Kapit. Options are being investigated
for early commencement of this program. Economic and technical studies have
demonstrated the financial and technical viability of the coffer dam and
depressurization programs and the relocation of the current low-grade stockpile
lying over this ore. The Kapit deposit development lies within Mining Lease
Special Mining Lease number 6 held by the Company.


                                      -20-

<PAGE>

Discussions with the PNG Government have confirmed that, subject to due
processes of community approvals, there currently are no foreseeable regulatory
impediments to the granting of necessary approvals and permits for the
development of the deposit.

Appropriate reviews and additional studies in the areas of mining, geotechnical,
geothermal, groundwater and geological modelling have been carried out to
confirm and further develop the assumption base for the mine. Site reviews of
mining and processing costs have provided for an improved modelling and
optimisation base for the latest estimate. After review of market and peer price
data the Company adopted a long-term gold price assumption of $475 per ounce.

The ore reserves in the table below are based on the new resource model at a
$475 per ounce gold price assumption, adjusted to take account of mining
depletion and reconciliation changes to December 31, 2006.

<TABLE>
<CAPTION>
                                                                            CONTAINED
                               RESERVE         TONNES      AVERAGE GRADE     OUNCES
                              CATEGORY     (IN MILLIONS)      (G AU/T)     (MILLIONS)
                            ------------   -------------   -------------   ----------
<S>                         <C>            <C>             <C>             <C>
Un-mined Ore                   Proven              0               0             0
                              Probable         212.0            2.89          19.7
Economic Stockpiled Ore*       Proven           46.5            2.57           3.8
TOTAL RESERVES                                 258.5            2.83          23.6

* Economic Stockpiled Ore

                             High Grade          0.6            5.26           0.1
                            Medium Grade         2.9            3.47           0.3
                             Low Grade          43.7            2.47           3.4
TOTAL STOCKPILED               PROVEN           46.5            2.57           3.8
</TABLE>

Reserves have been prepared in accordance with Industry Guide 7 under the United
States Securities Act of 1933 and the following definitions:

The term "reserves" means that part of a mineral deposit that can be
economically and legally extracted or produced at the time of the reserves
determination.

The term "economically", as used in the definition of reserves, implies that
profitable extraction or production under defined investment assumptions has
been established or analytically demonstrated. The assumptions made must be
reasonable, including assumptions concerning the prices and costs that will
prevail during the life of the project.

The term "legally", as used in the definition of reserves, does not imply that
all permits needed for mining and processing have been obtained or that other
legal issues have been completely resolved. However, for reserves to exist there
should not be any significant uncertainty concerning issuance of these permits
or resolution of legal issues.

The term "proven reserves" means reserves for which; (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed sampling; and (b) the
sites for inspection, sampling and measurement are spaced so closely and the
geologic character is so well defined that size, shape, depth and mineral
content of reserves are well established.

The term "probable reserves" means reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven reserves,
but the sites for inspection, sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven reserves, is high enough to assume continuity between points of
observation.

Reserves quoted are those remaining below the mining surface at December 31,
2006, within an updated pit design.

Stockpiled ore comprises mined ore above waste cut-off grade on the stockpiles,
as of December 31, 2006.

The number of ounces of contained gold does not indicate the number of ounces
that ultimately will be recovered. The number of ounces ultimately recovered and
available for sale will depend upon, among other things, mining efficiency and
processing efficiency.

The calculation of break even cut-off grade of 1.38g/t for ore fed directly to
the autoclaves and 0.87g/t for ore fed via the flotation circuit considers gold
price, fixed and variable site costs, refining costs, royalty, mining levies,
and assumed recovery of the stockpiled lower grade fraction. The costs used are
based on life of mine modeled costs broken into two periods, the 'mine and
process period', and 'stockpile processing period'. The life of mine costs
consider all operating conditions, capital and factors associated with the whole
operation for each incremental year of operation. The recoveries used are based
on current operating experience that has shown to be a logarithmic average for
all material types.

Costs have been split by fixed and variable, to allow a more definitive estimate
during the two main periods of 'mine and process period', and 'stockpile
processing period'. The components of the cut-off grade plus the incurred mining
costs are used in the optimization process to determine the ultimate pit limits
and economic ore to be mined. Mining costs will vary and are most dependent on
material types, blasting characteristics and haulage distances.


                                      -21-

<PAGE>

The application of cut-off grade ("COG") in the determination of reserves and
optimization mine schedules uses pit optimization software, with cut-off grade
optimization and blending modules. The process uses a strategy of progressive
refinement to develop the optimum pit. The final stage of the process for
cut-off policies uses a scheduler. This scheduler is a constraint-based
scheduling system that maximizes NPV. It is capable of optimizing the mining
schedule (including cut-off grade strategy) within specified constraints.

There are no significant quantities of silver in Lihir's reserves nor are any
significant quantities of silver recovered.

EXPLORATION

The Luise Caldera is the remnant of a volcano which suffered a seaward collapse
of its north-eastern slope. It resembles an elliptical crater which has a
generally flat central area surrounded by steep walls. The crater is breached on
the seaward side, so the steep walls do not entirely surround the central area.
The sudden collapse of the original volcano created conditions favourable for
the deposition of gold mineralization in the central portions of the remaining
caldera. Within the Luise Caldera lie all the reported gold reserves on Lihir
Island. Any area within this central portion which has not yet been
systematically drilled, remains prospective for the discovery of additional gold
mineralization. Below is a summary of recent exploration activities completed
within the Luise Caldera. The graphic following that summary shows the land
leases (shaded in colours of green and yellow) available to Lihir for
exploration activity.

The last significant exploration-drilling program, involving the Minifie
deposit, was finalised during 2006, with results confirming current
interpretations of the down dip extent of the deposit. In total, 45 diamond
drill holes for 11,346 meters were completed. Drilling was also undertaken in
the area between Kapit and Lienetz, following up the discovery of mineralisation
linking the two deposits. The 17 holes for 5,542 meters drilled in the Kapit
link zone reinforced the continuity of the ore system in this area. These holes
confirmed earlier drilling in this area, which showed that while the grades are
relatively low in the shallower areas of the southern end, (thereby limiting the
viability of mining the Lienetz and Kapit deposits with one pit), mineralization
strengthens towards the Kapit zone with grade improvement towards four grams of
gold per tonne. Currently the Kapit deposit to the west and south has been
defined, while the mineralization remains open to the north and to the east
under Luise Harbour. Drilling results, while encountering minor vein-style
mineralization, have confirmed economic closure of the Lienetz, Minifie, and
Kapit deposits to the west.

The drilling program for 2006, which was significantly reduced from previous
years' programs, looked at appropriate infill and geotechnical work in the
Minifie, Lienetz, and Kapit areas, with an increasing emphasis on improved ore
definition and design criteria for mine scheduling purposes. Exploration
expenditure for 2006, 2005 and 2004 was $6.0 million, $6.2 million and $5.3
million, respectively. Drilling is scheduled for 2007 under the South Kapit
stockpile (continuing on the from 2006 program), and in the eastern Kapit area,
in an effort to increase the available resources and in the Kapit area in an
attempt to convert inferred resources currently on the margins of the mine
design, into indicated resources.

Early stage exploration is also continuing over other parts of Lihir Island. The
Luise Caldera is one of five distinct volcanic remnants which together form
Lihir Island. A number of these volcanic remnants display geological
similarities to the Luise Caldera, and are therefore considered prospective for
gold mineralization.

Exploration programs are planned to fully explore the potential of the remainder
of the Island, through a phased program of outcrop mapping, stream sediment and
outcrop sampling, soil sampling, and drilling (assuming sufficient encouragement
is gained from each phase to justify follow-up investigation). Subject to
negotiations for land access, it is anticipated that the whole island will have
been mapped and surface sampled within the next five years. Follow up
exploration will be dependent upon the results collected from this work.
Expenditure for this work is planned to average $0.3 million per annum over the
next five years.

Exploration activities are expected to be funded from internal cash flows.

ENVIRONMENTAL CONSIDERATIONS

OVERVIEW

The Company operates in accordance with an environmental plan ("EP") approved by
the PNG Government when the project was first established and works closely with
that government in implementing all statutory monitoring and reporting as
specified in its environmental monitoring and management program ("EMMP"). It
also operates in accordance with all water use permits issued for the site. The
EMMP details the regular monitoring which is undertaken at over 50 locations
around the Lihir island group for over 50 environmental parameters. All results
from environmental monitoring are reported to the government and landowners on a
regular basis.

The EMMP (2004-2007) was reviewed by the Company and the PNG Government to
ensure the ongoing efficacy of the environmental management programs and was
subsequently endorsed by the PNG Government. The Company was actively engaged
with the PNG Government in its development of the new Environment Act for Papua
New Guinea. The Environment Act was passed by Parliament in December 2000 and
combines all previous environmental legislation into one Act. It came into
operation on January 1, 2004. Transitional provisions deemed the original EP to
have the status of an environmental permit under the new Act. These provisions
also allow the Company to continue activities under water use permits issued
under the former laws for so long as those activities continue to be authorized
under the original EP.

Lihir has completed a number of process plant improvements since the
commencement of operations, including addition of a flotation circuit to further
improve the economics of the project, improvements in mine water/sediment/acid
rock


                                      -22-

<PAGE>

drainage management ("MWSAMP") and the use of geothermal steam for power
generation. As a result of these capital improvement programs the processing
throughput has increased to 4.3 Mtpa compared with the original design capacity
of 2.8 Mtpa.

The flotation circuit increased the maximum ore-processing throughput from 4.3
Mtpa to 6.7 Mtpa. A feasibility study was submitted to the PNG Government in
March 2005 and it was acknowledged by the Department of Conservation and
Environment ("DEC") that the expansion was accommodated under the existing
project approvals including compliance with the Water Use Permit (WUP 29/990)
for discharging tailings via Deep Sea Tailings Placement ("DSTP") that will
result in the expected discharge of 16,500 m(3)/hr compared to the permitted
allowance of 20,833 m(3)/hr.

In parallel with planning and implementation of the addition of a flotation
circuit, the Company made a voluntary submission of an environmental inception
report and environmental impact statement ("EIS") for the project in conformity
with the new Environmental Act. The new EIS was endorsed by DEC, but was
referred by the Minister for Environment for consideration by a Working Group to
provide further advice. Submissions have been given by the Working Group to DEC.
Consideration of the new EIS is to be undertaken by DEC before the new EIS is
referred to the Minister for approval. If the new EIS is approved, the Company
will be entitled to the grant of an environment permit which will define the key
environmental impact parameters as defined in the EIS. If the new EIS is not
approved, the Company will continue to rely on its original EP.

The Company has employed independent environmental consultants report on its
environmental compliance. In addition, the PNG Government carries out its own
independent monitoring for elements contained in the EMMP to confirm the
Company's results, and, the Company complies with its own stringent corporate
reporting requirements, initially imposed by Rio Tinto through the management
agreement, and maintained internally under independent management.

In addition to the statutory environmental compliance monitoring and reporting
through the EMMP, the Company undertakes studies to improve understanding of the
environmental consequences of the operation. The Company is involved in research
projects with CSIRO Division of Marine Science, CSIRO Center for Mining
Environmental Research, CSIRO Center for Advanced Analytical Chemistry Energy
Technology, James Cook University, Canberra University, URS and Klohn Crippen
Consultants Ltd. While the Company's monitoring and research projects are
continuing, results from investigations to date suggest that the level of
impacts originating from the Company's activities are less than originally
predicted.

The Company obtained full certification of its Environmental Management System
("EMS") against the ISO14001 standard in May 2004, making Lihir the first mine
in PNG to do so.

ENVIRONMENTAL PLAN

Extensive environmental baseline studies of the Lihir Group of Islands were
carried out during exploration with the involvement of the Lihirian community.
These baseline studies were followed by an environmental impact assessment of
the Lihir mine, which highlighted key environmental issues considered during
project planning in an attempt to minimize project-related environmental
impacts. The environmental impact assessment determined that the sensitive
environmental variables most likely to be impacted by the project included: the
loss of nesting habitat for megapodes (a local fowl valued for its eggs), sago
and other economic tree removal, diversion and alteration of stream habitat, and
the effects of sedimentation on the shallow and deep water marine environment
around Luise Harbour. Each of these impacts are outlined below; however, in
summary, ongoing environmental monitoring performed by the Company (involving
the community), and independently by the PNG Government and independent
consultant reveals that impacts to date are less than that anticipated in the
project's EP as factored into the approval by the PNG Government for the project
to proceed.

Following its environmental impact assessment, the EP was prepared by
specialized external consultants (NSR Environmental Consultants Pty Ltd) on
behalf of the joint venture and submitted to the PNG Government in accordance
with Section 4(6) of the PNG Environmental Planning Act. The EP was subsequently
approved and describes the proposed development, existing environment,
anticipated impacts and proposed safeguards, and the EMMP for the construction
and operational phases of the mine's development.

The 2006-2007 research program defines a set of integrated projects with a
primary objective to define marine impacts associated with Lihir's operations.
They relate to:

     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);


                                      -23-

<PAGE>

     4.   Deep water physical marine investigations including additional water
          column current velocity monitoring and sub-surface plume definition
          (Ian Hargreaves and Associates); and

     5.   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)

In the Mining Development Contract, Lihir has agreed to comply in all material
respects with its EP. The EP may be varied either by the Company, with PNG
Government approval, or by the PNG Minister for Environment and Conservation if
there is a material danger to public health and safety, if the conduct of normal
operations in accordance with the EP poses an environmental impact either not
contemplated or different than contemplated in the EP, or if substantially
better environmental control technology becomes available.

LAND AND HABITAT IMPACTS

The major land and habitat impacts associated with the Lihir operation are the
alteration of land use in and around the mine and plant site areas from natural
environment to mining lands, and the loss of habitat types important to local
inhabitants. A compensation package, forming part of the IBP was negotiated and
accepted by the Company, the PNG Government, and landowners, addresses these
environmental impacts, including the loss of megapode nesting habitat and
economically valuable vegetation, diversion and alteration of stream habitat,
and impacts by sedimentation on the water quality of the shallow and deep water
marine environment around Luise Harbour, among other land use issues.

Geothermal areas of the Luise Caldera are important nesting grounds for a
sub-species of megapode. This sub-species is not unique to the Lihir Group of
islands and is genetically and morphologically similar to the populations found
on other nearby islands. Historically, it was important to Lihir Island
primarily because the local inhabitants used its eggs as a food source. Though
significant areas of nesting habitat in the caldera area have been lost,
continuous detailed surveys have shown that nesting burrow numbers are being
maintained in undisturbed areas.

Similarly, repeat post-baseline surveys of sago and bamboo resources along the
east and north-east coast of Lihir Island, show that while some sago areas were
initially lost to road and infrastructure construction, the overall numbers of
sago have increased. This is the result of a reduction in the requirement for
traditional food and building resources since the establishment of the mine.

WASTE ROCK AND MARINE IMPACTS

Given the potential for acid generation from certain waste rock types, permanent
submarine disposal of waste rock was determined and agreed to be the preferred
method for long-term prevention of sulphide oxidation and subsequent acid
generation from geological waste. In addition, the lack of available land for
terrestrial disposal also supports the marine placement of waste rock and
tailings. The major impacts of the deep-water waste rock and tailings disposal
are increased turbidity in the water column within and beyond Luise Harbour,
(which declines along the north and south coast), and smothering of deep
seafloor dwelling organisms.

The Company regularly monitors the impact of its marine disposal operations and
has always remained in compliance with the PNG Government water quality criteria
for the protection of marine ecosystems. In addition, a comprehensive three-year
research program on the impact of marine geological waste disposal on fisheries
resources around Lihir conducted by CSIRO Division of Marine Science, (completed
in 2003 with the report published in 2004), revealed no significant impacts on
the diversity, abundance or bio-concentration of metals in fish as a result of
the mine's presence. The Company's own monitoring results of marine sea grass
and shellfish are consistent with the CSIRO findings. While the three-year study
concluded that the Lihir mine had local impacts on the shallow-water and
deep-water fish and benthic reef populations, most likely due to sedimentation,
the most recent estimated densities of reef-fishes for Lihir Island indicates
there have been no downward trends in fish abundance since 1999, indicating the
fish populations are in steady state. While long-term monitoring of the shallow
water reef fish and seabed communities around Lihir Island is continuing
research is also being directed towards assessing the impacts on deep seafloor
organisms and the impact of marine waste disposal on ocean plankton and pelagic
fishes.

The major impacts associated with ocean disposal of mine waste continue to be
aesthetic, involving surface sediment plumes resulting from barge disposal of
waste rock and storm water run-off from roads and mining areas. In 2002 the
Company voluntarily commenced a program to further improve its management of
water, sediment and acid leachate from stockpile drainage entering the ocean.
This continuing program, is being implemented by Klohn Crippen Consultants Ltd
on behalf of the Company with the aim of, among other objectives, reducing the
visual impacts of sediment in the ocean surrounding the mine.

The most recent work includes the completion of the Phase 7 diversion channel
and the decommissioning of the temporary diversion channel. Meanwhile
maintenance and cleaning of sediment traps in the Kapit Floodway, between the
existing Kapit South Economic Grade Ore Stockpile and the Kapit Flat EGOS, will
continue. The southern portion of the channel will need to be realigned in
2007/2008 as Phase 9 mining advances. Ultimately, it is expected that most of
the water in the diversion channel should be relatively clean and could be
discharged directly into Luise Harbour.


                                      -24-

<PAGE>

STOCKPILE DRAINAGE

The EP suggested that drainage from the economic grade ore stockpiles may cause
acidic run-off, and elevated levels of dissolved metals, including iron, copper,
arsenic, zinc, aluminum, manganese, cadmium, lead and, possibly, mercury and
chromium. The Company installed some stockpile covers to reduce the generation
of stockpile leachate, however the cover was removed towards the end of 2006 due
to continuing tears, lacerations and failures. The cost of a replacement cover
has been included in the current budget. The concentration of these metals in
the marine environment at Lihir's compliance monitoring locations, remain within
the limits imposed by the PNG Government for the protection of marine
ecosystems, and there is no evidence, as supported by the CSIRO Division of
Marine Science study, that discharge of stockpile leachate has had a deleterious
impact on fisheries communities adjacent to the mine.

The discharge of acidic run-off water from other areas is mitigated prior to
entering the ocean, by dilution with large amounts of water from the pit
dewatering bore field, which has a high alkalinity and therefore buffers acid
leachate run-off. As part of the Kapit North Stockpile development, the Company
is currently undertaking engineering works to further improve the management of
acid water from the stockpiles.

TAILINGS DISPOSAL

The reliance of the Lihirian communities on coastal lands means that a
land-based tailings storage facility would have had to be situated in the
interior mountainous area of the island. Given the seismic conditions, the
rugged topography, high rainfall and potential for acid generation, the cost and
risks to the environment and people of constructing a stable land storage
facility there for tailings were considered prohibitive. In addition, due to the
net rainfall surplus, storage of tailings on Lihir Island was not likely to be
possible without long term treatment of the effluent run-off water from the land
storage facility, the residues from which could also require land-based storage.
The Company and the PNG Government concluded that submarine disposal of tailings
was the safest disposal option for the Lihir mine operation.

Tailings are discharged under water at a depth of 128 meters through a 1.2 meter
diameter steel-cased high density polyethylene ("HDPE") pipeline. The discharge
depth was chosen following extensive field-work on the structure and currents of
the ocean in the vicinity of the outfall. This led to the development of a
predictive model of tailing behavior once discharged. The discharge point at 128
meters is below the mix layer depth, the euphotic (biologically active) zone and
where the density of the receiving ocean water precludes the tailings floating
back into the surface water. The tailing is a diluted mixture of solids and a
combination of fresh and salt process water and saltwater used in the cooling of
the power and oxygen plants. The water quality around the area of the outfall is
monitored on a regular basis, to ensure that concentrations of metals and
cyanide are not above PNG water quality criteria for protection of marine
ecosystems. Monitoring data to date show that, at all times, water quality at
marine compliance locations have been better than the prescribed standards.

At least 90% of the residual cyanide contained in CIL tailings is detoxified by
reaction with iron prior to disposal. Cyanide detoxification is achieved by
controlled mixing of iron-rich CCD liquor with CIL effluent to complex the free
cyanide. A mixing tank allows sufficient retention time for the reactions to
proceed and the tailings disposal is managed to ensure PNG water quality
standards are met.

In addition, the Company has carried out extensive validation studies of the
behavior of the tailing once it leaves the end of the pipe and is discharged to
the ocean. These studies have shown that approximately 5% of particles are
predicted to settle out of the DSTP density current with 95% reporting to
subsurface plumes. The increase in the deposition footprint reported in 2005
largely reflects the improved understanding of the behavior of the ocean
currents and ability to measure fine scale deposition of sediment in deep ocean
waters, which was beyond the capability of equipment available at the time the
project's original EP was submitted and approved. The Company continues to
monitor the depositional footprint associated with the density current and
subsurface plumes using a combination of acoustic current profilers, deep sea
sediment sampling and remote sensing techniques.

Submarine disposal of tailings is only appropriate under certain geographical
and physical conditions, including low velocity ocean currents, absence of
upwelling, steep slopes and deep surrounding ocean, all of which occur at Lihir.
International concern regarding marine tailings disposal is based on the
perception that it could lead to major metal contamination. Bottom-dwelling
marine organisms colonizing stabilized waste rock or tailings deposits may be
exposed to elevated metals concentrations in the sediments. Tissue metal
enrichment may then occur and may be transferred to predatory fish. As discussed
previously, a comprehensive three-year study undertaken by CSIRO Division of
Marine Science concluded that there is no evidence of metal enrichment in fish
species around Lihir Island as a result of the mine. Further research on other
marine organisms, including deep seafloor dwelling organisms and plankton
species, described previously, is currently underway.

REHABILITATION AND DECOMMISSIONING

The approval of the environmental plan required the Company to undertake
rehabilitation on a progressive basis. As with all environmental monitoring
reporting requirements, rehabilitation activities are reported to the PNG
Government on a regular basis.


                                      -25-

<PAGE>

The Company initially prepared a conceptual mine closure plan, (or "CMCP"),
which details the Company's options with respect to mine closure, as well as
assigning costs associated with those various closure options. These costs are
being charged to operating costs during the operation of the project, to ensure
that adequate financial resources are available for closure and decommissioning
at the cessation of mining and processing. The various closure options
identified in the CMCP were reviewed during 2004 and early 2005 to address such
issues as the final void of the pit, and the effect of mining the Kapit deposit,
which was converted to reserve in February 2004. The major areas to be dealt
with by rehabilitation efforts at closure, are the open pit area, and low-grade
ore platforms. Closure costs are estimated at approximately $41.0 million. This
has increased from 2005 due to the Kapit landslide. This amount is discounted at
the Company's credit-adjusted risk-free rate to give rise to a liability of
$11.1 million, as is currently reflected in the Company's balance sheet. As
currently constituted, the Company believes that the sum of $11.1 million,
invested today at a rate of return equivalent to Lihir's credit-adjusted
risk-free rate, would ensure the Company had sufficient funds to meet the
rehabilitation needs associated with the CMCP.

The annual review of the mine closure plan indicated little change in the
accounting provision going forward. The next review of the CMCP is due in 2008.

SEISMIC CONSIDERATIONS

Lihir Island is located in a region of moderate seismic activity. However,
because intense seismic activity occurs in regions approximately 90 and 200
kilometers to the south, a seismic hazard study was undertaken by Dames & Moore
commencing in 1987. This study was updated in February 1992, and a further
review undertaken in 2000.

To evaluate the seismic environment of Lihir Island, an examination was
undertaken of the regional earthquake setting of PNG and the Solomon Islands. A
mathematical model was developed to estimate the probability and characteristics
of earthquakes at Lihir Island. This model has subsequently been modified and
updated to incorporate the more than 1,640 earthquakes of magnitude 5 or greater
which have occurred within 200 kilometers of the site since the original 1987
study was completed.

The results of the seismic hazard study were used to develop earthquake design
criteria for structural design, and earth pressures for retaining wall design,
liquefaction assessments, dynamic slope stability, and assessment of tsunami
threat and extreme ocean water levels. These earthquake design criteria were
adopted for design purposes throughout the Lihir mine. The further review in
2000 substantially confirmed the suitability of the original criteria, and has
been adopted as the basis of all ongoing structural design at Lihir.

INSURANCE

The Company has a comprehensive insurance program providing coverage for
property damage & business interruption (property loss or damage, business
interruption and construction risks), combined liability (public, products and
errors & omissions), directors & officers liability, marine liability, aviation
liability, crime (fidelity guarantee, theft by employees) and money (theft by
people other than employees). Deductibles apply to any claim. Major property
damage and business interruption risks are assessed annually. While the
insurance program is comprehensive, as outlined in "Item 3. Key information - D.
Risk Factors" there is still some risk that insurance coverage may not address
all operating risks.

Workers' compensation and medical insurance for employees are separately
provided for under PNG policies.

While the Company has obtained the required political risk insurance in favor of
its lenders, covering the full extent of borrowings under the Syndicated
Facility Agreement, the Company does not receive any benefit from this
insurance. Under the policy, any payment will become subrogated to the rights of
the banks against the Company in respect of that payment. No political risk
insurance has been, or is currently proposed to be, arranged for the benefit of
the Company. See "Item 10. Additional Information - C. Material Contracts -
Financing Agreements".

SECURITY

The Company has supported the establishment of a law and good order committee on
Lihir by the community. This committee has liaised closely with the Royal PNG
Constabulary (Police) and other relevant agencies. Several initiatives on
community policing, such as education campaigns on illicit drugs, alcohol abuse
and domestic violence continue to be pursued. There have also been training
courses conducted to improve the performance of Village Courts. Village Courts
are an important level of the judicial system in the local community. At a
District Court level, a resident magistrate continues to be stationed on Lihir,
and court facilities have been established allowing the hearing of criminal and
civil matters without long delays.

Project security encompasses the plant, mine site, commercial area, housing
estate, camps, hospital, airport and associated infrastructure. These services
are provided by a local security company with security personnel managed and
supported by Company personnel.

A police station and cell block were completed and handed over to the Royal PNG
Constabulary in late 1997. The Company also provides government housing and
other support to the Lihir police contingent. External police support can be
mobilized from Kavieng or Rabaul if required. Flight distances from both of
these centers are less than one hour.


                                      -26-

<PAGE>

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. OPERATING RESULTS

INTRODUCTION

This section provides an analysis of Lihir's business and compares its fiscal
year 2006 financial results with those of the previous two fiscal years. It
should be read in conjunction with the audited consolidated financial statements
(or the "financial statements") and related notes at Item 18 of this report.

The basis of preparation of the financial statements is set out in Note 1 of the
financial statements. The accounting policies used to prepare the financial
statements vary in certain important respects from the accounting principles
generally accepted in the United States ("US GAAP"). The material differences
affecting the profit and loss account and shareholders' equity between generally
accepted accounting principles followed by Lihir and US GAAP are summarized in
Note 34 of the financial statements.

RECENT DEVELOPMENTS

BALLARAT ACQUISITION

On February 26 2007, the Company gained effective control of an Australian gold
mine development company, Ballarat Goldfields NL ("Ballarat") through a scheme
of arrangement which was approved by Ballarat's shareholders and the Supreme
Court of Victoria. The acquisition of all the shares of Ballarat was completed
on March 8, 2007.

Ballarat was established in 1984. During the period from 1984 to 2000, Ballarat
focused on exploration drilling, feasibility studies and development of the
Ballarat East field, which is located at Ballarat in the State of Victoria, some
100 kilometers north-west of Melbourne. In 2002, Ballarat shareholders appointed
a new board, and the company was recapitalized. Ballarat is currently focused on
the underground development of the Ballarat East field, as well as its three
other exploration projects in the Ballarat region: Ballarat West and Berringa,
which were acquired in 1998, and Ballarat South, which was acquired in 2004.
Ballarat is a development stage company that has not recorded any gold sales to
date.

The Company believes that its acquisition of Ballarat will strengthen the
possible future productivity of Ballarat's operations by providing the financial
resources required to take the Ballarat East project to full development, which
will diversify the Company's operations, add a new revenue stream, in a new
geographic area, and provide a significant avenue for potential production
growth.

For more information refer to "Item 4. - Information on the Company B. -
Business Overview - Recent Developments".

CRITICAL ACCOUNTING POLICIES

The preparation of Lihir's financial statements in accordance with generally
accepted accounting principles is based on management estimates and assumptions,
which may have a material impact on the carrying values of assets, liabilities
and provisions recorded and their effect on the income statement. Some of the
more significant issues requiring the use of management estimates and
assumptions include estimates of proven and probable ore reserves, rate of gold
recovery, future gold price assumptions and environmental, reclamation and
closure costs. Such estimates and assumptions will have an effect on:

-    CARRYING VALUE OF LIHIR'S NON-CURRENT ASSETS (IAS 36 "IMPAIRMENT OF ASSETS"
     AND IAS 4 "DEPRECIATION ACCOUNTING")

Mine properties

Mine 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 resource has commenced.

When future economic benefits are established by further development expenditure
in respect of a mine property after the commencement of production, 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.

Amortization of costs is provided for using the units-of-production method. The
units-of-production basis results in an amortization charge proportional to the
depletion of estimated recoverable gold ounces contained in proved and probable
ore reserves applicable to the mine property assets.

Where a change in estimated recoverable gold ounces contained in proved and
probable ore reserves is made, depreciation and amortization of mine properties
is accounted for prospectively in future periods. A reserve increase has the
effect of reducing the non-cash unit cost per ounce, whereas a reserve decease
will increase the non-cash unit cost per ounce.


                                     -27-

<PAGE>

Mine buildings, plant and equipment

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 building, 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.

Remaining mine life

In estimating the remaining life of the mine for the purpose of amortization 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.

Impairment of assets

Impairments of assets are recognized whenever the carrying amount of an asset
exceeds its recoverable value. The recoverable amount is measured as the higher
of net selling price and value in use. Under IAS 36 "Impairments of Assets",
impairments of assets are recognized whenever the carrying amount of an asset
exceeds its recoverable amount. The recoverable amount is measured as the higher
of net selling price and value in use. Value in use is calculated by discounting
future cash flows of the Company's cash generating unit using a risk adjusted
pre-tax discount rate. The cash-generating unit is the Lihir mine.

In 2004, as a result of an increase in the long-term gold price assumption to
$380 per ounce, the Company determined that the recoverable amount exceeded the
carrying value of its assets and a full reversal of prior year impairment
charges, net of depreciation that would have been incurred, was booked. The
calculation of the net realizable value also allows for the processing of the
Company's economic grade stockpiles.

In the previous five years the following assumptions have been used in
determining 'value in use' of the Company's cash generating unit, giving rise to
the following impairment (charges) / reversals.

<TABLE>
<CAPTION>
                                 2006   2005    2004   2003   2002
                                 ----   ----   -----   ----   ----
<S>                              <C>    <C>    <C>     <C>    <C>
Long term gold price - $ / oz     500    425     380    340    305
Risk adjusted pre-tax rate          7%     7%      7%     7%     7%

IMPAIRMENT (CHARGE) / REVERSAL

  -  IAS GAAP  $ millions          --     --   205.7   31.1   37.9
  -  US GAAP  $ millions           --     --      --     --     --
</TABLE>

There can be no assurance that the assumed per ounce gold price will be realized
in future spot sales or that other factors underlying the estimate of
recoverable amount will not change. Changes in the time value of money and in
the assessment of risks specific to Lihir may require changes to the discount
rate assumption. Adverse changes in these assumptions could materially reduce
Lihir's estimate of its recoverable amount, thereby negatively affecting its
reported financial position and results of operations, and its future cash
flows.

-    NON-CURRENT LIABILITIES (IAS 37 "PROVISIONS, CONTINGENT LIABILITIES AND
     CONTINGENT ASSETS")

Restoration, rehabilitation and environmental expenditure

In 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 disturbance incurred
up to balance date. The amount of any provision recognized is the full amount
that has been estimated based on expected future costs to be 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. The expected future cost of this is $41 million,
with most expenditure scheduled after mine closure in 2021 and plant closure in
approximately 2042. This amount excludes the independent third party's estimated
reserve of $7 million for decommissioning the power plants, the


                                      -28-

<PAGE>

removal of some mine buildings and the removal of some town facilities. It is
anticipated such assets will have substantial future value for the Lihirian
community after mine and plant closure and will be provided to the community for
their use.

A corresponding asset, which represents future economic benefits, is raised and
subsequently amortized using the units of production method.

The Company's restoration, rehabilitation and environmental expenditure policy
identifies the environmental, social and engineering issues to be considered and
the procedures to be followed when providing for costs associated with the site
closure. 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.

-    INVENTORY VALUATION (IAS 2 "INVENTORIES")

Inventories

Inventories of ore and metal are physically measured or estimated and valued at
the lower of cost and net realizable value.

Cost comprises direct material, direct labour and transportation expenditure in
getting such inventories to their existing location and condition, together with
an appropriate portion of fixed and variable overhead expenditure and
depreciation and amortization, based on weighted average costs incurred during
the period in which such inventories are produced. Net realizable 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 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
realizable value.

In years prior to 2004, a full provision of $65 million was made against
non-current ore stockpiles on the basis that cost exceeded net realizable value.
In accordance with IAS 2, that previous write-down had been fully reversed in
2004 to reflect the cost of these ore stockpiles, which is the amount that is
expected to be realized from the future processing of that ore. At December 31,
2006, this amount exceeds the cost of $141.7 million (US GAAP $73.8 million).

-    DEFERRED TAX POSITION (IAS 12 "INCOME TAXES")

Income tax

Tax 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 utilized.

In the accounting for deferred income tax 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 then
are subject to a valuation allowance unless realization of the deferred tax
assets is considered more likely than not (greater than 50% likelihood of
realization).

-    DERIVATIVE FINANCIAL INSTRUMENTS (IAS 39 "FINANCIAL INSTRUMENTS:
     RECOGNITION AND MEASUREMENT")

Accounting for derivative financial instruments and hedging activities

Derivative financial instruments are initially recognized in the balance sheet
at cost and are subsequently re-measured at their fair values. On the date a
derivative contract is entered into for the sale of gold, Lihir designates the
contract as a hedge against specific future production. The method of
recognizing the resulting gain or loss is dependent on the nature of the item
being hedged.

Changes in the fair value of derivatives that are designated against future gold
production and are therefore deemed effective, qualify as cash flow hedges and
are recognized in equity. Amounts deferred in equity are transferred to the
income statement and classified as revenue in the same periods in which the
designated gold sales are recognized in 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 recognized
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 recognized when the
committed or forecasted production is ultimately recognized in the income
statement. However, if the committed or forecasted production is no longer
expected to occur, the cumulative gain or loss reported in equity is immediately
transferred to the income statement.


                                      -29-

<PAGE>

At 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 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.

In assessing the fair value of non-traded derivatives and other financial
instruments, the Company obtains a valuation from an independent external party.

-    DEFERRED MINING COSTS (IAS 16 "PROPERTY, PLANT AND EQUIPMENT")

Direct expenditure on mining such as stripping, drilling and depreciation costs,
are brought to account on a pit basis for each stage of the mine's development
based on the estimated ratio of waste to ore for each pit. The actual ratio of
waste to ore removed for each pit varies from year to year. In periods where
more than the average amount of waste is removed the surplus is transferred to
deferred mining costs. It is subsequently expensed during periods where the
waste to ore ratio is less than the average. The average amount of waste to be
removed is assessed on a pit-by-pit basis, and not over the entire life of the
mine.

Until 2004, deferred mining costs in relation to the Minifie pit were determined
on a phase basis consistent with the characteristics of that pit. From January
1, 2004, the Company changed the basis to deferring mining costs on a pit basis,
principally to more accurately reflect the costs of assessing future ore
reserves from the Lienetz pit, which is the pit relating to current mining
operations. The impact of this change to the Company's results at December 31,
2004, was an $1.6 million increase in deferred mining costs.

Actual strip ratio will often vary to the average strip ratio used for a number
of reasons including:

     -    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.

In relation to the Minifie pit, mining ceased in this pit in 2005. The average
strip ratios used compared to actual ratios were 2.6 vs. 0.6 (2005), and 2.6 vs.
0.4 (2004). In each of these years, the actual ratios for the pit were lower
than the average ratios used, reflecting the substantially reduced amount of
waste being extracted from the pit relative to the ore mined, as mining of this
pit neared completion with only remnant mining of ore throughout 2005. As a
result deferred stripping costs of $3.2 million and $10.7 million (included
deferred mining costs opening balances) were expensed to the income statement in
2005 and 2004, respectively. The balance of deferred stripping costs was nil in
each of these years.

In relation to the Lienetz pit, the average strip ratios used compared to actual
ratios were 2.9 vs. 6.4 (2006), 2.9 vs. 4.2 (2005) and 4.8 vs. 11.9 (2004). The
actual ratio in 2006 increased over 2005 however remained significantly lower
than 2004. In prior periods extensive stripping was required. In 2006, there was
an increased amount of waste relative to ore, consistent with the LOM plan. As a
result, deferred stripping costs of $47.9 million, $55.3 million and $28.1
million were expensed to the income statement in 2006, 2005 and 2004,
respectively. The balance of deferred stripping costs were $148.3 million, $92.0
million and $66.9 million as at 2006, 2005 and 2004, respectively.

For US GAAP, effective January 1, 2006, the Company adopted EITF 04-6
"Accounting for stripping costs incurred during production". Capitalisation of
post production stripping costs is appropriate only to the extent product
inventory exists at the end of the reporting period. The impact of the change on
January 1, 2006, was a cumulative effect adjustment to decrease opening retained
earnings by $52.4 million (after tax). Please refer to Note 34(f) of the
financial statements.

OVERVIEW

The following sections provide an overview of Lihir's results, financial results
of operations, impairment provisions, foreign currency fluctuations and the
impact of recently issued accounting standards. For discussion on Lihir's
reserves see "Item 4. Information on the Company D. Property, Plant and
Equipment - Reserves Estimates".

The following table presents Lihir's results in a format that includes certain
un-audited non-GAAP measures, such as "cash costs". The table is also presented
to show separately non-cash costs, other operating costs not included in the
determination of gross cash costs and impairment adjustments. The measures used
and the presentation are intended to provide investors with information about
the cash generating capacity and performance of Lihir's mining operations. In
particular, cash costs is a measure that is used in the gold mining industry and
was developed in conjunction with gold mining companies associated with the Gold
Institute in an effort to provide a level of comparability. However, Lihir's
measures may not be comparable to similarly titled measures of other companies.
Management uses this measure for the same purpose when monitoring and evaluating
the performance of the Company. This information differs from measures of
performance determined in accordance with GAAP and should not be considered in
isolation or as a substitute for measures of performance determined in
accordance with GAAP.

Lihir made a profit from ordinary activities after tax of $53.8 million (2005:
$9.8 million, 2004: $329.2 million).


                                      -30-

<PAGE>

<TABLE>
<CAPTION>
                                                          $ MILLIONS
                                                    ----------------------
AMOUNTS CALCULATED IN ACCORDANCE WITH IFRS           2006     2005    2004
------------------------------------------          ------   -----   -----
<S>                                                 <C>      <C>     <C>
Sales Revenue                                        324.8   238.8   238.7
Gold lease rate fees                                   2.8     5.0     4.6
Fair value gains                                      (1.7)   (5.4)    8.6
Realisation of deferred hedging costs                (17.1)  (13.5)  (17.2)
Other revenue                                          1.6      --      --
TOTAL REVENUE                                        310.4   224.9   234.7

Gross cash costs                                     258.2   222.2   213.8
Deferred 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   161.6

Depreciation and amortization                         37.4    35.8    32.9
Deferred 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     6.9
Exploration                                            5.9     6.0     5.3
Net interest                                           4.8     2.4    (1.4)
TOTAL COSTS BEFORE IMPAIRMENT ADJUSTMENTS            234.5   209.2   190.9

PROFIT BEFORE IMPAIRMENT ADJUSTMENTS                  75.9    15.7    43.8

Asset impairment reversal                               --      --   205.7
Economic grade stockpile impairment reversal            --      --    65.0
Income tax benefit/(charge) recognized               (22.1)   (5.9)   14.7
                                                    ------   -----   -----
NET EARNINGS                                          53.8     9.8   329.2
                                                    ======   =====   =====
</TABLE>

*    equal to cash costs per oz multiplied by ounces produced less the finished
     goods cash movement for the year.


                                      -31-

<PAGE>

FINANCIAL RESULTS OF OPERATIONS

SALES - Lihir's revenues are determined primarily by the amount of gold it
produces and the prices it is able to realize upon sales of gold. The Company's
realized gold prices are determined primarily by the market price for gold and
the terms of any hedging transactions that it enters into.

<TABLE>
<CAPTION>
                                                                          2006   2005   2004
                                                                          ----   ----   ----
<S>                                                                <C>    <C>    <C>    <C>
GOLD SALES                                                         $/OZ    643    592    610
Gold sales at spot                                                         596    446    403
Hedging gains / (losses) - cash                                            (93)   (43)   (11)
Gold lease rate fees                                                         4      8      7
Deferred hedging gains / (losses) - non cash                               (27)   (22)   (29)
                                                                           ---    ---    ---
AVERAGE GOLD PRICE REALIZED (EXCL. FAIR VALUE GAINS AND LOSSES)    $/OZ    480    389    370
Fair value gains and losses                                                  3     (9)    15
                                                                           ---    ---    ---
AVERAGE GOLD PRICE REALIZED (INCL. FAIR VALUE GAINS AND LOSSES)    $/OZ    483    380    385
Average gold price realized (excl. fair value gains and losses)    $/oz    480    389    370
Average spot price                                                 $/oz    603    445    409
PREMIUM/(DISCOUNT) TO SPOT PRICE                                      %    (20)   (13)   (10)
</TABLE>

GOLD PRICES - There are many producers of gold worldwide and gold bullion can be
readily sold in numerous markets throughout the world. It is not difficult to
ascertain a market price for gold at any particular time. The Company's revenues
are significantly influenced by the world market price for gold.

Historically, gold prices have fluctuated widely. In 2006, the Company's
realized price excluding fair value gains and losses per ounce was $480 per
ounce (2005: $389; 2004: $370). Gold prices are affected by numerous industry
and macro-economic factors beyond the Company's control, including sales by
central banks, the worldwide forces of supply and demand, inflation, currency
and interest rates, political and economic conditions. Gold prices are also
affected by worldwide gold production levels. See "Item 3. Key Information - D.
Risk Factors".

The gold price declined after 1997 and until 2002, reportedly for reasons
including declining inflation in many countries worldwide. In 2003 the gold
price rose above $400 ("London P.M. Fix") per ounce, reaching $416 at the end of
2003 and by December 2004 had reached $454 before settling at $438 by the end of
2004. In early 2005 the gold price declined to levels below $415 before once
again resuming its steady uptrend to reach $537 in December 2005 before settling
at $517 at the end of December 2005.

The volatility in the market continued through 2006 due to movements in the
exchange rate, oil prices as well as ongoing tensions in the Middle East,
economic and political uncertainty and shocks in the equity markets. Supply and
demand balances play an important role in the gold price. On the supply side we
had falling production from a few large mines while on the demand side we have
increasing consumption in China and India and greater investor demand. The first
and second quarters of 2006 saw major producer de-hedging.

In 2006, the gold price was volatile trading between $525 per ounce in January
2006 to a high of $725 in May before closing at $634 at the end of December
2006.

In the first three months of 2006 gold traded around an average of $550 per
ounce. By the middle of April gold was able to break over $600 and continued on
a bull run until the middle of May. After reaching $725 there was a rapid pull
back to $567 by the middle of June. The price then recovered to $600 by the end
of June and by the middle of July was at $672. The market then tended to settle
into a range for the next few months trading between $610 and $650. The market
broke down in September with the price falling to $576 by September 20. Gold
continued to trade between this price and $600, until it was able to break over
$600 at the start of November. For the next three months gold traded in a range
of $600 to $648.

In the first quarter of 2007, gold was again able to move up significantly
reaching a high of $686 on February 26, 2007 but a shock to the world equity
markets in March saw gold fall back sharply to $637 on March 5, 2007. As
inflation issues resurfaced and weakness in the dollar returned, gold traded
back to $662 at the end of March.

HEDGING - Historically, the Company has sought to mitigate gold price risk, in
part, through hedging strategies. The policy of the Company has been to seek
where appropriate to protect operating, sustaining capital and debt servicing
costs through hedging activities. This has included periodic purchase of put
options, spot deferred sales, and forward sales covering a portion of future
gold production at a fixed price. The Company regularly evaluates the portion of
its production that is hedged. The Company does not engage in speculative
activity and does not trade its hedged positions.


                                      -32-

<PAGE>

The average realized price after excluding fair value gains and losses in 2006
represents a discount of 20% to the average spot price for the year (2005:
discount of 13%; 2004 discount of 10%). This discount effectively reduced
pre-tax profit by $59.6 million for the year (2005: decrease of $34 million;
2004: decrease of $24 million).

Following the adoption of IAS39 in 2001, gains and losses arising from the early
closure of hedge transactions prior to 2001 were transferred to equity, to be
recycled into income when the underlying transactions, against which the hedges
were initially designated, took place.

The net amount of gains/losses, arising from the early closure and
re-designation of hedge transactions, retained in equity at December 31, 2006
was a gain of $6.6 million (2005: gain of $8.7 million; 2004: gain of $14.4
million), following the recycling of losses totaling $17.1 million (2005: losses
of $13.5 million, 2004: losses of $17.2 million).

Based on a hedge book valuation of minus $332.8 million as at December 31, 2006,
a further $363.4 million of losses remain in equity to be recycled into income
when the underlying transactions, against which the hedges that are designated,
take place. The profile of hedging gains/(losses), as at December 31, 2006, are
detailed in the schedule below:

<TABLE>
<CAPTION>
        DEFERRED HEDGING      RESIDUAL OTHER      TOTAL OCI RECYCLED
          COSTS/(GAINS)    COMPREHENSIVE INCOME        TO INCOME
YEAR       $ MILLIONS           $ MILLIONS            $ MILLIONS
----    ----------------   --------------------   ------------------
<S>     <C>                <C>                    <C>
2007          (2.2)                90.2                  88.0
2008          (2.8)                74.1                  71.3
2009          (1.5)                85.5                  84.0
2010          (0.1)                66.1                  66.0
2011            --                 36.7                  36.7
2012            --                  5.2                   5.2
2013            --                  5.6                   5.6
              ----                -----                 -----
Total         (6.6)               363.4                 356.8
              ----                -----                 -----
</TABLE>

Lihir did not enter into any new hedge contracts in 2006. Lihir delivered into
hedge contracts in accordance with its delivery schedule for 2006 of 206,500
ounces. The delivery pursuant to these hedge contracts was in accordance with
the Company's objective to provide shareholders greater exposure to spot price
movements and to reduce the total hedge book exposure.

As part of the hedge book restructure in September 2005, the Company negotiated
the smoothing of the profile of future gold deliveries. This was achieved by
investing $62 million in canceling substantial out of the money hedges,
extending maturity dates and increasing strike prices for a major portion of the
book. Following the completion of the restructure, the hedge book was reduced
from 1.7 million ounces to 1.2 million ounces plus the gold loan of 480,000
ounces. This will provide the Company with greater exposure to the spot price of
gold. The revised hedge book profile is reflected in the tabulation at Note 24
to the financial statements. The maximum level of hedging stipulated in the new
Syndicated Facility Agreement is 10% of proven and probable reserves. See Item
11 - "Quantitative and Qualitative Disclosure about Market Risk" and Note 24 to
the Financial Statements for more details.

The negative valuation of the company's hedge book represents a significant
opportunity loss to the current spot price of gold. The Company has not written
any new hedges since September 2005 and is continually reviewing its hedging
policy in light of current market conditions, obligations and market sentiment.

In establishing the forward price of hedging contracts, the Company has, on
certain occasions, elected to retain an exposure to gold lease rates. This
strategy had added value to the hedge book in the years immediately prior to
2005 years by not only providing for higher forward prices, but also creating
value on the lease rate swaps as the lease rate curve has fallen to historically
low levels. The revaluation of these lease rate positions flow directly to the
P&L. In 2003 and 2004 lease rates fell significantly resulting in significant
profits from these positions. In 2005, the Company had a modest increase in the
lease rates resulting in a small loss. In 2006, the lease rate curve remained at
very low levels and the total movement in market value of the lease rate swaps,
as independently valued was a loss of $1.3 million (2005: loss of $0.4 million;
2004: gain of $13.2 million; 2003: gain of $14.7 million). The Company has
recognized this movement in market value in the income statement on the basis
that it does not satisfy the criteria for hedge accounting under the relevant
international accounting standards (IAS 39 or FAS 133). Lihir has a number of
offsetting positions which will reduce its exposure to movements in Lease Rates.
Notwithstanding the Company's active management of this lease rate exposure,
further increases in this curve could have a negative impact on the mark to
market of lease rate swaps and therefore adversely affect the Company's
earnings.


                                      -33-

<PAGE>

PRODUCTION AND OPERATING COSTS - The following table shows gold production,
average annual cash production and cash operating costs from 2004 to 2006.

<TABLE>
<CAPTION>
                                                     2006      2005      2004
                                                   -------   -------   -------
<S>                                                <C>       <C>       <C>
Ore Processed (Tonnes 000's)                         4,344     3,482     4,091
Gold Produced (Ounces)                             650,811   595,966   599,386
Grade (g Au/t)                                        5.14      5.98      5.11
Operating Expenses ($ 000's)
   Mining 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    53,102
   Refining, royalty and management fees            12,972     6,813     7,144
   Deferred 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      21.9
   Exploration                                         1.4       1.8       1.3
   Processing                                         11.0      12.0      10.2
   Power generation                                    6.2       7.9       7.1
   General and Administrative                         15.2      16.6      13.0
                                                   -------   -------   -------
Total                                                 58.6      65.7      53.5
                                                   -------   -------   -------
</TABLE>

The 2006 plan for gold production was 670,400 ounces from the processing of 4.3
million tonnes of ore at 5.5 g/t Au feed grade. A total of 650,811 ounces was
produced from processing 4.34 million tonnes of ore at a grade of 5.14 g/t.

The main contributing factors to the lower than planned gold production in 2006
were:

-    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.

These factors were partially offset by the fact that:

-    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.

Commissioning of the gravity circuit continued throughout 2006. The circuit as
constructed contained a number of design issues, which are being resolved. It
was established, however, that there was negligible amounts of gravity
recoverable gold present in the current ore feed. The circuit will be operated
periodically in 2007 to monitor the amount of gravity recoverable present and if
justified the circuit will be re-commissioned.

The 30 megawatt Geothermal Power Station was commissioned by July 2005 and its
reliability has increased significantly following several minor modifications
and repairs to damage to turbines caused during commissioning.

2006 ex-pit production of 56,150 million tonnes was 2.29 million tonnes above
budget. Phase 7 development was 2.4 million tonnes ahead of budget despite
geothermal issues encountered in April and resulting restrictions to mining.
Phase 6 was 3.8 million tonnes ahead of schedule for the year, while Phase 8 was
4.4 million tonnes behind as a result of targeting Phase 6 and 7 to aggressively
pursue high grade ore to support gold production for 2006.

Key factors in surpassing the budgeted material movement for 2006 were:

-    Increase in supervisory manning levels to raise the utilization rates;

-    Improved equipment availabilities;

-    Quick reaction to geothermal issues with corresponding controls; and


                                      -34-
<PAGE>

-    Mining on inclined benches in all areas to produce better floors.

Major operational issues encountered through 2006:

-    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.

Production of 650,811 ounces of gold in bullion was achieved with higher mill
throughput. Gold recovery increased to 90.2% on average for the year.

MINING EXPENSES - Mining expenses were $108 million in 2006 (2005: $95 million;
2004: $90 million). Costs for 2006 were higher than 2005 as a result of
increasing cost of mining inputs such as fuel, tires, explosives and
maintenance. Costs for 2005 were higher than 2004 as a result of increased
maintenance and a larger mining fleet, and higher fuel prices. The major
elements of total mining costs during the open pit mining phase are hauling,
loading, blasting and dewatering. These elements combined account for an average
of approximately 60% of total direct mining costs throughout the reporting
periods.

Mining expenses were allocated between the direct process ore and stockpile ore
on the basis of the amount of contained gold with only the costs attributable to
direct process ore expensed. Mining costs attributable to the stockpiled ore
will be expensed when the ore is processed and sold during the stockpile
processing period after open pit mining ceases. In accordance with international
accounting standard IAS 2, inventory is valued at the lower of cost and net
realizable value. As at December 31, 2006, 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 realizable
value. Net realizable 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. In the
years prior to 2004, a full provision of $65 million was made against
non-current stockpiles on the basis that cost exceeded net realizable value. In
accordance with IAS 2, at December 31, 2004, that previous write-down was fully
reversed to reflect the cost of these stockpiles, which is the amount expected
to be realized from future processing of that ore.

Direct expenditure on mining such as stripping, drilling and depreciation costs,
are brought to account on a pit basis for each stage of the mine's development
based on the estimated ratio of waste to ore for each pit. The actual ratio of
waste to ore removed for each pit varies from year to year. In periods where
more than the average amount of waste is removed the surplus is transferred to
deferred mining costs. It is subsequently expensed during periods where the
waste to ore ratio is less than the average. The average amount of waste to be
removed is assessed according to the on a pit-by-pit basis, and not over the
entire life of the mine. The increase in deferred mining costs during 2006
reflected the actual mining sequence undertaken during the year.

PROCESSING COSTS - Processing costs were $48 million in 2006, (2005: $42
million; 2004: $42 million) with significantly increased throughput in 2006
(+25%) being the main driver for the increase in costs over 2005. Unit costs
decreased by 12% in 2006 compared to 2005.

POWER GENERATION COSTS - Despite significantly higher costs for heavy fuel oil,
the commissioning of the 30MW geothermal power station in July 2005 has seen
power generation costs remain consistent at $27 million in 2006 (2005: $27
million; 2004: $29 million).

GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative costs were $67
million in 2006 (2005: $58 million; 2004: $53 million). Staff costs increased in
2006 following a concerted recruitment drive to fill a significant number of
vacancies for both new and existing positions. The continued focus by the
Company on the community saw an increase in assistance programs such as health
and housing along with costs associated with its environmental programs.
Additional costs were also incurred in accommodating the Company's workforce.
These items contributed to an overall increase in general and administrative
expenses of $9 million in 2006 compared to 2005. In comparing 2005 to 2004,
offsetting a positive impact from exchange rate movements in 2005 of $1.3
million were one-off costs of associated with the hedge book restructure ($3.6
million), and losses on disposal of assets being geothermal wells now no longer
in use ($2.2 million) and water pipeline destroyed by the landslide ($0.5
million). Increased staff costs were realized with the gradual move towards the
Company becoming fully independent from Rio Tinto. With a greater focus on the
community, Lihir's donations, community assistance programs, and housing
assistance increased, as did its cost associated with its environmental
management programs. These items contributed to an overall increase in general
and administrative expenses of $5.0 million in 2005 compared with 2004.

ROYALTY, REFINING AND MANAGEMENT FEES - These totaled $13 million in 2006 (2005:
$6.8 million; 2004: $7.1 million).

Mining royalties payable to the PNG Government are 2% of the FOB value of the
gold produced.

With Lihir's move to fully independent management in early October 2005 from Rio
Tinto, the Company's payment of a management fee to Lihir Management Company Pty
Limited ceased.

Since the separation from Rio Tinto, the Lihir mine now pays a management fee to
LSA, a subsidiary of the Company. See "Item 10. Additional Information - C.
Material Contracts - Lihir Management" for a description of the management
agreement between Lihir and LSA.

In 2006, the Company paid $5.6 million to LSA.


                                      -35-

<PAGE>

Gold refining is carried out by AGR Matthey, a partnership between the Western
Australian Mint, Australian Gold Alliance Pty Ltd and Johnson Matthey (Aust.)
Ltd, under a refining agreement, expiring on February 28, 2008. The refining fee
is comprised of a refining charge, transport and insurance charges and a
location London swap charge.

On February 21, 2007, the PNG Government gazetted a new production levy in
respect of minerals and alluvial gold ("production levy"). The production levy
in relation to minerals is 0.25% of the assessable income, as defined in the
Income Tax Act 1959, of the mineral producer. The production levy is payable to
the Mineral Resources Authority. The introduction of the Production Levy was
supported by the mining industry in PNG, with the proceeds to be used to support
the operation of the Mineral Resources Authority established by the PNG National
Government.

UNIT COSTS - These are shown in the table below prepared in accordance with the
Gold Institute Standard. The following table presents Lihir's results in a
format that includes certain un-audited non-GAAP measures, such as "cash costs".
The table is also presented to show separately non-cash costs, other operating
costs not included in the determination of gross cash costs and impairment
adjustments. The measures used and the presentation are intended to provide
investors with information about the cash generating capacity and performance of
Lihir's mining operations. In particular, cash costs is a measure that is used
in the gold mining industry and was developed in conjunction with gold mining
companies associated with the Gold Institute in an effort to provide a level of
comparability. However, Lihir's measures may not be comparable to similarly
titled measures of other companies. Management uses this measure for the same
purpose when monitoring and evaluating the performance of the Company. This
information differs from measures of performance determined in accordance with
GAAP and should not be considered in isolation or as a substitute for measures
of performance determined in accordance with GAAP.

<TABLE>
<CAPTION>
                                                            $/OUNCE
                                                     2006     2005    2004
                                                     ----   -------   ----
<S>                                                  <C>    <C>       <C>
GROSS 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       8
TOTAL 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
</TABLE>

*    Components of Gross Cash Costs

Total cash costs per ounce were $297 in 2006 which was $15 per ounce or five
percent higher than in 2005. The increase was primarily due to the increasing
cost of mining inputs such as fuel, tyres, explosives and maintenance.

OTHER CHARGES

DEPRECIATION AND AMORTIZATION - The depreciation charge for 2006 amounted to
$37.4 million (2005: $35.8 million; 2004: $32.9 million). Depreciation was
higher in 2006 and 2005 due to an increase in tonnes mined, tonnes milled and
gold produced.

Capitalized development costs for mine properties are amortized using the
units-of-production method. The units-of-production method results in an
amortization charge proportional to the depletion of estimated proven and
probable ore reserves.

The cost of buildings, machinery and equipment is written off over the expected
economic life of the item, adopting a method that reflects the consumption of
economic benefits. This may be based on the units-of-production method or a
fixed percentage over time.

The vast majority of the Company's assets are depreciated on a
units-of-production basis.


                                      -36-

<PAGE>

INTEREST EXPENSE - Net finance costs amounted to $4.8 million in 2006 (2005:
costs of $2.4 million; 2004: benefits of $1.4 million). The net cost results
primarily from a lower cash balance maintained throughout 2006 and increased
borrowings. The two major capital construction projects being undertaken during
the year caused cash balances to be lower. Additionally, an increase in interest
expense is reflected in 2006 and 2005 following the drawdown of the gold loan
and $30 million of the revolving credit facility (See "Item 10. Additional
Information - C. Material Contracts - Financing Agreements") in September 2005.
During October 2006 an A$45 million drawdown was made on the Ballarat Goldfields
Bilateral Facility (See "Item 10. Additional Information - C. Material Contracts
- Financing Agreements") to fund the 11% investment in shares in Ballarat
undertaken at that time.

TAX EXPENSE - Since 2001, the Company has been subject to a 30% tax in respect
of income derived from the Lihir mine. This is the general rate of taxation for
resident PNG corporations. In the case of a resource project, like Lihir, mining
income derived from the resource project is assessed as if it were the only
income of the owner of the resource project holder of the lease and deductions
are generally only available for expenditures attributable to the resource
project to which the lease relates. The Company has been given approval to
prepare its tax returns in US dollars.

Income derived in the Australian operations is subject to a 30% tax.

Up to and including the year ended December 31, 2000, the Company was eligible
to accelerate its tax depreciation and amortisation. These accelerated
depreciation and amortization deductions eliminated the Company's taxable income
during the early years of gold production from the Lihir mine. For the years
ended December 31, 2001 to December 31, 2004, the Company was eligible to claim
tax depreciation and amortisation and to the extent these exceeded the Company's
income less other deductions the Company incurred a tax loss. This tax loss can
be carried forward and claimed as a deduction in future years. From January 1,
2005, the deduction available for depreciation and amortisation will be limited
to an amount which brings the Company's taxable income to nil. The amount not
claimed is added back to the unclaimed balance and is available for amortisation
in future years.

Tax 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 deferred tax liability and deferred tax
asset accounts at current rates of tax. 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. At the end of 2004 Lihir recognized $85 million of net deferred tax
assets on the grounds that, based on long-term forecasts for the gold price, the
realization of future profits to be regarded as probable. In 2005 a further $3
million net deferred asset was recognized with a decrease of $1.5 million
recorded in 2006.

A 4% mining levy imposed in the 1998 PNG Government budget was amended during
1999 following considerable lobbying by industry groups. The mining levy was
replaced by a more revenue neutral structure, designed to ensure that the
government did not lose revenue as a result of the introduction of a Value Added
Tax ("VAT") system in 1999, subsequently renamed as a goods and services tax
("GST") in 2004. Essentially the mining levy seeks to impose an additional
charge on purchases by the Company to compensate for the revenue forgone by the
Government on reducing various import duties on the introduction of the GST
system. The terms of this arrangement were negotiated between the government and
industry groups. In the 2001 annual budget the PNG Government announced that the
mining levy would be phased out over 4 years from January 1 2002. This decision
was repealed in the 2003 budget and the levy was left at 75% of the original
rate introduced. However, after lobbying by industry groups a decision was made
by the PNG Government to re-introduce the phase out of the mining levy from
2004. The levy is now to be phased out more gradually over a five year period
with 5% removed in 2004, 10% removed in 2005, 15% in 2006, 20% in 2007 and the
remaining 25% in 2008.

Since 2001, the dividend withholding tax has been 10%.

At December 31, 2006, the Company had a net deferred tax position of $86.2
million (2005: $87.7 million and 2004: $84.8 million), a current period tax
expense of $22.1 million (2005: tax expense of $5.9 million, 2004: tax benefit
of $14.7 million) included in the income statement and a tax benefit of $99.8
million (2005: $79 million, 2004: $70.1 million) included in equity. At that
date the Company also had unrecognized capital tax losses of $219.5 million
(2005: $218.7 million, 2004: $219.8 million) and net deductible temporary
differences of $67.9 million (2005: $73.8 million and 2004: $62.9 million).
Where the tax losses relate to Papua New Guinea they can be carried forward for
a period not exceeding 20 years. The tax losses arising in the Australian
jurisdiction can be carried forward indefinitely.

In 2006, 2005 and 2004 deferred tax assets have been recognized beyond deferred
tax liabilities because the Company considers the realization of the tax
benefits through future taxable profits as probable (implying a high level of
likelihood). The recognition of deferred tax assets to the extent of deferred
tax liabilities is required under IAS 12, as they relate to income taxes levied
by the same taxation authority and the taxable temporary differences are
expected to reverse in the same period as the deductible temporary differences.

IMPAIRMENT PROVISIONS

Impairment testing of asset values

In 1999 following continued weakness in prevailing prices and the outlook for
the gold market prompted a downward revision in Lihir's long-term gold price
assumption as at December 31, 1999 from $350/oz to $325/oz. Lihir restated its
1999 financial accounts to record a $237 million impairment provision in
compliance with International Accounting Standard IAS 36.


                                      -37-

<PAGE>

Lihir responded to the deteriorating outlook for gold by further reducing its
long-term gold price assumption from $325 to $300/oz as at December 31, 2000.
The resulting impairment provision was $121 million, which was reflected in
Lihir's 2000 accounts. Together with the $237 million provision taken in its
re-stated 1999 accounts, Lihir has made a cumulative non-cash impairment charge
of $358 million.

In 2004, having applied the same principles as prior years and revisiting
critical assumptions, including life of mine and remaining reserves, an
impairment reversal of $205.7 million (2003: $31.1 million) was credited to the
income statement in accordance with IAS36, based on a long-term gold price
assumption of $380 (2003: $US340) and a pre-tax real discount rate of 7% (2003:
7%). At December 31, 2004 the asset impairment charges of 1999 and 2000 were
fully reversed to the extent allowed under IAS36.

In 2006, having applied the same principles as prior years and revisiting
critical assumptions, no impairment reversal nor impairment loss was required to
be recognized in accordance with IAS36, based on a long-term gold price
assumption of $500 and a pre-tax real discount rate of 7%.

Impairment testing of economic grade stockpiles

Also as a result of the increase in the long-term gold price assumption to $500
per ounce the Company includes the economic benefits of processing the economic
grade stockpiles within the Company's net realizable value calculation.

In 2004, prior years' provisions totaling $65 million were fully reversed and
together with the 2004 cost of stockpile additions of $25 million, the stockpile
was valued at $90 million. At December 31, 2006 the amount that is expected to
be realized from future processing of the ore exceeds the cost of $142 million.

FOREIGN CURRENCY FLUCTUATIONS

The Company's functional currency is the US dollar and accordingly its Financial
Statements are prepared in accordance with international accounting standards in
that currency. Virtually all of the Company's revenues and a significant portion
of its operating expenses are denominated in US dollars. A large portion of the
Company's total expenditure, principally relating to expatriate salaries and
benefits, consultants, grinding materials, and explosives are denominated in
Australian dollars and certain of its expenses, including labour and
consumables, are denominated in Kina. Accordingly, a depreciation of the US
dollar against the Australian dollar or Kina adversely affects the Company's
financial results. In addition, the Company is subject to certain PNG
requirements regarding the maintenance of cash reserves in PNG in a
Kina-denominated account. See "Item 10. Additional Information - D. Exchange
Controls".

RECENTLY ISSUED US FINANCIAL ACCOUNTING STANDARDS

In June 2004, a committee of the Emerging Issues Task Force ("EITF") began
discussing the accounting treatment for the stripping costs incurred during the
production phase of a mine under US GAAP. In March 2005, the Financial
Accounting Standards Board ("FASB") ratified 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 November 2004, the 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 Company has applied the fair value recognition provisions of
SFAS 123R since January 1, 2006. As a result, the provisions of SFAS 123R have
been applied to all awards granted after July 1, 1995. There are no additional
adjustments required in the current period as a result of this application.

In May 2005, the FASB issued SFAS No. 154, "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


                                      -38-

<PAGE>

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 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 2006, the FASB ratified the consensus reached by the Emerging Issues Tax
Force in Issue No. 06-3 (EITF 06-03), "How Taxes Collected from Customers and
Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That is, Gross versus Net Presentation)". The scope of EITF 06-03 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 06-03
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 06-03 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 SFAS No. 157, "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 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 SFAS No. 159, "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.

RECENTLY ISSUED IFRS STANDARDS

Certain new accounting standards and IFRIC interpretations have been published
that are not mandatory for the December 31 2006 reporting period. The group is
currently considering the impact of the following new and revised 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

The Company continues to receive positive cash flows from operations. See "Item
3. Key Information - A. Selected Financial Data". During 2005, Lihir completed
the expenditure of the proceeds from the capital raised in 2003 to finance
further capital expenditure, including the construction of geothermal power
stations to replace the existing heavy fuel oil station. Construction of an
additional 20-megawatts of geothermal energy capacity commenced in late 2005 and
is expected to be complete in the early part of 2007. Work is continuing to
define the total productive steam reserve available.

Lihir is conducting a feasibility study into the expansion of the processing
plant to lift production to about 1 million ounces per annum which would require
significant funds to move into a development phase. In conjunction with the
feasibility study the Company is considering various funding options to meet
Lihir's short to medium term requirements.

GOLD LOAN AND PROJECT FINANCING FACILITY

Lihir is a borrower under a syndicated facility agreement dated September 13,
2005 ("Syndicated Facility Agreement"), arranged by ABN AMRO Bank N.V.
(Australia Branch). The initial financiers of the facility were: ABN AMRO Bank
N.V. (Australia Branch), Australia and New Zealand Banking Group Limited,
Bayerische Hypo- und Vereinsbank AG, BNP Paribas Singapore Branch, Bank of
Western Australia Ltd, Commonwealth Bank of Australia, Macquarie Bank Limited,
National Australia Bank Limited, Natexis Banques Populaires Hong Kong Branch,
Societe Generale, WestLB AG Sydney


                                      -39-

<PAGE>

Branch, and Westpac Banking Corporation. ABN AMRO Australia Limited acts as
facility agent and security trustee in relation to the Syndicated Facility
Agreement.

The Syndicated Facility Agreement consists of two facilities. The first facility
is a $50 million revolving credit facility. The interest applicable to the
revolving credit facility, inclusive of political risk insurance, is 1.90% over
LIBOR plus a PRI premium of 0.95%. $30 million of this facility was drawn on
October 26, 2006. The second facility is a 480,000 ounce gold facility fully
drawn down on September 15, 2005, generating funds of $215.6 million at the draw
down price of $449.00 per ounce.

Mandatory prepayments are required under the Syndicated Facility Agreement under
certain conditions. The Company has pledged its assets, gold production and cash
balances as collateral and has provided a range of covenants and warranties in
relation to the facility. The Syndicated Facility Agreement permits the payment
of dividends and other distributions only if certain conditions are met. The
Company may generally at any time prior to the next calculation date (June 30
and December 31 each year with the first Calculation Date being December 31,
2007, as defined in the agreement) withdraw all or part of any excess over a
specified minimum cash balance in an offshore account for its own purposes
(including any distribution or payment into an unsecured distribution account)
subject to conditions specified within the Syndicated Facility Agreement.

See also "Item, 10 - Additional Information - C. Material Contracts - Financing
Agreements" for a more detailed description of the terms of the Syndicated
Facility Agreement.

BALLARAT GOLDFIELDS FACILITY

Lihir's subsidiary, LAH, is party to a 364 day Ballarat Goldfields bilateral
facility agreement dated October 17, 2006, with a bank.

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 Bilateral
Facility Agreement. Tranche A consists of an A$45 million cash advance facility
which was drawn in full in connection with the merger between Lihir and
Ballarat. Tranche B consists of an A$5 million cash advance facility which is
permitted to be drawn down for the purpose of financing capital requirements of
the Ballarat East Gold Project being undertaken by Ballarat. $2 million was
drawn down under Tranche B on February 26, 2007. 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 1.75%.

Mandatory prepayment of the facility is required under certain conditions. LAH
has pledged its assets in favour of the bank and provided a range of covenants
and warranties in relation to the facility. Lihir has pledged 50% of the balance
of the distribution account at any time in favour of the bank as security for
the borrowings under the Bilateral Facility Agreement.

See also "Item, 10 - Additional Information - C. Material Contracts - Financing
Agreements" for a more detailed description of the Bilateral Facility Agreement.

NET DEBT/CASH POSITION

The Company's net debt/cash position as at December 31 for each of the past
three years is as follows:

<TABLE>
<CAPTION>
                                                               NET DEBT AS AT DECEMBER 31
                                                                         $ 000
                                                            -------------------------------
                                                              2006        2005       2004
                                                            --------   ---------   --------
<S>                                                         <C>        <C>         <C>
Syndicated 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      83,559
                                                            ========   ========    ========
Net (debt)/cash(1)                                          (234,083)   (87,684)     64,050
                                                            ========   ========    ========
Equity                                                      (811,877)  (783,472)   (837,223)
Net debt to debt plus equity(1)                                 22.4%      10.0%        N/A
</TABLE>

(1)  Does not include cash from the Ballarat Goldfields bilateral facility
     agreement that was paid to Ballarat prior to the Ballarat merger.

While Lihir currently believes that it has or will have access to resources
sufficient to finance its operations, the adequacy of the Company's financial
resources will depend upon its ability to generate sufficient revenues from gold
production, to have continued access to equity capital market funding, and to
keep its costs and other expenditures within its current estimates. Lihir
believes that working capital is sufficient for its present requirements.

At December 31, 2006 Lihir's capital expenditure commitments totaled $68.3
million (2005: $86.3 million; 2004 $34.7 million). The Company's capital
expenditure requirements for 2007 are expected to be approximately $129 million
for the Lihir mine, including the committed amount of $68.3 million, plus an
additional A$80 million in estimated 2007 and 2008


                                      -40-

<PAGE>

capital expenditure related to Ballarat. This committed expenditure relates to
the flotation plant ($43.7 million), 20MW geothermal power station ($5.4
million), blast hole drill rigs ($5.1 million), oxygen plant motor ($2.4
million) and dewatering equipment ($1.2 million) and other smaller projects.

The Company does not currently have a formal credit rating and is not aware of
any information issued by ratings agencies that would influence the Company's
ability to raise funds as, and when, required.

NET CASH FLOW FROM OPERATING ACTIVITIES

Cash generated from operating activities in 2006 was $58.7 million, an increase
of $49.1 million over 2005. This was driven by the higher realized gold price
(up $91 per ounce). Cash payments increased by $5.1 million, consistent with the
increase in gross operating costs.

Cash generated from operating activities in 2005 was $9.5 million, a reduction
of $20.8 million over 2004. This was driven by the landslide which occurred in
October 2005 resulting in the loss of production for a period of approximately
one month. Despite the loss of one month's gold production, a higher realized
gold price (up $13 per ounce) offset the cost of lost production. Cash payments
increased by $16.2 million, consistent with the increase in gross operating
costs.

CASH FLOW FROM FINANCING ACTIVITIES

In 2006, debt outstanding increased to $281.1 million following draws from the
revolving credit facility in the amount of $30.0 million and from the Ballarat
Goldfields bilateral facility of $35.6 million in anticipation of the Ballarat
Goldfields NL acquisition.

In the first half of 2005, debt outstanding increased to $49.5 million following
a drawdown in May 2005 from the Syndicated Facility Agreement of $30.0 million.
In September 2005, the Company established a new Syndicated Facility Agreement
and drew down 480,000 ounces of gold which it sold at the then spot gold price
of $449 per ounce, thereby raising $215.5 million. The establishment of the new
facility enabled the Company to restructure its hedge book and repay its debt
obligations consisting of the $30.0 million May 2005 drawdown and its existing
2004 debt balance of $19.5 million. A further $62.2 million was utilized to
cancel certain substantial out-of-the-money hedges, to extend maturity dates and
to increase strike prices for a major portion of its hedge book.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC

Lihir does not have a significant research and development program.

D. TREND INFORMATION

Lihir officially commenced production in October 1997 and had produced a total
of over 5.6 million ounces of gold by December 31, 2006.

There has been an ongoing program to increase both the reliability of the plant
and its throughput capacity. This has seen milled throughput steadily rise from
2.35 million tonnes in 1998 to a project to date record of 4.34 million tonnes
in 2006. Commissioning of the new flotation expansion and further incremental
improvement projects are expected to see plant throughput increase to over 5.3
million tonnes in 2007.

The new flotation circuit will produce a higher-grade gold concentrate,
providing a second, enhanced source of ore gold feed to the existing autoclaves.
The flotation plant is expected to derive increased production of around 140,000
ounces of gold per annum on average over its first seven years of operation, at
significantly lower marginal cost. From 2007 through 2010, it is estimated that
the annual gold production capacity of the Lihir mine and processing facilities
will be over 800,000 ounces.

In January 2007, the Lihir Gold Limited Board approved expenditure of a
feasibility study aimed at increasing process plant capacity in order for it to
consistently produce in excess of 1 million ounces of gold annually. This
feasibility study is due to be completed early in 2008.

Gold production depends on both plant performance and grade. During the 2003 and
2004 years, the grade of feed to the mill reduced from prior years as mining
moved from the Minifie deposit and stripping was undertaken from the Lienetz
pit. Grades improved in the second half of 2005 as mining moved into the higher
grade benches of the Lienetz deposit. In 2006 mining progressed almost entirely
from the Lienitz area with grades generally lower than 2005 in line with the
mining strategy of extracting higher grade ore preferentially.

In April 2003, the Company commissioned 6 megawatts electrical generating
capacity utilizing geothermal steam as its energy source. A further 30 megawatts
electrical generating capacity using geothermal was commissioned in June of
2005. Construction of a further 20 megawatts of geothermal electrical generating
capacity is due to be completed in early 2007 which is expected to meet
anticipated power generation needs following expansion of the processing plant.
This form of energy generation provides both significant cost and environmental
benefits. Efforts to find additional suitable geothermal steam sources to
further reduce heavy fuel consumption in the generation of power and to meet the
power requirements of further expanded process plant are continuing.

In 2004 and 2005, demand for commodities, particularly from emerging economies
such as China and India, has significantly heightened worldwide mining activity,
thereby placing supply constraints on some materials and spare parts consumed in
the operation. The Company accordingly experienced significant increases in such
costs. Attention is being


                                      -41-

<PAGE>

given to reducing costs in all areas of the business, particularly through use
of geothermal power in the face of rising fuel costs. However, increased
production is expected to have a more significant effect in lowering unit costs.

Lihir Gold has undertaken an ongoing exploration program, mainly in the Luise
Caldera, aimed at defining resource and reserve levels. This has resulted in
increases in both resource and reserves to the levels as disclosed in the
Reserves Estimates section. With the Kapit resource largely defined and a Kapit
reserve established, the levels of exploration activity and expenditure have
been substantially reduced. Exploration will continue at this new lower level of
activity and expenditure.

E. OFF-BALANCE SHEET ARRANGEMENTS

The Company does not use off-balance sheet special purpose entities as a source
of liquidity or for other financing purposes.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The profile of Lihir's contractual obligations to external parties as at
December 31, 2006, is shown below:

<TABLE>
<CAPTION>
                                                             LATER THAN 1 YEAR     LATER THAN 2 YEARS
                                                           BUT NOT LATER THAN 2   BUT NOT LATER THAN 5
                               TOTAL    LESS THAN 1 YEAR           YEARS                  YEARS          MORE THAN 5 YEARS
                               $ 000         $ 000                $ 000                  $ 000                 $ 000
                              -------   ----------------   --------------------   --------------------   -----------------
<S>                           <C>       <C>                <C>                    <C>                    <C>
Project 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               2,327
Capital expenditure
   commitments                 68,264         68,264                  --                      --                  --
Other liabilities
   reflected on the
   Company's balance sheet*   427,396        175,399              45,531                 205,289               1,177
TOTAL IN CASH                 782,124        307,169              91,180                 380,271               3,504
</TABLE>

*    The majority of these liabilities are out-of-the-money hedge positions at
     December 31, 2006, totaling $332.8 million.

                                   GOLD OUNCES

<TABLE>
<CAPTION>
                   TOTAL    LESS THAN 1 YEAR   1 TO 3 YEARS   4 TO 5 YEARS   MORE THAN 5 YEARS
                  -------   ----------------   ------------   ------------   -----------------
<S>               <C>       <C>                <C>            <C>            <C>
Long term debt    480,000        60,000           230,000        190,000             --
TOTAL IN OUNCES   480,000        60,000           230,000        190,000             --
</TABLE>

The company has estimated capital expenditure requirements of approximately $129
million for the Lihir mine and an additional A$80 million for Ballarat. See
"Item 5. Operating and Financial Review and Prospects - Liquidity and Capital
Resources - Net Debt/Cash Position". As all these costs have not been committed,
the estimates could change.

ITEM 18. FINANCIAL STATEMENTS

See pages F-A1 through F-44 included herein.


                                      -42-

<PAGE>

                              FINANCIAL STATEMENTS

                               LIHIR GOLD LIMITED

<TABLE>
<S>                                                                       <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm                   F-A1
Consolidated Income Statements for the years ended December 31, 2006,
   2005, and 2004                                                          F-1
Consolidated Balance sheets as at December 31, 2006, 2005 and 2004         F-2
Statements of changes in equity for the years ended December 31, 2006,
   2005 and 2004                                                           F-3
Consolidated Statements of cash flows for the years ended December
   31, 2006, 2005 and 2004                                                 F-4
Notes to the financial statements                                          F-5
Supplemental schedule                                                     F-44
</TABLE>

<PAGE>

(PRICEWATERHOUSECOOPERS LOGO)

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Shareholders of Lihir Gold Limited

We have completed an integrated audit of Lihir Gold Limited's 2006 consolidated
financial statements and of its internal control over financial reporting as of
December 31, 2006 and audits of its 2005 and 2004 consolidated financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our audits, are
presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the accompanying consolidated balance sheets and the related
consolidated income statement, statements of cash flows and statements of
changes in equity present fairly, in all material respects, the financial
position of Lihir Gold Limited and its subsidiaries at December 31, 2006 and
2005, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006 in conformity with
International Financial Reporting Standards (IFRS) as adopted by the Accounting
Standards Board (ASB). In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly in all material
respects the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and International Standards on
Auditing. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


                                      -F-A1-

<PAGE>

(PRICEWATERHOUSECOOPERS LOGO)

IFRS as adopted by the ASB vary in certain significant respects from accounting
policies generally accepted in the United States of America. Information
relating to the nature and effect of such differences is presented in Note 34 to
the consolidated financial statements.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Management's Annual
Report on Internal Control Over Financial Reporting appearing under Item 15B,
that the Company maintained effective internal control over financial reporting
as of December 31, 2006 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based on
those criteria. Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control -
Integrated Framework issued by the COSO. The Company's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit.

We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding of
internal control over financial reporting, evaluating management's assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.


                                     -F-A2-

<PAGE>

(PRICEWATERHOUSECOOPERS LOGO)

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers
Port Moresby, Papua New Guinea
April 13, 2007


                                     -F-A3-

<PAGE>

                               LIHIR GOLD LIMITED
                         CONSOLIDATED INCOME STATEMENTS
                    YEAR ENDED DECEMBER 31, 2006, 2005 & 2004

<TABLE>
<CAPTION>
                                                               2006        2005        2004
                                                     NOTE     $ 000       $ 000       $ 000
                                                     ----   ---------   ---------   ---------
<S>                                                  <C>    <C>         <C>         <C>
Sales revenue                                                 307,744     225,200     221,465
Gold lease rate fees                                            2,765       5,016       4,595
Fair value losses                                              (1,682)     (5,390)      8,608
Other revenue                                                   1,627          45          --
                                                            ---------   ---------   ---------
TOTAL REVENUE                                           6     310,454     224,871     234,668

Operating expenses
   Mining 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      37,865
   Costs deferred and transferred to inventories               19,395      39,208       3,557
   Impairment reversal: Mine properties and
      deferred mining costs                                        --          --     205,723
   Economic grade stockpile value
      recognised/(impaired)
   Impairment reversal/(charge): Economic grade
      stockpile                                                    --          --      90,200
   Depreciation and amortisation                              (37,444)    (35,757)    (32,929)
                                                            ---------   ---------   ---------
TOTAL OPERATING (EXPENSES)/INCOME                       6    (229,692)   (206,767)     78,415
                                                            ---------   ---------   ---------
OPERATING PROFIT                                               80,762      18,104     313,083
Interest income                                                 1,436       1,221       3,512
Finance costs                                           6      (6,229)     (3,588)     (2,110)
                                                            ---------   ---------   ---------
PROFIT FROM ORDINARY ACTIVITIES BEFORE TAXATION                75,969      15,737     314,485
Income tax (expense)/Benefit                            9     (22,132)     (5,949)     14,736
                                                            ---------   ---------   ---------
NET PROFIT FROM ORDINARY ACTIVITIES AFTER
   TAXATION                                                    53,837       9,788     329,221
                                                            ---------   ---------   ---------
EARNINGS PER SHARE                                     29
- Basic (cents/share)                                             4.2         0.8        25.6
- Diluted (cents/share)                                           4.2         0.8        25.6
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -F-1-

<PAGE>

                               LIHIR GOLD LIMITED
                           CONSOLIDATED BALANCE SHEETS
                        AS AT DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                 2006        2005
                                       NOTE     $ 000       $ 000
                                       ----   ---------   ---------
<S>                                    <C>    <C>         <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents                7       47,032     127,836
Derivative financial instruments        10          269         543
Inventories                             11       75,295      81,712
Receivables                             12        4,641       5,347
Prepayments                                       5,514       3,696
                                              ---------   ---------
TOTAL CURRENT ASSETS                            132,751     219,134
NON-CURRENT ASSETS
Derivative financial instruments        10        2,419       4,236
Inventories                             11      141,730     115,494
Receivables                             12          400         476
Deferred mining costs                   13      148,330      91,981
Mine properties                         14      951,201     800,346
Available-for-sale financial assets     15       33,001          --
Deferred income tax                      9       86,226      87,739
                                              ---------   ---------
TOTAL NON-CURRENT ASSETS                      1,363,307   1,100,272
                                              ---------   ---------
TOTAL ASSETS                                  1,496,058   1,319,406
                                              =========   =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Derivative financial instruments        10       61,537      40,793
Accounts payable                        16       46,567      34,691
Provisions                              17        6,427       5,349
Current tax liability                               320          --
Borrowings                              18       62,535          --
                                              ---------   ---------
TOTAL CURRENT LIABILITIES                       177,386      80,833
NON-CURRENT LIABILITIES
Derivative financial instruments        10      273,954     227,157
Provisions                              17       14,261      12,424
Borrowings                              18      218,580     215,520
                                              ---------   ---------
TOTAL NON-CURRENT LIABILITIES                   506,795     455,101
                                              ---------   ---------
TOTAL LIABILITIES                               684,181     535,934
SHAREHOLDERS' EQUITY
Share capital                           19    1,027,069   1,027,504
Reserves                                20(a)  (250,689)   (225,692)
Accumulated profits/(losses)            20(b)    35,497     (18,340)
                                              ---------   ---------
TOTAL SHAREHOLDERS' EQUITY                      811,877     783,472
                                              ---------   ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
   EQUITY                                     1,496,058   1,319,406
                                              =========   =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -F-2-
<PAGE>

                               LIHIR GOLD LIMITED
                         STATEMENTS OF CHANGES IN EQUITY
                    YEAR ENDED DECEMBER 31, 2006, 2005 & 2004

<TABLE>
<CAPTION>
                                                              2006       2005       2004
                                                             $ 000      $ 000      $ 000
                                                            --------   --------   --------
<S>                                                 <C>     <C>        <C>        <C>
TOTAL EQUITY AT THE BEGINNING OF THE FINANCIAL
   YEAR                                                      783,472    837,223    461,391
Profit for the year                                 20(b)     53,837      9,788    329,221
Issue of share capital                                            --         --      2,286
Share 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)    44,395
Fair value reserve                                  20(a)         17         --         --
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
                                                             =======    =======    =======
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -F-3-

<PAGE>

                               LIHIR GOLD LIMITED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEAR ENDED DECEMBER 31, 2006, 2005 & 2004

<TABLE>
<CAPTION>
                                                          2006       2005       2004
                                                 NOTE    $ 000      $ 000      $ 000
                                                 ----   --------   --------   --------
<S>                                              <C>    <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers                             329,235    243,704    248,391
Cash 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      3,512
Interest and finance charges paid to third
   parties                                                (3,276)    (2,543)    (1,327)
                                                        --------   --------   --------
NET CASH FLOW FROM OPERATING ACTIVITIES            8      58,690      9,542     30,351
                                                        --------   --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown 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                                   --         --      2,286
Share issue transaction costs                                 --         --        (70)
                                                        --------   --------   --------
NET CASH FLOW FROM  FINANCING ACTIVITIES                  65,177    133,811    (11,823)
                                                        --------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property plant and equipment                (170,756)   (99,492)   (87,663)
Proceeds on disposal of fixed assets                          92        416         64
Payments 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    152,630
Net 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
                                                        --------   --------   --------
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -F-4-

<PAGE>

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements are presented in accordance with the Papua New Guinea
Companies Act, and comply with applicable financial reporting standards and
other mandatory professional reporting requirements approved for use in Papua
New Guinea by the Accounting Standards Board ("ASB"). These financial statements
have been prepared in accordance with International Financial Reporting
Standards ("IFRS"), as adopted by the ASB.

The financial statements have also been prepared on the basis of historical
costs except as disclosed in the accounting policies below. For example,
financial instruments are shown at fair value. The accounting policies have been
consistently applied, unless otherwise stated.

The following is a summary of the significant accounting policies adopted in the
preparation of the consolidated financial statements.

(i)  CONSOLIDATION

     The 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 EXPENDITURE

     The Company charges exploration and evaluation costs against earnings as
     incurred.

(iii) DEVELOPMENT PROPERTIES

     A 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 PROPERTIES

     Mine 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 dore.


                                      -F-5-

<PAGE>

     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.

(v)  DETERMINATION OF ORE RESERVES AND REMAINING MINE LIFE

     The 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 COSTS

     The 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 COSTS

     Interest 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 EQUIPMENT


                                      -F-6-

<PAGE>

     Mine 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 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.

<TABLE>
<CAPTION>
                              PERCENTAGE
                             DEPRECIATED       PERCENTAGE
                                  AS           DEPRECIATED
FIXED ASSET CLASSIFICATION   UNITS-OF-USE   AS STRAIGHT LINE
--------------------------   ------------   ----------------
<S>                          <C>            <C>
Deferred expenditure             100%              --
Land & buildings                 100%              --
Plant & equipment                85%               15%
TOTAL AVERAGE                    90%               10%
</TABLE>

     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) INVENTORIES

     Cost 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


                                      -F-7-

<PAGE>

     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.

     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 ASSETS

     In 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.

<TABLE>
<CAPTION>
Year   Long Term Gold Price   Discount Rate   Impairment/(Reversal)
----   --------------------   -------------   ---------------------
<S>    <C>                    <C>             <C>
                $oz                  %              $million
1999           $325                 7%               $236.8
2000           $300                 6%               $120.6
2001           $280                 6%                 $0
2002           $305                 7%               ($37.9)
2003           $340                 7%               ($31.1)
2004           $380                 7%              ($205.7)
2005           $425                 7%                 $0
2006           $500                 7%                 $0
</TABLE>

     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.


                                      -F-8-

<PAGE>

     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:

<TABLE>
<CAPTION>
                                               2006        2005          2004
                                               ----   -------------   ---------
<S>                                            <C>    <C>             <C>
Average spot price for the month of December   $630   $510            $442
Year-end spot price for December 31            $634   $517            $435
3 year weighted average                        $486   $422            $384
Bank/Analyst long-term forecasts               $535   $424(Nov-Dec)   $358(Oct)
Global Gold Price Survey                       $515   $425            $375
Rising trend for the last four years            +95%   +65%            +47%
</TABLE>

     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 EXPENDITURE

     In 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) LEASES

     Leases 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) RECEIVABLES


                                      -F-9-

<PAGE>

     Receivables 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.

(xiv) INVESTMENTS

     The 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) BORROWINGS

     Borrowings 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 ACTIVITIES

     The 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 IA S39.

     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


                                     -F-10-

<PAGE>

     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.

     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 CAPITAL

     Ordinary 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 PAYMENTS

     The 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 has an obligation to issue shares under the 2003 Heads of
     Agreement ("Agreement") between the Company and MRL (representing the
     equity held for landowners). These shares are to be issued to MRL in
     recognition of the continued cooperative relationship between the Company
     and local landowners so that the Company can continue to enjoy the right to
     mine the land and expand the mines activities without interruption or
     dispute over Lihirian equity in the operation or the Company. The share
     issue recognizes the continued cooperative relationship between the Company
     and local landowners and the changes in circumstances on the island over
     time insofar as they affect the parties, including for example changes in
     the level of activity since the commencement of mining.

The share based payment is measured by reference to the fair value of the shares
to be issued to MRL under the Agreement at the grant date being the date the
liability to issue the shares arose. No vesting conditions are attached to the
grant of shares. The share based payment transaction qualifies for
capitalization as an intangible asset and the expense is amortised over the
finite life of the asset using a units-of-production method. The amortization
expense is included in operating costs.


                                     -F-11-

<PAGE>

(xix) REVENUE RECOGNITION

     The Company's revenue comes from the sale of refined gold in the
     international market. Generally, gold dore 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 dore 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;

          (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 INCOME

     Interest income is recognised on a time proportion basis using the
     effective interest rate method.

(xxi) CASH AND CASH EQUIVALENTS

     For 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 BENEFITS

     The 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) PROVISIONS

     Provisions 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.


                                     -F-12-

<PAGE>

(xxiv) DIVIDENDS

     Dividends are recorded in the Company's financial statements in the period
     in which they are approved by the Company's directors.

(xxv) INCOME TAX

     Tax 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.

(xxvi) FOREIGN CURRENCY TRANSLATION

     As 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 REPORTING

     A 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 FIGURES

     Where necessary, comparative figures have been adjusted to conform to
     changes in presentation in the current year.

(xxix) ROUNDING OF AMOUNTS

     The Financial Statements have been rounded to the nearest thousand dollars.

(xxx) SIGNIFICANT RISKS AND UNCERTAINTIES

     The 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 JUDGMENTS

     The 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


                                     -F-13-

<PAGE>

     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.

     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

Certain new accounting standards and IFRIC interpretations have been published
that are not mandatory for the December 31 2006 reporting period. The group is
currently considering the impact of the following new and revised standards:

(i)  In August 2005, the International Accounting Standards Board ("IASB")
     issued International Financial Reporting Standard ("IFRS") 7 "Financial
     Instruments: Disclosures". IFRS7 revises and enhances IAS30 "Disclosures in
     the Financial Statements of Banks and Similar Financial Institutions" and
     IAS32 "Financial Instruments; Disclosures and Presentation". IFRS7 is
     applicable to annual periods beginning on or after January 1, 2007. The
     group has not elected to early adopt IFRS7.

(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

The Special Mining Lease was issued on March 17, 1995 and has a term of 40
years. Under the Mining Act it may be renewed for subsequent 20-year periods at
the discretion of the PNG Government.

NOTE 4: REQUIREMENTS REGARDING CASH RESERVES

The Papua New Guinea Central Bank regulations (Foreign Exchange and Gold)
generally require PNG companies to hold all cash reserves in Kina. Prior
approval of the Bank of Papua New Guinea is required to convert funds from Kina
into other currencies.


                                     -F-14-

<PAGE>

Under the Mining Development Contract however, the Company has permission to
retain funds in foreign currencies to meet its obligations.

NOTE 5: DIVIDEND RESTRICTIONS

The Syndicated Facilities Agreement signed on September 15, 2005 permits the
payment of dividends and other distributions only if certain conditions are met.
The Company may generally at any time prior to the next calculation date (June
30 and December 31, each year with the first Calculation Date being December 31,
2007 as defined in the agreement) withdraw all or part of any excess over a
specified minimum cash balance in an offshore account for its own purposes
(including any distribution or payment into an unsecured distribution account)
subject to conditions specified within the Agreement.

The banks and the hedge providers have the benefit of charges and mortgages over
the assets of the Company.

Undertakings given by the Company included:

-    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.

In addition to the normal default provisions relating to the non payment,
financial distress, misrepresentation, cross-default and breach of undertakings,
the SFA includes 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 banks (being banks whose revolving credit facility (RCF)
commitments exceed 66% of total RFC commitments) may cancel the RCF commitment
and accelerate redelivery of all gold outstanding and the repayment of cash
advances under the RCF.


                                     -F-15-

<PAGE>

NOTE 6: OPERATING PROFIT

<TABLE>
<CAPTION>
                                                  2006       2005       2004
                                                 $ 000      $ 000      $ 000
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
Operating profit before taxation has been
determined after crediting / (charging):
SALES AND OTHER REVENUE
Gold sales at spot                               384,363    263,919    245,397
Realisation of hedging instruments               (59,486)   (25,233)    (6,764)
Gold lease rate fees                               2,765      5,016      4,595
Fair value losses                                 (1,682)    (5,390)     8,608
Realisation of deferred hedging income               661        661        661
Realisation of deferred hedging costs            (17,794)   (14,147)   (17,829)
Other revenue                                      1,627         45         --
                                                --------   --------   --------
TOTAL REVENUE                                    310,454    224,871    234,668
                                                --------   --------   --------
OPERATING EXPENSES
Refining 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     37,865
Costs deferred and transferred to inventories     19,395     42,128      3,557
Inventory write-off: Economic grade stockpile         --     (2,920)        --
Impairment reversal: Mine properties and
   deferred mining costs                              --         --    205,723
Impairment reversal/(charge) Economic grade
   stockpile                                          --         --     90,200
Profit/(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)    78,415
                                                --------   --------   --------
FINANCE COSTS
Interest expense on gold loan                     (1,526)      (438)     3,512
Non-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
                                                --------   --------   --------
</TABLE>


                                     -F-16-

<PAGE>

NOTE 7: CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                             2006       2005
                                                             $ 000      $ 000
                                                           --------   --------
<S>                                                        <C>        <C>
Cash at bank and on hand                                     21,408      2,596
Short term deposits with financial
   institutions                                              25,624    125,240
                                                            -------   --------
                                                             47,032    127,836
                                                            -------   --------
</TABLE>

At December 31 2006 the effective interest rate on short-term deposits was 5.19%
(2005: 4.27%). These deposits have an average maturity of 1 day (2005: 20 days).

NOTE 8: NET CASH FLOW FROM OPERATING ACTIVITIES

<TABLE>
<CAPTION>
                                                  2006      2005      2004
                                                 $ 000     $ 000      $ 000
                                                -------   -------   --------
<S>                                             <C>       <C>       <C>
Reconciliation of cash flow from operating
activities to operating profit after tax

OPERATING PROFIT AFTER TAX                       53,837     9,788    329,221
Add back non-cash items:
   Depreciation and amortization                 37,444    35,757     32,929
   Fair 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     17,829
   Provision 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      1,187
   Increase 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      8,504
   Increase in provisions                         2,915     2,418      1,370
                                                -------   -------   --------
NET CASH FLOW FROM OPERATING ACTIVITIES          58,690     9,542     30,351
                                                -------   -------   --------
</TABLE>


                                     -F-17-
<PAGE>

NOTE 9: INCOME TAX

Income tax expense for the year has been calculated as follows:

<TABLE>
<CAPTION>
                                                  2006     2005     2004
                                                  $ 000   $ 000     $ 000
                                                 ------   -----   --------
<S>                                              <C>      <C>     <C>
INCOME TAX  EXPENSE
Current tax                                         311   1,295   (111,412)
Under / (over) provided in prior years               29      --         --
                                                 ------   -----   --------
                                                    340   1,295   (111,412)
Deferred tax                                     23,327   4,654     96,676
Under / (over) provided in prior years           (1,535)     --         --
                                                 ------   -----   --------
                                                 21,792   4,654     96,676
                                                 ------   -----   --------
Total income tax expense                         22,132   5,949   (14,736)
                                                 ------   -----   --------
</TABLE>

The tax on the Company's profit before tax differs from the prima facie amount
that would arise using the tax rate applicable to profits of the Company as
follows:

<TABLE>
<S>                                              <C>      <C>      <C>
Profit before tax                                75,969   15,737    314,485
Prima facie income tax expense on operating
   profit at 30%                                 22,791    4,721     94,345
Tax 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     96,676
Recognition 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)
                                                 ------   ------   --------
</TABLE>

<TABLE>
<CAPTION>
                                                2006      2005
                                               $ 000     $ 000
                                              -------   -------
<S>                                           <C>       <C>
DEFERRED INCOME TAX
Deferred 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   138,580
                                              -------   -------
                                              173,134   152,848
                                              -------   -------
Deferred 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    84,812
Credited/(charged) to the income statement    (21,792)   (5,949)
Tax charged to equity                          20,279     8,876
                                              -------   -------
Balance at end of year                         86,226    87,739
                                              -------   -------
</TABLE>


                                     -F-18-

<PAGE>

The Group has a legally enforceable right to offset deferred income tax assets
and liabilities and current tax assets against current tax liabilities where
levied by the same taxation authority.

MOVEMENTS IN DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES:

<TABLE>
<CAPTION>
                                             Provisions
                                 Inventory    of assets   Derivatives   Tax losses    Other    Total
                                 ---------   ----------   -----------   ----------   ------   -------
<S>                              <C>         <C>          <C>           <C>          <C>      <C>
DEFERRED TAX ASSETS:
At January 1 2006                  1,590        6,185        78,952       65,613        508   152,848
Credited / (charged) to the
   income statement               (1,590)         898           505          231       (159)     (115)
Credited / (charged) to equity                      7        20,385            9         --    20,401
                                  -------       -----        --------     ------       ----   -------
AT DECEMBER 31 2006                   --        7,090        99,842       65,853        349   173,134
                                  -------       -----        --------     ------       ----   -------
</TABLE>

<TABLE>
<CAPTION>
                                    Accelerated
                                        tax       Consumable   Deferred    Prepaid
                                   depreciation     stores      mining    insurance    Other    Total
                                   ------------   ----------   --------   ---------   ------   -------
<S>                                <C>            <C>          <C>        <C>         <C>      <C>
DEFERRED TAX LIABILITIES:
At 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)
                                     -------        ------      -------     ----       ----    -------
</TABLE>

Deferred income tax assets are recognised for tax losses carried forward and
other temporary differences to the extent that the realisation of the related
tax benefit through future taxable profits is probable. Where the tax losses
relate to PNG they can be carried forward for a period not exceeding 20 years.
The tax losses arising in the Australian jurisdiction can be carried forward
indefinitely.

NOTE 10: DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

<TABLE>
<CAPTION>
                            2006      2005      2005
                           $ 000     $ 000     $ 000
                          -------   -------   -------
<S>                       <C>       <C>       <C>
Current assets
   - Forward contracts        269       543       298
   - Put Options               --        --       175
                          -------   -------   -------
                              269       543       473
                          -------   -------   -------
Non-current assets
   - Forward contracts      2,419     4,236    19,382
                                                1,751
                          -------   -------   -------
                            2,419     4,236    21,133
                          -------   -------   -------
Current liabilities
   - Forward contracts     35,984    36,531    40,915
   - Calls options sold    25,553     4,262    10,884
                          -------   -------   -------
                           61,537    40,793    51,799
                          -------   -------   -------
Non-current liabilities
   - Forward contracts    251,745   192,224   179,615
   - Call options sold     22,209    34,933    23,777
                          -------   -------   -------
                          273,954   227,157   203,392
                          -------   -------   -------
</TABLE>


                                     -F-19-

<PAGE>

The Company has entered into a series of agreements with financial institutions
in relation to future sales of gold. The purpose of these transactions is to
protect the level of income in future years. It is not Company policy to engage
in speculative hedging activities.

In September 2005 a gold loan of 480,000 ounces was negotiated as part of new
Syndicated Finance Facility (Note 18). These negotiations also included an
overall restructure of the hedge book that culminated in a reduction of hedge
commitments of 470,830 ounces, an increase in the overall hedge book strike
price, along with a substantial portion of the Company's remaining hedge
commitments deferred to later years. As at December 31 2006 the Company's hedge
book commitments amounted to 1,001,000 ounces as shown in the following summary:

<TABLE>
<CAPTION>
                                         PUT
                FORWARD SALES       OPTIONS BOUGHT    CALL OPTIONS SOLD
              -----------------   -----------------   -----------------
               OUNCES    PRICE     OUNCES    PRICE     OUNCES    PRICE
              -------   -------   -------   -------   -------   -------
<S>           <C>       <C>       <C>       <C>       <C>       <C>
0-3 months     47,500   $327.56    19,000   $315.00    19,000   $307.00
3-6 months     10,000   $339.40    19,000   $315.00    19,000   $307.00
6-9 months     15,000   $326.40    19,000   $315.00    19,000   $307.00
9-12 months    42,500   $333.20    19,000   $315.00    19,000   $307.00

   2008       145,000   $327.12        --   $  0.00        --   $  0.00
   2009(1)    240,000   $371.67        --   $  0.00        --   $  0.00
   2010(1)    240,000   $371.67        --   $  0.00        --   $  0.00
   2011(1)    120,000   $371.67    13,000   $375.00    13,000   $375.00
   2012            --   $  0.00    26,000   $375.00    26,000   $375.00
   2013            --   $  0.00    26,000   $375.00    26,000   $375.00
              -------   -------   -------   -------   -------   -------
              860,000   $358.62   141,000   $342.66   141,000   $338.35
              -------   -------   -------   -------   -------   -------
</TABLE>

(1)  The gross price for the forwards in these years is shown. The price net of
     fees is $350.00.

Forward sales are transactions against which the Company will be obliged to
deliver when they fall due. The price therefore represents a fixed and
guaranteed amount of revenue.

Bought put options are transactions that will occur at the discretion of the
Company. Should the spot price exceed the strike price of the option at the date
on which the option expires, the Company will allow the option to expire and
will sell the equivalent amount of gold in the spot market. Conversely, if the
strike price is higher than the spot price on that date, the option will be
exercised.

Sold call options are transactions that will occur at the discretion of the
purchaser. Should the spot price exceed the strike price of the option at the
date on which the option expires, a rational purchaser would exercise the option
obliging the Company to deliver gold into the contract at the contracted strike
price.

Gold lease rate swaps against hedges entitle the Company to receive a fixed rate
allowance, used in the determination of the forward contract price, in exchange
for an obligation to pay a floating rate, where settlement occurs on a periodic
basis.

The Company does not enter into hedging transactions that have provisions for
margin calls.

The minimum total revenue generated from these programs will be $356 million
(2005: $424 million, 2004: $639 million). Revenue generated from the same number
of ounces at the prevailing spot price at December 31 2006 of $633.80 (2005:
$517.38, 2004: $438.00) per ounce would be $634 million (2005: $625 million,
2004 $843 million).

On December 31 2006, the estimated fair value of the total hedge program as
determined by an independent party, based on the ruling spot price of $633.80
(2005: $517.38, 2004: 438.00), was $332.80 million out-of-the-money (2005:
$263.20 million out-of-the-money, 2004: $233.6 million out-of-the-money). At the
spot price plus 10% ($697.18) the estimated fair value would be approximately
$396 million out of the money. Conversely at the spot price less 10% ($570.42)
the estimated fair value would be $269 million out of the money. The fair value
of commodity contracts is estimated based on quotes from the market makers of
these instruments and represents the estimated amounts that the Company would
expect to receive or pay to terminate the agreements at the reporting date. Fair
value of options is an estimate based on relevant market information such as:
volatility of similar options, futures prices and the contracted strike price.

Net profit for 2006 included revaluation costs relating to ineffective hedges of
$1.7 million (2005: costs of $5.4 million, 2004: revenue of $8.6 million). The
hedge effectiveness provisions of IAS 39 require that the ineffective portion of
the hedge be passed immediately through the income statement. During the latter
part of 2000 and early 2001, gold lease rates were historically high. In locking
in the gold price for future production, Lihir elected to retain a floating rate
exposure


                                     -F-20-

<PAGE>

to lease rates by way of gold lease rate swaps and by 2004 lease rates had
declined near historical low levels. The cost of $1.7 million (2005: cost of
$5.4 million, 2004: revenue of $8.6 million) has arisen due to lease rates
rising in 2005 and 2006 from the 2004 low levels.

The Company does not use financial instruments to hedge future interest rates or
foreign exchange transactions.

The effective portion of the hedge is retained in equity, to be recycled to
earnings on delivery of designated production. At December 31 2006, shareholders
equity included a hedging fair value reserve of negative $256.1 million after
tax (2005: negative $225.7 million, 2004: negative $162.2 million).

The estimated net amount of gains / (losses) contained in the fair value
reserves which are expected to be reclassified to earnings within the next 12
months are as follows:

<TABLE>
<CAPTION>
                           2006      2005      2004
                          $ 000     $ 000     $ 000
                         -------   -------   -------
<S>                      <C>       <C>       <C>
Forward contracts        (63,153)  (53,476)  (40,183)
Deferred hedging gains     1,930     1,965     6,117
Deferred taxation         17,876    12,075    15,682
                         -------   -------   -------
                         (43,347)  (39,436)  (18,384)
                         -------   -------   -------
</TABLE>

NOTE 11: INVENTORIES

<TABLE>
<CAPTION>
                                     2006      2005
                                    $ 000     $ 000
                                   -------   -------
<S>                                <C>       <C>
CURRENT
Stores                              47,636    43,567
Less: Provision for obsolescence    (6,116)   (5,299)
                                   -------   -------
                                    41,520    38,268
Production work in progress          2,094     2,824
Finished goods                       4,804     4,584
Ore stockpiles                      26,877    36,036
                                   -------   -------
                                    75,295    81,712
                                   -------   -------
NON-CURRENT
Ore stockpiles                     141,730   115,494
                                   -------   -------
                                   141,730   115,494
                                   -------   -------
</TABLE>

Current stockpiled ore mainly relates to run-of-mine (ROM) stockpile and crushed
ore stocks ready for processing into finished goods within the next 12 months.
These are valued at the lower of cost and net realisable value. Cost includes
mining costs, costs of conversion (crushing and conveying costs) and an
allocation of fixed and variable production overheads based on their contained
gold.

Non-current ore stockpiles represent ore that has been extracted from the mine
and is available for future processing but is not expected to be processed
within the next twelve months. An amount of $7.184 million of high grade
stockpiles is included in non-current ore stockpiles for 2006. Stockpiles are
measured by estimating the number of tonnes (via truck counts and/or in-pit
surveys of the ore before stockpiling) added and removed from the stockpile, the
number of contained ounces (based on assay data) and the recovery percentage
(based on the process for which the ore is destined). Stockpile tonnages are
verified by periodic surveys. Stockpiles are carried at the lower of cost and
net realisable value. Cost is applied based on mining costs incurred up to the
point of stockpiling the ore, including applicable overheads such as
depreciation and amortisation relating to mining operations.

Finished goods inventory is stated at the lower of cost and net realisable
value.


                                     -F-21-

<PAGE>

NOTE 12: RECEIVABLES

<TABLE>
<CAPTION>
                                               2006     2005
                                               $ 000    $ 000
                                              ------   ------
<S>                                           <C>      <C>
CURRENT
Other amounts receivable from third parties    7,586    7,926
Less: Provision for doubtful debts            (2,945)  (2,579)
                                              ------   ------
                                               4,641    5,347
                                              ------   ------
NON-CURRENT
Other amounts receivable from third parties      400      476
                                              ------   ------
                                                 400      476
                                              ------   ------
Total amounts receivable
</TABLE>

As at December 31, 2006 other accounts receivable from third parties includes
charges, such as accommodation and camp fees, electricity and other utilities,
and airfares billed to third parties (totalling US$5.1 million in 2006, US$6.9
million in 2005 and US$6.3 million in 2004).

NOTE 13: DEFERRED MINING COSTS

<TABLE>
<CAPTION>
                                   2006       2005
                                   $ 000      $ 000
                                 --------   --------
<S>                              <C>        <C>
NON-CURRENT
Deferred mining costs             148,330     91,981
                                 --------   --------
                                  148,330     91,981
                                 --------   --------
Tonnes deferred (000's tonnes)     72,089     46,041
Strip ratio                          2.91       2.91
</TABLE>

THE UNIT COST RATE FOR THE DEFERRED TONNES IS $2.06 (2005: $2.00).

MOVEMENTS:

<TABLE>
<CAPTION>
                                                                            2006      2005
                                                                           $ 000     $ 000
                                                                          -------   -------
<S>                                                                       <C>       <C>
Carrying 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    10,995
                                                                          -------   -------
Carrying amount at end of year                                            148,330    91,981
                                                                          -------   -------
</TABLE>


                                     -F-22-

<PAGE>

NOTE 14: MINE PROPERTIES

<TABLE>
<CAPTION>
                                                2006       2005
                                                $ 000      $ 000
                                              --------   --------
<S>                                           <C>        <C>
CAPITAL WORKS IN PROGRESS
   Cost brought forward                         66,895     65,966
   Additions                                   180,711     99,492
   Transfers                                   (42,587)   (98,563)
                                              --------   --------
   COSTS CARRIED FORWARD                       205,019     66,895
                                              --------   --------
PLANT AND EQUIPMENT
   Cost brought forward                        670,024    620,652
   Transfers from capital works in progress     26,747     55,437
   Additions                                     7,003         --
   Disposals                                    (2,544)    (6,065)
                                              --------   --------
   COST CARRIED FORWARD                        701,230    670,024
   Depreciation brought forward               (225,568)  (202,284)
   Charge for the year                         (24,463)   (27,005)
   Disposals                                     2,513      3,721
                                              --------   --------
   DEPRECIATION CARRIED FORWARD               (247,518)  (225,568)
                                              --------   --------
   NET BOOK VALUE                              453,712    444,456
                                              --------   --------
LAND AND BUILDINGS
   Cost brought forward                        117,697     80,132
   Transfers from capital works in progress      1,107     37,565
                                              --------   --------
   COST CARRIED FORWARD                        118,804    117,697
   Depreciation 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     92,417
                                              --------   --------
DEFERRED EXPENDITURE
   Cost brought forward                        277,342    271,781
   Transfers from capital works in progress     14,733      5,561
   Disposals                                    (1,182)        --
                                              --------   --------
   COST CARRIED FORWARD                        290,893    277,342
   Depreciation 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    192,747
                                              --------   --------
REHABILITATION
   Cost brought forward                          6,207      6,242
   Additions / (deductions)                        616        (35)
                                              --------   --------
   COST CARRIED FORWARD                          6,823      6,207
</TABLE>


                                     -F-23-

<PAGE>

<TABLE>
<S>                                           <C>        <C>
   Amortisation brought forward                 (2,376)    (2,329)
   Charge for the year                            (133)       (47)
                                              --------   --------
   AMORTISATION CARRIED FORWARD                 (2,509)    (2,376)
                                              --------   --------
   NET BOOK VALUE                                4,314      3,831
                                              --------   --------
TOTAL MINE PROPERTIES                          951,201    800,346
                                              --------   --------
</TABLE>

Included in Capital works in progress is capitalised interest and financing
costs of $0.7 million (2005: $1.8 million), a reduction of $1.1 million. The
reduction reflects interest earned on these applied funds. A portion of the gold
loan draw down was applied to the construction of the flotation plant (refer
note 18).

NOTE 15: AVAILABLE-FOR-SALE FINANCIAL ASSETS

For the purposes of accounting classification, until such time as the Company
has significant influence or power to govern the financial and operating
policies of Ballarat Goldfields NL ("BGF"), the investment in BGF is defined and
classified as an available-for-sale asset.

As part of the merger proposal between Lihir Gold Limited and BGF, Lihir
Australian Holdings Ltd ("LAH") agreed to undertake a placement of 149 million
fully paid ordinary shares at an issue price of A$0.28 per share. These equity
securities are carried at fair value. The investment represents an 11% interest
in BGF. As at balance sheet date, the Lihir group had no power to participate in
the financial and operating policy decisions of BGF. Refer to Note 33 of the
financial statements.

<TABLE>
<CAPTION>
                                      2006     2005
                                      $ 000    $ 000
                                     ------   ------
<S>                                  <C>      <C>
Other listed securities:
   Equity securities                 33,001       --
                                     ------   ------
                                     33,001       --
                                     ------   ------
</TABLE>

NOTE 16: ACCOUNTS PAYABLE

<TABLE>
<CAPTION>
                                      2006     2005
                                      $ 000    $ 000
                                     ------   ------
<S>                                  <C>      <C>
CURRENT
Trade creditors and accruals         46,140   33,950
Amounts payable to related parties       --      476
Other payables                          427      265
                                     ------   ------
                                     46,567   34,691
                                     ------   ------
</TABLE>

NOTE 17: PROVISIONS

<TABLE>
<CAPTION>
                                      2006     2005
                                      $ 000    $ 000
                                     ------   ------
<S>                                  <C>      <C>
CURRENT
Employee provisions                   6,427    5,349
                                     ------   ------
                                      6,427    5,349
                                     ------   ------
NON CURRENT
Employee provisions                   3,164    2,616
Rehabilitation provision             11,097    9,808
                                     ------   ------
                                     14,261   12,424
                                     ------   ------
</TABLE>


                                     -F-24-

<PAGE>

(a)  Current employee provisions relate to the following short-term benefits
     which are payable within 12 months:

<TABLE>
<CAPTION>
                               2006    2005
                              $ 000   $ 000
                              -----   -----
<S>                           <C>     <C>
EMPLOYEE PROVISIONS CURRENT
Annual leave                  2,883   2,427
Sick leave                      625     559
Service bonus                 1,267   2,092
Short term incentives         1,207     193
Long service leave current      445      78
                              -----   -----
                              6,427   5,349
                              -----   -----
</TABLE>

The service bonus is a scheme whereby some employees contribute 10% of their
gross fortnight / monthly salary to the Company and are entitled to receive back
their contributions plus a further 10% from the Company.

The short term incentive is an employee performance reward scheme to reward
performance during the year. An estimate of payments is provided for during the
year. The employee performance is measured and appropriate payments made in the
first quarter of the following year.

(b)  Non-current employee provisions relate to the non-current portion of
     service bonuses and long-service leave entitlements that are determined in
     accordance with the requirements for other long-term employee benefits.

<TABLE>
<CAPTION>
                                   2006    2005
                                  $ 000   $ 000
                                  -----   -----
<S>                               <C>     <C>
EMPLOYEE PROVISIONS NON-CURRENT
Long service leave                2,188   2,192
Service bonus                       976     424
                                  -----   -----
                                  3,164   2,616
                                  -----   -----
</TABLE>

(c)  Movements in each class of provision during the financial year, other than
     employee benefits, are set out below:

<TABLE>
<CAPTION>
                                                    2006     2005
                                                    $ 000    $ 000
                                                   ------   ------
<S>                                                <C>      <C>
REHABILITATION PROVISION
Carrying 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      608
                                                   ------   ------
Carrying amount at end of year                     11,097    9,808
                                                   ------   ------
</TABLE>

NOTE 18: BORROWINGS AND FINANCE FACILITIES

<TABLE>
<CAPTION>
                                 2006      2005
                                $ 000     $ 000
                               -------   -------
<S>                            <C>       <C>
CURRENT
Project financing facility      26,940        --
Ballarat Goldfields facility    35,595        --
                               -------   -------
                                62,535        --
                               -------   -------
NON CURRENT
Project financing facility     218,580   215,520
                               -------   -------
                               218,580   215,520
                               -------   -------
</TABLE>

(A) PROJECT FINANCING FACILITY

A Syndicated Finance Facility, signed on September 15 2005, is a facility of two
parts, both parts underwritten by ABN AMRO Australia Limited. Participating with
ABN AMRO Australia Limited as financiers of the facility are eleven banks:
Australia and New Zealand Banking Group Limited, Bayerische Hypo-und Vereinsbank
AG, BNP Paribas, Bank of Western Australia Ltd, Commonwealth Bank of Australia,
Macquarie Bank Limited, National Australia Bank Limited, Natexis Banques
Populaires, Societe Generale, WestLB AG, and Westpac Banking Corporation.


                                     -F-25-

<PAGE>

The first part is a $50 million revolving credit facility. The revolving credit
facility can be repaid at any time during the term of the facility which ends on
June 30, 2011. The amount of this facility drawn down at December 31, 2006 is
$30 million.

Mandatory prepayments are required under the Finance Facility under certain
conditions. The Company has pledged its assets, gold production and cash
balances as collateral and has provided a range of covenants and warranties in
relation to the facility (Refer to Note 5).

The second part is a 480,000 ounce gold loan facility fully drawn down on
September 15, 2005 generating funds of $216 million at the draw down price of
$449.00.

The gold loan delivery schedule is:

<TABLE>
<CAPTION>
DELIVERY (IN OUNCES)   FIRST QUARTER   SECOND QUARTER   THIRD QUARTER   FOURTH QUARTER   FULL YEAR
--------------------   -------------   --------------   -------------   --------------   ---------
<S>                    <C>             <C>              <C>             <C>              <C>
2007                           --              --           30,000          30,000         60,000
2008                       30,000          30,000           15,000          25,000        100,000
2009                       50,000          35,000           30,000          15,000        130,000
2010                       40,000          25,000           15,000          20,000        100,000
2011                       40,000          50,000               --              --         90,000
</TABLE>

In compliance with IAS 39, the gold loan 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 is by physical delivery of gold ounces.

Gold lease rate swaps apply to the entire 480,000 ounce gold facility and
entitle the Company to receive a floating rate allowance, used in the
determination of the transaction price, in exchange for an obligation to pay a
fixed rate, where repayment occurs on a periodic basis. Net gold lease rate
swaps paid in ounces are recorded as finance costs.

Interest applicable to the facility is paid in ounces, is valued at cost of
sales, and is either capitalised to the extent that the funds are applied to the
construction of the flotation plant, or is expensed.

(B) BALLARAT GOLDFIELDS FACILITY

On October 17, 2006, Lihir Australian Holdings Pty Limited ("LAH") entered into
a Facility Agreement with a bank. The bank has agreed to make available to LAH a
cash advance up to a maximum amount of A$50 million. The facility has been split
into two tranches specifically for the following approved purposes:

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.

The facility has a maturity date of 364 days from execution of the agreement.
The bank has secured a charge over the investment in Ballarat Goldfields NL.

A separate Parent Representation and Undertaking Agreement were executed between
Lihir Gold Limited and the bank on October 17, 2006. This agreement requires
Lihir Gold Limited to advise the bank within six months in respect of plans for
repayment.

The amount of this facility drawn at December 31, 2006 was A$45 million (US $36
million).


                                     -F-26-
<PAGE>

<TABLE>
<CAPTION>
                                  BALLARAT     BALLARAT                        REVOLVING   REVOLVING
                                 GOLDFIELDS   GOLDFIELDS     GOLD      GOLD      CREDIT      CREDIT
                                  FACILITY     FACILITY      LOAN      LOAN    FACILITY     FACILITY    TOTAL     TOTAL
                                   US$ 000      US$ 000    US$ 000   US$ 000    US$ 000     US$ 000    US$ 000   US$ 000
                                    2006         2005        2006      2005       2006        2005       2006      2005
                                 ----------   ----------   -------   -------   ---------   ---------   -------   -------
<S>                              <C>          <C>          <C>       <C>       <C>         <C>         <C>       <C>
Repayment Maturity
Current
                                  -------         ---      -------   -------    ------        ---      -------   -------
Less than one year                 35,595          --       26,940        --        --         --       62,535        --
                                  -------         ---      -------   -------    ------        ---      -------   -------
Non-current
Between one and two years              --          --       44,900    26,940        --         --       44,900    26,940
Between two and three years            --          --       58,370    44,900        --         --       58,370    44,900
In excess of three years               --          --       85,310   143,680    30,000         --      115,310   143,600
                                  -------         ---      -------   -------    ------        ---      -------   -------
                                       --          --      188,580   215,520    30,000         --      218,580   215,520
                                  -------         ---      -------   -------    ------        ---      -------   -------
TOTAL                              35,595          --      215,520   215,520    30,000         --      281,115   215,520
                                  -------         ---      -------   -------    ------        ---      -------   -------
Weighted average interest rate        8.1%         --          2.6%      2.0%      7.3%        --          2.3%      2.0%
</TABLE>

NOTE 19: SHARE CAPITAL

<TABLE>
<CAPTION>
                                                2006        2005        2004
                                               $ 000       $ 000       $ 000
                                             ---------   ---------   ---------
<S>                                          <C>         <C>         <C>
(a) Issued and paid up capital
Ordinary shares
Opening balance                              1,027,504   1,027,504   1,025,288
Shares reclassified as treasury shares (1)        (435)         --          --
Shares issued                                       --          --       2,286
Share issue transaction costs                       --          --         (70)
Closing balance                              1,027,069   1,027,504   1,027,504
</TABLE>

<TABLE>
<CAPTION>
                                            2006        2005        2004
                                         ---------   ---------   ---------
                                               NUMBER OF SHARES '000
<S>                                      <C>         <C>         <C>
(b) Issued and paid up capital
Opening balance                          1,284,225   1,284,225   1,282,334
Shares reclassified as treasury shares        (176)         --          --
Shares issued                                   --          --       1,891
Closing balance                          1,284,049   1,284,225   1,284,225
</TABLE>

(1)  On consolidation, shares held under the Lihir Executive Share Plan are
     offset against share based payments reserve.

The company's securities consist of ordinary, restricted executive and class B
shares. Ordinary and restricted executive shares have equal participation and
voting rights. Treasury shares are held by the company. Treasury Class B shares
arose from the merger with Niugini Mining Limited in 2000. These shares confer
no voting rights, no rights to participation in dividends, are not transferable
and are redeemable at the option of Lihir Gold Limited.

The Treasury restricted executive shares are shares purchased for the Long Term
Incentive plan (see note 32 Share Based Payments).

In accordance with the Papua New Guinea Companies Act, par values are not
attributable to shares and there is no authorised capital.


                                     -F-27-

<PAGE>

NOTE 20: RESERVES AND RETAINED PROFITS

<TABLE>
<CAPTION>
                                                   2006       2005       2004
                                                  $ 000      $ 000      $ 000
                                                 --------   --------   --------
<S>                                              <C>        <C>        <C>
(A) RESERVES
Hedging 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 hedges
   Balance 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)    17,221
   Deferred taxation                               20,384      8,876     70,076
                                                 --------   --------   --------
   Balance December 31                           (256,123)  (225,692)  (162,153)
                                                 --------   --------   --------
Share based payments reserve
   Balance January 1                                   --         --         --
   Share rights expensed                              382         --         --
   Deferred share rights                            5,161         --         --
   Deferred taxation                                 (122)        --         --
                                                 --------   --------   --------
   Balance December 31                              5,421         --         --
                                                 --------   --------   --------
Fair value reserve
   Balance January 1                                   --         --         --
   Treasury share mark-market revaluation              17         --         --
                                                 --------   --------   --------
   Balance December 31                                 17         --         --
                                                 --------   --------   --------
Foreign currency translation reserve
   Balance 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    329,221
                                                 --------   --------   --------
   Balance December 31                             35,497    (18,340)   (28,128)
                                                 --------   --------   --------
</TABLE>


                                     -F-28-

<PAGE>

NOTE 21: REMUNERATION AND BENEFITS

(a)  Directors' remuneration, including the value of benefits received during
     the year:

<TABLE>
<CAPTION>
                                             2006     2005    2004
                                            $ 000    $ 000   $ 000
                                            ------   -----   -----
<S>                                         <C>      <C>    <C>
Garnaut, Ross                                  210     122    121
Siaguru, Anthony (deceased April 16 2004)       --      --     21
Kamit, Winifred                                 70      44     --
Loudon, Geoff                                   70      44     45
Cassidy, Peter                                  70      44     45
Swan, Neil (resigned October 1 2005)            --     476    456
Arthur 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     --
</TABLE>

Mr. Arthur Hood also participates in the Lihir Executive Share Plan ("LESP"). On
October 24, 2006 the Board determined that a total of 176,071 share rights
granted for the 2005/2006 long term incentive vest after considering the
performance of Mr. Hood against three of the four tranches of performance
conditions. On the November 24, 2006 Mr. Hood exercised these share rights.
Under the LESP Mr. Hood is unable to trade in these shares for a period of 4
years from the effective date of grant (September 16, 2005). See Note 32 for
further information.

On October 24, 2006 the Remuneration and Nomination Committee resolved that,
subject to approval by the Company's shareholders at the Annual General Meeting
to be held in April 2007, the Managing Director is granted 136,530 share rights
under the LESP on the terms and conditions of the LESP. See Note 32 for further
information on the terms and conditions.

(b) Key management personnel compensation

<TABLE>
<CAPTION>
                                2006    2005    2004
                               $ 000   $ 000   $ 000
                               -----   -----   -----
<S>                            <C>     <C>     <C>
Short-term employee benefits   2,227   2,750   1,555
Post-employment benefits         178     293     232
Termination benefits           1,106      --      --
Share-based payments             885      --      --
                               -----   -----   -----
                               4,396   3,043   1,787
                               -----   -----   -----
</TABLE>

(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

<TABLE>
<CAPTION>
                                Number of employees
                                -------------------
$                               2006   2005   2004
                                ----   ----   ----
<S>                             <C>    <C>    <C>
$  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
</TABLE>


                                      -F-29

<PAGE>

Remuneration and benefit band (continued)

<TABLE>
<CAPTION>
                                Number of employees
                                -------------------
$                               2006   2005   2004
                                ----   ----   ----
<S>                             <C>    <C>    <C>
$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     --     --
</TABLE>

NOTE 22: RETIREMENT BENEFITS

Certain employees of the Company participate in a retirement benefit plan, and
contributions are made by the Company to the plan based on a percentage of the
employee's base salary. Contributions made during the year amounted to
$1,120,623 (2005: $768,492, 2004: $602,882). This is a multi-employer plan, and
members' benefits are in the nature of defined contributions.

The Company also participates in the National Superannuation Fund of Papua New
Guinea in respect of its Papua New Guinean employees. The Company contributes to
this fund at the statutory rate of 7.7% of salary, and contributions made during
the year amounted to $982,915 (2005: $880,622, 2004: $750,222). This is a
multi-employer plan, and members' benefits are in the nature of defined
contributions.

NOTE 23: AUDITOR'S REMUNERATION

During the year the following fees were paid or payable for services provided by
the auditor of the parent entity and its related practices:

<TABLE>
<CAPTION>
                                                  2006   2005   2004
                                                  $000   $000   $000
                                                  ----   ----   ----
<S>                                               <C>    <C>    <C>
(A) ASSURANCE SERVICES
Audit services
   PricewaterhouseCoopers, PNG Firm                340    249    218
   PricewaterhouseCoopers, Other Overseas Firms    115    105    147
                                                   ---    ---    ---
Total remuneration for audit services              455    354    365
Other assurance services
   PricewaterhouseCoopers, 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 SERVICES
   PricewaterhouseCoopers                           79    129     27
                                                   ---    ---    ---
Total remuneration for taxation services            79    129     27
                                                   ---    ---    ---
</TABLE>


                                     -F-30-

<PAGE>

NOTE 24: CAPITAL AND LEASING COMMITMENTS

OPERATING LEASE COMMITMENTS
Non-cancellable operating lease commitments
contracted for at balance date but not yet
incurred are as follows:

<TABLE>
<CAPTION>
                                                 2006    2005
                                                $ 000   $ 000
                                                -----   -----
<S>                                             <C>     <C>
Payable
   - 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   2,494
                                                -----   -----
                                                5,349   3,752
                                                -----   -----
</TABLE>

The major operating leases at December 31 2006 relate to the lease of six
Caterpillar 785B haul trucks ($3.2 million until December 2025) and corporate
building leases of $1.9 million through to mid 2009.

CAPITAL EXPENDITURE COMMITMENTS

<TABLE>
<CAPTION>
                                                   2006     2005
                                                   $ 000    $ 000
                                                  ------   ------
<S>                                               <C>      <C>
Capital expenditure commitments contracted for:
   Payable
   - not later than one year                      68,264   86,287
                                                  ------   ------
                                                  68,264   86,287
                                                  ------   ------
</TABLE>

The major items of capital commitment as at December 31 2006 are: Flotation
plant ($43.7 million), 20MW geothermal power station ($5.4 million), blast hole
drill rigs ($5.1 million), oxygen plant motor ($2.4 million) and dewatering
equipment ($1.2 million).

NOTE 25: CONTINGENT LIABILITIES

A wholly owned subsidiary, Niugini Mining Limited ("NML"), has been subject to
claims originally initiated in 1997 for unspecified damages for environmental
pollution and death and injury to animals and humans in connection with the
decommissioned Mt Victor mine in Papua New Guinea. The claims related to
activities of NML that are alleged to have taken place before NML was acquired
by the Company. One of the claims was dismissed by the National Court of Papua
New Guinea in November 2004 for want of prosecution. On July 21 2006, the
National Court of PNG dismissed the remaining claim, which was brought by Joe
Bumbandy for himself and on behalf of the Customary Landowners of Mt Victor Gold
Mine Area, on the basis of its being dormant. On August 30 2006, the plaintiffs
appealed against the decision to the Supreme Court of PNG and brought a fresh
claim in the National Court of PNG containing the same allegations and cause of
action. In response, NML filed an objection in the Supreme Court to the
competency of the appeal and a defence in the National Court to the new claim,
with an application to have the claim dismissed on the basis of being
statute-barred. The Company, through NML, intends to defend the claim
vigorously.

NOTE 26: FINANCIAL RISK MANAGEMENT

(i) Foreign exchange risk

The Company is exposed to some foreign exchange risk arising from various
currency exposures, primarily with respect to the PNG Kina and Australian
Dollar. However, as revenue and a large proportion of expenditure are
denominated in US Dollars the Company does not hedge its foreign exchange
exposure.

(ii) Interest rate risk

The Company had $47.0 million on deposit at year-end to cover both operating
costs and identified capital expenditure and debt reduction initiatives. Of
interest bearing liabilities the fixed / floating split is 33% (2005: 35%) and
67% (2005: 65%) respectively. A change in interest rates of 10% will have an
income impact of approximately $0.5 million per annum.

(iii) Credit risk

For hedging transactions the maximum credit risk at any point in time is the
difference between the agreed strike price in the contract, and the prevailing
spot price, to the extent that hedging positions are in-the-money. At the
prevailing spot price on the December 31 2006 of $633.80 (2005: $517.38) the
hedge book was $332.8 million out-of-the-money (2005: $263.2 million
out-of-the-money), effectively quantifying the Company's credit risk as at that
date. Transactions are


                                     -F-31-

<PAGE>

spread between fourteen major banks, with the most significant concentration at
December 31 2006 being with Mitsui Precious Metals Inc. at 26% of hedges (2005:
35%) and J Aron & Company at 14% of hedges (2005: 15%).

All counterparties to these transactions are recognised financial institutions
with a minimum credit rating of Aa3. The Company's risk in the event of any of
the counterparties defaulting on their contractual obligations is limited to any
revenue that may be foregone in the case where the defaulted contract's strike
price exceeds the prevailing spot price at the value date. The Company does not
expect any counterparty to fail to meet its obligations.

In the event of the Company's failure to meet its gold delivery obligations, the
Company would be obliged to fulfill its obligations by way of payment in US
Dollars or by way of a gold purchase.

(iv) Liquidity risk

The Company engages in prudent liquidity risk management by maintaining
sufficient cash and cash equivalents and ensuring the availability of adequate
committed credit facilities.

NOTE 27: SEGMENT REPORTING

PRIMARY REPORTING (BUSINESS SEGMENTS)

The primary reporting format is business segments. The Group operates in the
gold mining industry. The segment revenues, segment assets and acquisitions of
mine properties for the business segment are equal to the consolidated results
disclosed within these financial statements.

SECONDARY REPORTING (GEOGRAPHICAL SEGMENTS)

<TABLE>
<CAPTION>
                            SEGMENT SALES                              ACQUISITION OF         SEGMENT
                               REVENUE            SEGMENT ASSETS       SEGMENT ASSETS       LIABILITIES
                               $ 000                  $ 000                $ 000               $ 000
                          -----------------   ---------------------   ----------------   -----------------
                            2006      2005       2006        2005      2006      2005      2006      2005
                          -------   -------   ---------   ---------   -------   ------   -------   -------
<S>                       <C>       <C>       <C>         <C>         <C>       <C>      <C>       <C>
Papua New Guinea               --        --   1,411,486   1,288,666   185,913   99,410   310,782   259,806
Australia                 273,464   175,019      84,572      30,740    34,802       82   324,672   231,853
North America              12,281        --          --          --        --                 --
Europe                     25,310    47,260          --          --        --       --        --        --
Asia                       13,823    16,407          --          --        --       --    48,727    44,275
Unallocated
   (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
                          -------   -------   ---------   ---------   -------   ------   -------   -------
</TABLE>

Segment revenues, expenses, assets and liabilities include amounts directly
attributable to a segment and the portion that can be allocated to the segment
on a reasonable basis.

NOTE 28: RELATED PARTY TRANSACTIONS

(a)  Transactions between related parties were made on normal commercial terms
     and conditions and at market rates.

Lihir Management Company Limited (LMC), a wholly owned subsidiary of Rio Tinto
Plc until October 10 2005, managed the Company pursuant to a Management
Agreement dated March 17 1995. The agreement between LMC and Rio Tinto Plc was
terminated on October 10 2005 when Lihir Gold Limited acquired all LMC shares.

There were two directors who were on the Board of the Company and LMC during the
period up to October 10 2005.

Directors' interests are outlined in the Directors' Report.

A relative of a director provided specialised services to the Company in 2005.


                                     -F-32-

<PAGE>

<TABLE>
<CAPTION>
                                                      2006    2005
                                                     $ 000   $ 000
                                                     -----   -----
<S>                                                  <C>     <C>
Rio 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
                                                      ---    -----
                                                       --    2,675
                                                      ---    -----
LMC management fee                                     --    1,125
Anthony Garnaut, a relative of a director,
   provided consulting services to the Company on
   an arms length basis.                               --       18
</TABLE>

NOTE 29: EARNINGS PER SHARE

The number of ordinary shares has been based on the weighted average number of
ordinary shares on issue during the year. At December 31 2006 no options were
outstanding.

<TABLE>
<CAPTION>
                                                      2006        2005        2004
                                                     $ 000       $ 000       $ 000
                                                   ---------   ---------   ---------
<S>                                                <C>         <C>         <C>
Net profit attributable to ordinary shareholders      53,837       9,788     329,221
                                                   ---------   ---------   ---------
Weighted average number of ordinary shares
   (thousands)                                     1,284,049   1,284,225   1,284,082
Basic EPS (cents/share)                                  4.2         0.8        25.6

Diluted number of ordinary shares (thousands)      1,284,225   1,284,225   1,284,082
Diluted EPS (cents/share)                                4.2         0.8        25.6
</TABLE>

NOTE 30: DIVIDENDS PER SHARE

No dividends were declared or paid in 2006, 2005 or in 2004.

NOTE 31: INVESTMENTS IN SUBSIDIARIES

<TABLE>
<CAPTION>
NAME OF SUBSIDIARY                   % OWNERSHIP INTEREST   COUNTRY OF INCORPORATION
------------------                   --------------------   ------------------------
<S>                                  <C>                    <C>
Niugini Mining Limited                       100%           Papua New Guinea
Niugini Mining Australia Pty Ltd             100%           Australia
Lihir Management Company Limited             100%           Papua New Guinea
Lihir Business Development Limited           100%           Papua New Guinea
Lihir Services Australia Pty Ltd             100%           Australia
Lihir Australian Holdings Pty Ltd            100%           Australia
</TABLE>

Contingent liabilities relating to Niugini Mining Limited and its subsidiary
Niugini Mining Australia Pty Ltd are disclosed in Note 25.

On October 10 2005, Lihir Management Company Limited became a 100% owned
subsidiary of the Company. Lihir Business Development limited, a wholly owned
subsidiary of Lihir Management Company Limited, also became a subsidiary on that
date.

On November 7 2005, Lihir Services Australia Pty Ltd was incorporated and became
a 100% owned subsidiary of the Company.

On September 4 2006, Lihir Australian Holdings Pty Ltd was incorporated and
became a 100% owned subsidiary of the Company.


                                     -F-33-

<PAGE>

NOTE 32: SHARE BASED PAYMENTS

Lihir Gold Limited Executive Share Plan

The Establishment of the Lihir Executive Share Plan (Plan) was approved by
shareholders at the 2005 annual general meeting. The Board has the discretion to
invite executives to participate in the Plan. It is the intention of the Board
that invitations to participate in the Plan will be extended only to those
executives who the Board considers are able to make a meaningful contribution to
the longer term performance of the company and its return to shareholders.

Participants are granted a specified number of share rights. A share right is a
right to acquire an ordinary share in LGL for no consideration. Share Rights are
issued for $NIL consideration. Share Rights have no voting rights or right to
dividends until vested. The holders of share rights are entitled to participate
in bonus share issues. Share rights cannot be transferred and are not be quoted
on any stock exchange.

For each grant of share rights, the Board will set performance hurdles or
conditions that must be satisfied over a performance period before the share
rights will vest. At the end of the performance period, the performance hurdle
is tested. To the extent that the Board determines the performance hurdle has
been met, the share rights will vest. Share Rights will only be tested against
the applicable performance hurdles or conditions once. Where the Board
determines that the performance hurdles or conditions have not been met or only
met in part, then all or the balance of share rights subject to that hurdle or
condition shall not vest and will automatically lapse.

Vested share rights will lapse if they are not exercised within 10 years of
their effective date of grant. The effective date of grant is the date so
specified in the invitation relating to the Share Rights, or if no such date is
specified in the invitation, the actual date of grant of the Share Rights.
Specific rules apply in the event of a participant ceasing employment with the
company or any of its associated companies.

If share rights vest and the participant exercises those rights, the Company is
obliged to provide the participant with a corresponding number of LGL shares,
either by procuring the transfer of shares or issuing new shares. In the case of
a transfer, the shares are purchased on-market for the participant and the
company funds the acquisition of shares on his or her behalf. Generally, all
participants are required to hold the shares acquired upon exercise of share
rights for a minimum period of three years after the relevant testing date. The
participant is required to enter into a Deed of Undertaking with the company
agreeing to the restriction on disposal.

Details of share rights granted under the Executive Share Plan to December 31
2006 are:

<TABLE>
<CAPTION>
                                  PER SHARE
                                    RIGHT                               NUMBER     NUMBER    NUMBER
                      EXERCISE   INDICATIVE                             ISSUED   EXERCISED   LAPSED
DATE OF     EXPIRY      PRICE       VALUE       HURDLE     NUMBER AT    DURING     DURING    DURING   NUMBER AT
 GRANT       DATE         $           $       CONDITIONS    JAN-1-06    PERIOD     PERIOD    PERIOD   DEC-31-06
-------   ---------   --------   ----------   ----------   ---------   -------   ---------   ------   ---------
<S>       <C>         <C>        <C>          <C>          <C>         <C>       <C>         <C>      <C>
Aug-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        --         --     45,147
Aug-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        --         --      8,028
Oct-06    Dec-31-15     0.00        1.69            3          --        6,018        --         --      6,018
Oct-06    Dec-31-15     0.00        0.73            4          --        6,020        --         --      6,020
Sep-06    Dec-31-15     0.00        2.30          1,2          --      178,988        --         --    178,988
Dec-06    Dec-31-15     0.00        2.16            3          --      113,343        --         --    113,343
Dec-06    Dec-31-15     0.00        1.95            4          --      113,348        --         --    113,348
Dec-06    Dec-31-15     0.00        1.05            3          --       12,409        --         --     12,409
Dec-06    Dec-31-15     0.00        0.79            4          --       16,530        --         --     16,530
Dec-06    Dec-31-15     0.00        1.19            3          --        4,120        --         --      4,120
Dec-06    Dec-31-15     0.00        1.98            3          --        4,364        --         --      4,364
Dec-06    Dec-31-15     0.00        1.53            4          --        4,364        --         --      4,364
Dec-06    Dec-31-15     0.00        2.44          1,2          --       54,612        --         --     54,612
Dec-06    Dec-31-15     0.00        1.32            3          --       40,959        --         --     40,959
Dec-06    Dec-31-15     0.00        1.38            4          --       40,959        --         --     40,959
</TABLE>

No Share Rights were forfeited during the periods covered by the above table.

The following share rights were exercised during the financial year

<TABLE>
<CAPTION>
                                                   WEIGHTED AVERAGE PRICE
DATE OF GRANT   NUMBER EXERCISED   EXERCISE DATE    AT EXERCISE DATE (I)
-------------   ----------------   -------------   ----------------------
<S>             <C>                <C>             <C>
    Aug-06           176,071         Dec 1 2006             $2.37
</TABLE>


                                     -F-34-
<PAGE>

     i.   Purchased over a 5 day period due to restrictions on the volume that
          could be traded on any one day.

Fair value of share rights granted

Where share rights are subject to performance hurdle conditions, these
conditions include total shareholder return (TSR) metrics. Where the vesting of
share rights is subject to performance hurdles, in general, the TSR hurdle must
be satisfied.

The assessed fair value at grant date of share was independently determined
using a Monte Carlo option pricing model, which incorporates market based
performance conditions such as total shareholder return.

The model inputs for share rights granted during the year ended December 31 2006
included:

     i.   Exercise price: Nil

     ii.  Expected volatility: 43%

     iii. Risk-free interest rate: 6.05%

     iv.  Expected life of right (years): 10 years

     v.   Weighted average share price at grant date: $2.07

     vi.  Expected dividend yield: 0%

The expected volatility is based on historic volatility (based on the remaining
life of the share rights) adjusted for any expected changes to future volatility
due to publicly available information and is not necessarily indicative of
exercise patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of future trends, which
may not necessarily be the actual outcome.

The expected rate of return used in the valuations was set equal to the
prevailing risk-free rate. This was defined as the 1-year yield-to-maturity of a
Commonwealth Government Bond (to match the share right's vesting date).

Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognized during
the period as part of employee benefit expense were as follows:

<TABLE>
<CAPTION>
                         2006       2005
                       $US '000   $US '000
                       --------   --------
<S>                    <C>        <C>
EXECUTIVE SHARE PLAN      488        --
</TABLE>

Whilst the equity instruments are issued by LGL, where the employee services are
provided to other entities within the group the expenses are transferred
accordingly.

The performance hurdle conditions attaching to each tranche of share rights are
as follows:

     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.

          If the Company's annual TSR when compared with the Comparator Group'
          annual TSR:

          -    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


                                     -F-35-

<PAGE>

          -    is greater by less than 10% a straight-line calculated proportion
               of the rights subject to this condition will vest.

          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 Croesus

          After 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.

          The Directors have discretion to disregard any changes to NPV or TSR
          due to an anomaly, distortion or other event which is not directly
          related to the financial performance of any company or entity, or
          which would lead to an incorrect comparison.

NOTE 33: SUBSEQUENT EVENTS

RESERVE AND RESOURCE

As announced on January 24, 2007, the Company has completed a review of its
reserves and resources which resulted in an increase in reserves to 23.6 million
ounces. This is up from 21 million ounces announced in February 2005, despite
reserves depletion of approximately 1.25 million ounces of gold in the
intervening period. The reserve increase followed limited additional drilling,
revised cost estimates, reduced cut-off grade and an enlarged pit design, and
was based on a long term gold price assumption of $475 per ounce. The change
reflects a 23% increase in the reserve and will reduce the amortization and
depreciation costs per ounce for the 90% of assets accounted for using the
units-of-production method.

CONTINGENT LIABILITY - NIUGINI MINING (AUSTRALIA) PTY LIMITED - ARTS - RODERICK
SALFINGER

In January 2007, a wholly-owned subsidiary, Niugini Mining (Australia) Pty
Limited ("NMAL"), received a claim relating to an asset transfer agreement
between NMAL and Arkaroola Resources Pty Ltd ("ARPL") dated January 20 2000
under which NMAL sold certain tenements and leases to ARPL with the agreement
subsequently being terminated by NMAL. The claim is being brought by Mr Roderick
Salfinger, a former director of ARPL (which is now deregistered). Mr Salfinger
claims to have been assigned the rights to bring the action. The claim has been
brought in the Federal Court in Melbourne against NMAL and the State of
Queensland under the Trade Practices Act. The claimant seeks, among other
things, declarations that NMAL has been unjustly enriched at the expense of ARPL
and that NMAL holds the amount of A$880,000 on trust for the claimant and
unspecified damages for breach of contract. The claim is at an early stage and
will be defended vigorously.

BALLARAT GOLDFIELDS NL MERGER

On October 17, 2006 Lihir Gold Ltd and Ballarat Goldfields NL ("Ballarat")
proposed a merger of the two companies. On February 26, 2007, the Company gained
effective control of Ballarat through a scheme of arrangement which was approved
by Ballarat's shareholders and the Supreme Court of Victoria. The acquisition of
100% of the shares of Ballarat was completed on March 8, 2007. Under the scheme
of arrangement, Ballarat's shareholders received five Lihir shares for every 54
Ballarat shares held, which equated to a value of 28.8 cents per Ballarat share
based on the closing price of Lihir's shares on the day prior to the
announcement of the transaction. This offer valued Ballarat at A$350 million,
based on its fully diluted share capital on the day prior to the announcement of
the transaction. At the date of acquisition this value had increased to A$445.8
million ($349.1million) based on Lihir Gold Ltd's closing published price on the
Australian Securities Exchange (ASX) on February 26, 2007.


                                     -F-36-

<PAGE>

Cost of Acquisition and purchase price allocation

<TABLE>
<CAPTION>
                                           $M
                                          -----
<S>                                       <C>
Equity Instruments issued (111,995,996)   312.7
Cash                                       33.0
Direct costs                                3.4
                                          -----
COST OF ACQUISITION                       349.1
                                          -----
Comprising:
Mine Properties                            27.5
Intangibles                               356.4
Deferred Mining Costs                      19.8
Net working capital                        25.1
Deferred tax                              (79.7)
                                          -----
TOTAL                                     349.1
                                          -----
</TABLE>

The Ballarat property is classified as a development property and accordingly
expenditure incurred will be carried forward to the extent to which recoupment
out of revenue can be derived from the sale of production.

The accounting treatment of this business combination has only been determined
provisionally and any adjustments to these provisional values as a result of
completing the accounting will be recognized within twelve months of the
acquisition date.

NOTE 34: RECONCILIATION TO US GAAP

The basis of preparation of these financial statements is set out in Note 1.
These accounting policies vary in certain important respects from the accounting
principles generally accepted in the United States ("US GAAP"). The material
differences affecting the financial statement line items between generally
accepted accounting principles followed by the Company and those generally
accepted in the US are summarised below.

a.   Project financing

     Prior 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 properties

     Under 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 properties

     Depreciation 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 properties

     Under 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-

<PAGE>

     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 stockpile

     Under 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 production

     Under 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:

<TABLE>
<CAPTION>
                                                                 2005       2004
                                                                 $'000     $'000
                                                                -------   -------
<S>                                                             <C>       <C>
Net income under US GAAP as previously reported                  21,845   141,614
Pro forma adjustment to income if the policy of not deferring
   stripping costs had been adopted as of January 1, 2004       (12,806)  (21,258)
                                                                -------   -------
Pro forma net income                                              9,039   120,356
                                                                -------   -------
Pro forma net income earnings per common share - basic
   ($ per share)                                                   0.01      0.09
Pro forma net income earnings per common share - diluted
   ($ per share)                                                   0.01      0.09
Impact 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)
</TABLE>

g.   Cumulative effect of change in accounting policy in 2004

     In 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 allowances

     The 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.


                                     -F-38-

<PAGE>

     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 (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 GAAP

     Impairment 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 event

     As 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 Pronouncements

     In 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.


                                     -F-39-

<PAGE>

     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 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.

<TABLE>
<CAPTION>
                                                                          2006       2005
                                                            REFERENCE     $'000      $'000
                                                            ---------   --------   --------
<S>                                                         <C>         <C>        <C>
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH IFRS                             811,877    783,472
                                                                        --------   --------
Project financing costs                                         A        (11,470)   (11,470)
Mine properties - capitalized interest                          B          5,831      5,272
Depreciation of mine properties                                 C         13,353      4,127
Mine 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    107,656
                                                                        --------   --------
SHAREHOLDERS' EQUITY UNDER US GAAP                                       500,841    542,443
</TABLE>

<TABLE>
<CAPTION>
                                                            2006       2005       2004
                                              REFERENCE   US $'000   US $'000   US $'000
                                              ---------   --------   --------   --------
<S>                                           <C>         <C>        <C>        <C>
NET INCOME UNDER IFRS                                      53,837      9,788     329,221
                                                           ------      -----    --------
Mine properties - capitalized interest            B           559      3,661          --
Depreciation of mine properties                   C         9,226      9,205       2,974
Mine properties - Impairment reversal             D            --         --    (205,723)
</TABLE>


                                     -F-40-

<PAGE>

<TABLE>
<S>                                           <C>         <C>        <C>        <C>
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)    108,465
                                                          -------     ------    --------
NET INCOME UNDER US GAAP                                   36,279     21,845     141,614
                                                          -------     ------    --------
</TABLE>

CONSOLIDATED BALANCE SHEET UNDER US GAAP

<TABLE>
<CAPTION>
                                                                 2006        2005
                                                REFERENCE       $'000       $'000
                                             --------------   ---------   ---------
<S>                                          <C>              <C>         <C>
ASSETS
Current assets
Cash and cash equivalents                                        47,032     127,836
Derivative financial instruments                                    269         543
Inventories                                         F            95,959      81,712
Receivables                                                       4,641       5,347
Prepayments                                                       5,514       3,696
Deferred tax assets                                 H            49,451      14,268
                                                              ---------   ---------
TOTAL CURRENT ASSETS                                            202,866     233,402
Non-current assets
Derivative financial instruments                                  2,419       4,236
Inventories                                       E, F           73,760      25,294
Receivables                                                         400         476
Deferred mining costs                               F                --      91,981
Mine properties                                A, B, C, D       702,501     541,861
Available-for-sale financial assets                              33,001          --
Deferred tax assets                                 H           172,717     215,260
                                                              ---------   ---------
TOTAL NON-CURRENT ASSETS                                        984,799     879,108
TOTAL ASSETS                                                  1,187,664   1,112,510
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Derivative financial instruments                                 61,537      40,793
Accounts payable                                                 46,567      34,691
Provisions                                                        6,427       5,349
Income tax payable                                                  320          --
Current Deferred tax liability                                    2,582       6,538
Borrowings                                                       62,535          --
                                                              ---------   ---------
TOTAL CURRENT LIABILITIES                                       179,968      87,371
Non-current liabilities
Derivative financial instruments                                273,954     227,157
Provisions                                                       14,261      12,424
Borrowings                                                      218,580     215,520
Deferred tax liability                                               60      27,595
                                                              ---------   ---------
TOTAL NON-CURRENT LIABILITIES                                   506,855     482,696
                                                              ---------   ---------
TOTAL LIABILITIES                                               686,823     570,067
Shareholders' equity
Share capital                                                 1,027,069   1,027,504
</TABLE>


                                     -F-41-

<PAGE>

<TABLE>
<S>                                          <C>              <C>         <C>
Reserves                                                       (250,689)   (225,692)
Accumulated losses                           A, B, C, D, E,
                                                  F, G         (275,539)   (259,369)
                                                              ---------   ---------
TOTAL SHAREHOLDERS' EQUITY                                      500,841     542,443
                                                              ---------   ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                    1,187,664   1,112,510
</TABLE>

<TABLE>
<CAPTION>
                                                                             2006      2005
                                                               REFERENCE    $'000     $'000
                                                               ---------   -------   -------
<S>                                                            <C>         <C>       <C>
DEFERRED TAX ASSETS:
The balance comprises temporary differences attributable to:
   Inventory                                                                14,192        --
   Provisions                                                                7,090     6,185
   Depreciation and Impairment                                              34,843    78,270
   Tax losses                                                               65,853    65,613
   Other                                                                       349       508
Amount recognized directly in equity
   Derivatives qualified as cash flow hedges                                99,841    78,952
                                                                           -------   -------
                                                                           222,168   229,528
                                                                           -------   -------
DEFERRED TAX LIABILITIES
The balance comprises temporary differences attributable to:
   Amounts recognized in profit or loss
   Deferred mining costs                                                        --    27,594
   Prepaid insurances                                                          171       125
   Consumables                                                                  --     6,414
   Other                                                                        60        --
   Derivative financial instruments                                          2,411        --
                                                                           -------   -------
                                                                             2,642    34,133
                                                                           -------   -------
 NET DEFERRED TAX ASSETS                                                   219,526   195,395
</TABLE>

STATEMENT OF CHANGES IN EQUITY UNDER US GAAP

<TABLE>
<CAPTION>
                                                                         2006        2005        2004
                                                          REFERENCE     $'000       $'000       $'000
                                                          ---------   ---------   ---------   ---------
<S>                                                       <C>         <C>         <C>         <C>
Paid up capital
Balance at January 1                                                  1,027,504   1,027,504   1,025,288
Shares issued                                                                --          --       2,286
Share issue transaction costs                                                --          --         (70)
Shares reclassified as treasury shares                                     (435)         --          --
                                                                      ---------   ---------   ---------
Balance at December 31                                                1,027,069   1,027,504   1,027,504
                                                                      ---------   ---------   ---------
Reserves
Balance 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      70,076
                                                                      ---------   ---------   ---------
Balance at December 31                                                 (250,689)   (225,692)   (162,153)
                                                                      ---------   ---------   ---------
Accumulated losses
Balance at January 1                                                   (259,369)   (281,214)   (422,828)
Net income / (loss)                                                      36,279      21,845     141,614
Change 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     584,137
EPS UNDER US GAAP
</TABLE>


                                     -F-42-

<PAGE>

<TABLE>
<S>                                                       <C>         <C>         <C>         <C>
Net Income                                                               36,279      21,845     141,614
Net Earnings Per Common Share - Basic ($ per share)                        0.03        0.02        0.11
Net Earnings Per Common Share - Diluted ($ per share)                      0.03        0.02        0.11
</TABLE>

Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued. There
were no outstanding dilutive securities for 2004, 2005, or 2006.

The numerator in calculating both basic and diluted earnings per share for each
year is the reported net income determined above for US GAAP purposes. The
denominator is based on the following weighted average number of common shares:

<TABLE>
<CAPTION>
(in thousands)   2006           2005        2004
--------------   ---------   ---------   ---------
<S>              <C>         <C>         <C>
Basic            1,284,049   1,284,225   1,284,082
Diluted          1,284,225   1,284,225   1,284,082
</TABLE>


                                     -F-43-
<PAGE>

SUPPLEMENTAL SCHEDULE

SUPPLEMENTAL SCHEDULE - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                    2006    2005     2004
                                                   $'000   $'000    $'000
                                                   -----   -----   --------
<S>                                                <C>     <C>     <C>
PROVISION FOR DOUBTFUL DEBTS
Balance, beginning of year                         2,578   2,225      1,836
Additions: charges to costs and expenses             367     353        389
Write-off's                                           --      --         --
                                                   -----   -----   --------
Balance, end of year                               2,945   2,578      2,225
                                                   =====   =====   ========
PROVISION FOR STORES STOCK OBSOLESCENCE
Balance, beginning of year                         5,299   4,317      3,354
Additions: charges to costs and expenses             817     982        963
Write-off's                                           --      --         --
                                                   -----   -----   --------
Balance, end of year                               6,116   5,299      4,317
                                                   =====   =====   ========
DEFERRED TAX VALUATION ALLOWANCE
Balance, beginning of year                            --      --    169,139
Additions: (credited)/charged against income tax      --      --   (109,333)
Additions: credited  to equity                        --      --    (59,806)
                                                   -----   -----   --------
Balance, end of year                                  --      --         --
                                                   =====   =====   ========
</TABLE>


                                     -F-44-