##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 2-6860
 Lihir Gold Limited
  
 
   
  Lihir Gold Limited Ordinary Shares of no par value
    
    NASDAQ National Market*American Depositary Shares, each of which represents twenty
Lihir Gold Limited Ordinary Shares and which are
evidenced by American Depositary Receipts
    
    NASDAQ National Market
 
  
   
  
 
  þ o
  o þ
   þ o
 o o
  þ o o
  o þ
 o þ




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##### Table of Contents



Forward Looking Statements
    
    
    5PART 1
    
    
    6Item 1. Identity of Directors, Senior Management, and Advisors
    
    
    6Item 2. Offer Statistics and Expected Timetable
    
    
    6Item 3. Key Information
    
    
    6A. Selected Financial Data
    
    
    6B. Capitalisation and Indebtedness
    
    
    8C. Reasons for the Offer and Use of Proceeds
    
    
    8D. Risk Factors
    
    
    8Item 4. Information on the Company
    
    
    16A. History and Development of the Company
    
    
    16B. Business Overview
    
    
    18C. Organizational Structure
    
    
    34D. Property, Plant and Equipment
    
    
    35Item 4A. Unresolved Staff Comments
    
    
    46Item 5. Operating and Financial Review and Prospects
    
    
    47A. Operating Results
    
    
    47B. Liquidity and Capital Resources
    
    
    64C. Research and Development, Patents and Licenses, etc
    
    
    66D. Trend Information
    
    
    67E.  Events Subsequent to Signing of the Financial Statements
    
    
    67Item 6. Directors, Senior Management and Employees
    
    
    68A. Directors and Senior Management
    
    
    68B. Compensation
    
    
    72C. Board Practices
    
    
    75D. Employees
    
    
    81E. Share Ownership
    
    
    81Item 7. Major Shareholders and Related Party Transactions
    
    
    86A. Major Shareholders
    
    
    86B. Related Party Transactions
    
    
    89C. Interests of Experts and Counsel
    
    
    90Item 8. Financial Information
    
    
    90B. Significant Changes
    
    
    90Item 9. Share Price and Capitalization
    
    
    91Item 10. Additional Information
    
    
    92A. Share Capital
    
    
    92B. Memorandum and Articles of Association
    
    
    92C. Material Contracts
    
    
    96D. Exchange Controls
    
    
    108E. Taxation
    
    
    109F. Dividends and Paying Agents
    
    
    113G. Statement by Experts
    
    
    114H. Documents on Display
    
    
    114I. Subsidiary Information
    
    
    114
 2




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Item 11. Quantitative and Qualitative Disclosure about Market Risk
    
    
    114A. Quantitative Information about Market Risk
    
    
    114B. Qualitative Information about Market Risk
    
    
    118Item 12. Description of Securities Other than Equity Securities
    
    
    118PART II
    
    
    118Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    118Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds
    
    
    118Item 15. Controls and Procedures
    
    
    119Item 16A. Audit Committee Financial Expert
    
    
    119Item 16B. Code of Ethics
    
    
    119Item 16C. Principal Accountant Fees and Services
    
    
    120Item 16D. Exceptions from Listing Standards for Audit Committees
    
    
    121Item 16E. Purchases of Equity Securities by Issuer and Affiliates
    
    
    121PART IV
    
    
    121Item 17. Financial Statements
    
    
    121Item 18. Financial Statements
    
    
    121Item 19. Exhibits
    
    
    122EX-2.A: SYNDICATED FACILITIES AGREEMENTEX-2.B: REFINANCING COORDINATION DEEDEX-2.C: AMENDING DEEDEX-2.D: SECURITY TRUST DEEDEX-2.E: OFFSHORE CHARGEEX-2.F: DEED OF SECURITYEX-2.G: MORTGAGE OF BULLION ACCOUNTEX-4.F: SHARE SALE AND PURCHASE AGREEMENTEX-4.G: TECHNICAL AND PROCUREMENT SERVICES AGREEMENTEX-4.H: GENERAL TERMINATION AND RELEASE DEEDEX-4.K: INTEGRATED BENEFITS PACKAGEEX-4.L: AMENDED EQUITY SETTLEMENT AGREEMENTEX-4.Q: EMPLOYMENT AGREEMENT - HOODEX-4.R: EMPLOYMENT AGREEMENT - FULTONEX-4.S: EMPLOYMENT AGREEMENT - EAGLEEX-4.T: EMPLOYMENT AGREEMENT - LAURIEEX-8: SIGNIFICANT SUBSIDIARIESEX-12.1: CERTIFICATIONEX-12.2: CERTIFICATIONEX-13.1: CERTIFICATIONEX-13.2: CERTIFICATION
  3




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Forward Looking Statements
   4




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##### Table of Contents



PART 1
 
 Item 1. Identity of Directors, Senior Management, and Advisors
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 A. Selected Financial Data
   5




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Year ended December 31,(In US$ millions, except where indicated)2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Amounts calculated in accordance with IFRS:Income Statement Data:Sales revenue (1)
    
    
    224.9
    
    
    
    234.7
    
    
    
    214.5
    
    
    
    213.2
    
    
    
    233.2Profit/(loss) from ordinary activities after
taxation (2)
    
    
    9.8
    
    
    
    329.2
    
    
    
    34.8
    
    
    
    53.2
    
    
    
    59.2Earnings per share, basic and diluted (3)
    
    
    0.008
    
    
    
    0.256
    
    
    
    0.030
    
    
    
    0.047
    
    
    
    0.052Number of ordinary shares (millions) (4)
    
    
    1,284.2
    
    
    
    1,284.2
    
    
    
    1,282.3
    
    
    
    1,142.3
    
    
    
    1,142.3Balance Sheet Data(5):Total assets
    
    
    1,319.4
    
    
    
    1,156.9
    
    
    
    748.9
    
    
    
    576.7
    
    
    
    585.3Cash and current receivables held
    
    
    133.2
    
    
    
    88.7
    
    
    
    163.2
    
    
    
    38.5
    
    
    
    53.0Current liabilities
    
    
    80.8
    
    
    
    104.3
    
    
    
    60.3
    
    
    
    27.5
    
    
    
    33.3Long term obligations
    
    
    455.1
    
    
    
    215.4
    
    
    
    227.2
    
    
    
    122.7
    
    
    
    55.7Total shareholders equity (6)
    
    
    783.5
    
    
    
    837.2
    
    
    
    461.4
    
    
    
    426.4
    
    
    
    496.3Paid up capital(7)
    
    
    1,027.5
    
    
    
    1,027.5
    
    
    
    1,025.3
    
    
    
    873.8
    
    
    
    873.8Cash dividends per ordinary share (3)
    
    
    
    
    
    
    
    
    
    
    0.016
    
    
    
    
    
    
    
    Expenditure and Financing Data:Cash flow from operating activities
    
    
    9.5
    
    
    
    30.3
    
    
    
    16.7
    
    
    
    22.8
    
    
    
    62.1Total expenditure on investing activities
    
    
    (99.1
    )
    
    
    (87.6
    )
    
    
    (26.9
    )
    
    
    (24.4
    )
    
    
    (36.5
    )Financing activities:Issuance of ordinary shares
    
    
    
    
    
    
    2.2
    
    
    
    151.5
    
    
    
    
    
    
    
    Drawdown of term debt
    
    
    245.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructure hedge book
    
    
    (62.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repayment of loans
    
    
    (49.5
    )
    
    
    (14.0
    )
    
    
    (7.0
    )
    
    
    (3.8
    )
    
    
    (28.4
    )Dividend paid
    
    
    
    
    
    
    
    
    
    
    (14.2
    )
    
    
    
    
    
    
    Total financing activities
    
    
    133.8
    
    
    
    (11.8
    )
    
    
    130.3
    
    
    
    (3.8
    )
    
    
    (28.4
    )Amounts calculated in accordance with US GAAP:Sales revenue (1)
    
    
    224.9
    
    
    
    234.7
    
    
    
    214.5
    
    
    
    213.2
    
    
    
    233.2Net income/(loss)(8)
    
    
    21.8
    
    
    
    141.6
    
    
    
    0.4
    
    
    
    38.6
    
    
    
    42.3Earnings per share, basic and diluted (3)
    
    
    0.02
    
    
    
    0.11
    
    
    
    0.00
    
    
    
    0.03
    
    
    
    0.04Number of ordinary shares (millions) (4)
    
    
    1,284.2
    
    
    
    1,284.2
    
    
    
    1,282.3
    
    
    
    1,142.3
    
    
    
    1,142.3Total assets (5)
    
    
    1,078.4
    
    
    
    903.8
    
    
    
    683.4
    
    
    
    536.7
    
    
    
    577.0Total shareholders equity (5)
    
    
    542.4
    
    
    
    584.1
    
    
    
    395.9
    
    
    
    395.3
    
    
    
    496.2Long term obligations(5)
    
    
    455.1
    
    
    
    215.4
    
    
    
    227.2
    
    
    
    113.9
    
    
    
    47.4
 
 (1)
    
    Alternative terminology: net sales or operating revenues.(2)
    
    Alternative terminology: income/ (loss) from operations, income/ (loss) from
continuing operations or net income/ (loss) since Lihir has no discontinued operations
and no income from non-operational sources.(3)
    
    In US$  per share. Lihir paid its maiden dividend of $A0.02 per share on July 16,
2003.(4)
    
    As adjusted to reflect changes in capital.(5)
    
    At period end.(6)
    
    Alternative terminology: net assets.(7)
    
    Alternative terminology: capital stock.(8)
    
    Includes the cumulative effect in 2004 of a change in accounting policy with
respect to the method of accounting for deferred mining costs. Please refer note 30 (viii)
of the financial statements. 6




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B. Capitalisation and Indebtedness
  
 C. Reasons for the Offer and Use of Proceeds
  
 D. Risk Factors
  Lihir is dependent on a single operation
  Lihirs operations may be adversely affected by difficult geological conditions
   7




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i.
    
    higher rainfall over the previous six months than long term averages,ii.
    
    an earthquake of magnitude 7.7 on September about 140 kilometres away, andiii.
    
    a build-up of underground water behind the landslide mass possibly following movement.
   8




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Lihirs insurance does not address all operating risks
  Lihir is subject to Papua New Guinea political risks
    Lihir is vulnerable to civil unrest
  9




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Lihir is vulnerable to landowner identification and compensation issues
  Lihirs results are dependent upon volatile gold prices
   10




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.
 Price in US$ Per Ounce of GoldYear
    
    High
    
    Low
    
    Average1988
    
    
    484
    
    
    
    395
    
    
    
    4371989
    
    
    416
    
    
    
    356
    
    
    
    3811990
    
    
    424
    
    
    
    346
    
    
    
    3841991
    
    
    403
    
    
    
    344
    
    
    
    3621992
    
    
    360
    
    
    
    330
    
    
    
    3441993
    
    
    406
    
    
    
    326
    
    
    
    3601994
    
    
    396
    
    
    
    370
    
    
    
    3841995
    
    
    396
    
    
    
    372
    
    
    
    3841996
    
    
    415
    
    
    
    367
    
    
    
    3971997
    
    
    366
    
    
    
    283
    
    
    
    3311998
    
    
    313
    
    
    
    273
    
    
    
    2941999
    
    
    326
    
    
    
    253
    
    
    
    2792000
    
    
    313
    
    
    
    264
    
    
    
    2792001
    
    
    293
    
    
    
    256
    
    
    
    2712002
    
    
    349
    
    
    
    278
    
    
    
    3102003
    
    
    416
    
    
    
    319
    
    
    
    3632004
    
    
    454
    
    
    
    375
    
    
    
    4092005
    
    
    537
    
    
    
    411
    
    
    
    4452006 to May 31, 2006
    
    
    725
    
    
    
    525
    
    
    
    589
   Lihirs hedge contract delivery prices are significantly below current spot gold prices
   11




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Lihirs prospects are partly dependent on reserves estimates and future experience.
   Lihir cannot guarantee it can obtain all the mining and processing inputs required for its
operation, including staff.
    Lihir is subject to the effects of rising oil prices
  12




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Lihirs financing agreements impose limitations on its operations
  Lihir has limited financial resources
  Lihir is subject to environmental risks
  Lihirs mining rights may be terminated under PNG law
  13




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Lihir is vulnerable to a limited market for the Kina and foreign exchange controls
  Lihirs dividends to U.S. shareholders are subject to withholding tax
  Lihirs shareholders are subject to different rights under certain circumstances
  Difficulty may be experienced in the pursuit of litigation against Lihirs or its executive
officers, directors, or experts who are not resident in the United States
  
    
    the presence of the person to be served within the jurisdiction of the relevant court; or
 
    
    the consent of that person to receiving service outside the jurisdiction.
 14




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Item 4. Information on the Company
  
 A. History and Development of the Company
 Introduction
    15




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ShareholdingRio Tinto Metals Limited
    
    
    161,527,406Rio Tinto Lihir Holdings Ltd
    
    
    24,230,720Mineral Resources Lihir Ltd
    
    
    77,169,431Total
    
    
    262,927,557
     Capital Expenditures
   US$ millions2005
    
    2004
    
    2003Projects
    
    
    49.0
    
    
    
    47.6
    
    
    
    10.0Mine
    
    
    34.9
    
    
    
    27.4
    
    
    
    10.2Processing
    
    
    15.6
    
    
    
    12.7
    
    
    
    6.9Total
    
    
    99.5
    
    
    
    87.7
    
    
    
    27.1
 16




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B. Business Overview
  17




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Description of Operations
 Overview
   
    
    that it enables the earlier treatment of lower grade ore into a
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.
  
 18




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Mining
 General.
    2005
    
    
    2004
    
    
    2003High-Grade Sulphide Ore (K tonnes)
    
    
    3,518
    
    
    
    5,036
    
    
    
    5,692High-Grade Sulphide (g Au/t)
    
    
    6.11
    
    
    
    5.11
    
    
    
    4.53Low-Grade Sulphide Ore (K tonnes)
    
    
    5,857
    
    
    
    6,550
    
    
    
    5,287Low-Grade Sulphide Ore (g Au/t)
    
    
    2.05
    
    
    
    2.23
    
    
    
    2.31Total Ore (K tonnes)
    
    
    9,375
    
    
    
    11,586
    
    
    
    10,979Total Ore (g Au/t)
    
    
    3.57
    
    
    
    3.52
    
    
    
    3.46Total Waste
    
    
    32,177
    
    
    
    35,170
    
    
    
    23,945Total Material
    
    
    41,552
    
    
    
    46,756
    
    
    
    34,924
 Pit Design and Planning.
 19




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o o o o o
  Production Scheduling.
   20




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##### Table of Contents



Plant Optimisation for selected Pulp Density and Sulfur grades
 
 Plant Optimisation for selected Hardness/Work Index and Sulfur grades
 
  21




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Cut off Grade strategy for Plant Feed
 
  Further information on Metallurgical Recovery
   Recovery = (0.033 * LN(Ore grade)+0.8576)
  Sulphide Content.
 22




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##### Table of Contents



Economic Grade Ore Stockpiles.
 Waste Rock Disposal.
 Dewatering and Geothermal Control.
   Blasting.
 23




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##### Table of Contents



Mine Drainage.
 Mining Equipment.
  Processing
 General.
  th
 24




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##### Table of Contents



Crushing.
  Stockpiling and Blending.
  Grinding and Thickening.
  Pressure Oxidation.
 25




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##### Table of Contents



Energy
  CCD Washing and Neutralization.
  CIL Processing.
 Gold Recovery.
    Tailings Disposal.
 26




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##### Table of Contents



Economic Grade Ores.
 §
    
    Some stockpiles have been covered with plastic to reduce the rate of oxidation.§
    
    The heat recovery circuit commissioned in the third quarter of 2001 enables the
pressure oxidation circuit to treat a lower grade of sulfide in ore feed.§
    
    Flotation plant capacity provides an opportunity to increase the sulfide grade of
stockpile ore.
 Limestone Deposits.
 Infrastructure.
     Logistics
 27




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28




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Workforce
  Community Affairs
       29




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##### Table of Contents



2005
    
    2004
    
    2003
    
    2002
    
    2001Kina millions
    
    
    24.8
    
    
    
    37.2
    
    
    
    25.2
    
    
    
    26.5
    
    
    
    18.1US$ millions equivalent
    
    
    8.5
    
    
    
    11.8
    
    
    
    7.2
    
    
    
    6.6
    
    
    
    5.0
  Business Development
   Education Assistance 
 Health and Safety
 30




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No Injuries to Anyone Ever all work related
injuries and illnesses are preventable
   1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    200512
    
    
    11
    
    
    
    11
    
    
    
    16
    
    
    
    11
    
    
    
    12
    
    
    
    13
    
    
    
    12
  Community Health
  31




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32




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Processing Period after 2021
    Symbol
    
    Production Parameter
    
    Unit
    
    ValueA
    
    Estimated Stock Pile Material
    
    tonnes
    
    
    106,000,000B
    
    Plant Annual Throughput
    
    tonnes
    
    
    5,150,000(calculation = A/B)
    
    years
    
    
    20C
    
    Gold Grade  average
    
    Au g/t
    
    
    2.15D
    
    Plant Recovery
    
    %
    
    
    86.5
    %E
    
    Conversion
    
    grams to ounces
    
    
    31.1035Approximate Annual Production
    
    ounces
    
    
    315,000(calculation = B*C*D/E)
  
 C. Organizational Structure
    33




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D. Property, Plant and Equipment
  Mining Rights
   34




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##### Table of Contents



Lihir Island
     Geology
     35




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Reserves Estimates
     36




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Reserve

    
    
    
    
    
    Average
    
    
    ContainedCategory

    
    Tonnes
    
    
    grade
    
    
    Ounces(In millions)
    
    
    (g Au/t)
    
    
    (millions)Un-mined Ore
    
    Proven
    
    
    2.2
    
    
    
    3.42
    
    
    
    0.2Probable
    
    
    147.1
    
    
    
    3.69
    
    
    
    17.5Economic Stockpiled Ore*
    
    Proven
    
    
    38.7
    
    
    
    2.66
    
    
    
    3.3Total Reserves
    
    
    
    
    
    
    188.0
    
    
    
    3.48
    
    
    
    21.0* Economic Stockpiles OreHigh Grade
    
    
    0.4
    
    
    
    4.31
    
    
    
    <0.1Medium Grade
    
    
    2.8
    
    
    
    3.47
    
    
    
    0.3Low Grade
    
    
    35.5
    
    
    
    2.57
    
    
    
    2.9Total Stockpiled
    
    Proven
    
    
    38.7
    
    
    
    2.66
    
    
    
    3.3
          37




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Exploration
    38




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39




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Environmental Considerations
 Overview
    3 3
     40




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##### Table of Contents



Environmental Plan
    1.
    
    Distribution of bioactive mine-derived contaminants, including secondary
precipitates/flocs (particularly as speciation (e.g. arsenobetane)) formed on
neutralization of mine tailings with seawater (CSIRO Centre for Advanced Analytical
Chemistry & company  sponsored post graduate student;2.
    
    Assessment of bentho/pelagic coupling mechanisms within the severe impacted zone,
examining both vertical (near-slope) feeding communities, and near and far-shore pelagic
communities (<500m) exposed to sub-surface plumes (CSIRO Marine Research and CSIRO
Centre for Environmental Contaminants Research);3.
    
    Further definition of the tailings footprint using remote sensing (acoustic seabed
classification) techniques, combined with calibration and gap (sediment) sampling (Ian
Hargreaves and Associates);4.
    
    Deep water physical marine investigations including additional water column current
velocity monitoring and sub-surface plume definition (Ian Hargreaves and Associates); and5.
    
    Inshore monitoring/modeling of interactions between shallow marine communities and
anthropogenic sources (mine and non-mine related), incorporating food web, human health and
socio-economic data (CSIRO Marine Research)
  Land and Habitat Impacts
 41




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Waste Rock and Marine Impacts
     Stockpile Drainage
  42




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Tailings Disposal
      43




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Rehabilitation and Decommissioning
    Seismic Considerations
     Insurance
  44




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Security
    
 Item 4A. Unresolved Staff Comments
  
    
    the companys accounting for deferred stripping costs and the application of the company's deferred stripping
ratio on a life-of-mine basis as opposed to a phase basis;
    
    the companys application of a stripping ratio to pre-production stripping and waste removal costs and
why it is more appropriate to attribute pre-production costs using a stripping ratio as opposed to depleting such
costs using the units of production method consist with the staffs view that these costs are mine development costs
rather than production costs; and
    
    What changes have there been to the company's mining process to support the change from the phased based stripping
ratio calculations.
  45




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Item 5. Operating and Financial Review and Prospects





A. Operating Results


Introduction






Critical Accounting Policies





    
    Carrying value of Lihirs non-current assets (IAS 36 Impairment of Assets and IAS 4
Depreciation Accounting)


Mine properties










46



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##### Table of Contents



Mine buildings, plant and equipment
   Remaining mine life
  Impairment of assets
    2005
    
    2004
    
    2003
    
    2002
    
    2001Long term gold price  US$ / oz
    
    
    425
    
    
    
    380
    
    
    
    340
    
    
    
    305
    
    
    
    280Discount Rate
    
    
    7
    %
    
    
    7
    %
    
    
    7
    %
    
    
    7
    %
    
    
    6
    %Impairment (charge) / reversal- IAS GAAP US$ millions
    
    
    0
    
    
    
    205.7
    
    
    
    31.1
    
    
    
    37.9
    
    
    
    0- US GAAP US$ millions
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
  47




---



##### Table of Contents




    
    Non-current liabilities (IAS 37 Provisions, Contingent Liabilities and Contingent Assets)
 Restoration, rehabilitation and environmental expenditure
    
    
    Inventory valuation (IAS 2 Inventories)
 Inventories
     48




---



##### Table of Contents




    
    Deferred tax position (IAS 12 Income Taxes)
 Income tax
  
    
    Derivative financial instruments (IAS 39 Financial Instruments: Recognition and
Measurement)
 Accounting for derivative financial instruments and hedging activities
       
    
    Deferred mining costs (IAS 16 Property, Plant and Equipment)
  49




---



##### Table of Contents




    
    short term changes in the mine plan and scheduling within the period;
    
    changes in the reserves and strip ratio with a change in cut off grade policy; and
    
    changes in pit wall design and operating strategies.
   Overview
    50




---



##### Table of Contents



Amounts calculated in accordance with IFRS
    
    US$ millions2005
    
    
    2004
    
    
    2003Sales Revenue
    
    
    238.8
    
    
    
    238.7
    
    
    
    208.4Gold lease rate fees
    
    
    5.0
    
    
    
    4.6
    
    
    
    2.6Fair value gains
    
    
    (5.4
    )
    
    
    8.6
    
    
    
    12.1Realisation of deferred hedging costs
    
    
    (13.5
    )
    
    
    (17.2
    )
    
    
    (8.6
    )Total revenue
    
    
    224.9
    
    
    
    234.7
    
    
    
    214.5Gross cash costs
    
    
    222.2
    
    
    
    213.8
    
    
    
    175.8Deferred waste and inventory movements  cash
    
    
    (34.3
    )
    
    
    (34.1
    )
    
    
    (9.4
    )Economic grade stockpile current year  cash
    
    
    (22.4
    )
    
    
    (18.1
    )
    
    
    Total cash costs
    
    
    165.5
    
    
    
    161.6
    
    
    
    166.4Depreciation and amortization
    
    
    35.8
    
    
    
    32.9
    
    
    
    28.6Deferred waste and inventory movements  non cash
    
    
    (4.7
    )
    
    
    (7.3
    )
    
    
    (9.0
    )Economic grade stockpile current year  cash
    
    
    (2.9
    )
    
    
    (7.1
    )
    
    
    Other corporate costs
    
    
    7.1
    
    
    
    6.9
    
    
    
    12.1Exploration
    
    
    6.0
    
    
    
    5.3
    
    
    
    10.2Net interest
    
    
    2.4
    
    
    
    (1.4
    )
    
    
    2.5Total costs before impairment adjustments
    
    
    209.2
    
    
    
    190.9
    
    
    
    210.8Profit before impairment adjustments
    
    
    15.7
    
    
    
    43.8
    
    
    
    3.7Asset impairment reversal
    
    
    
    
    
    
    205.7
    
    
    
    31.1Economic grade stockpile impairment reversal
    
    
    
    
    
    
    65.0
    
    
    
    Income tax benefit/(charge) recognized
    
    
    (5.9
    )
    
    
    14.7
    
    
    
    Net earnings
    
    
    9.8
    
    
    
    329.2
    
    
    
    34.8
 Financial Results of Operations
 Sales
  2005
    
    
    2004
    
    
    2003OuncesGold sales
    
    
    000
    
    
    
    592
    
    
    
    610
    
    
    
    579Gold sales at spot
    
    
    
    
    
    
    446
    
    
    
    403
    
    
    
    364Hedging gains / (losses)  cash
    
    
    
    
    
    
    (43
    )
    
    
    (11
    )
    
    
    (4
    )Gold lease rate fees
    
    
    
    
    
    
    8
    
    
    
    7
    
    
    
    4Deferred hedging gains / (losses)  non cash
    
    
    
    
    
    
    (22
    )
    
    
    (29
    )
    
    
    (14
    )Average gold price realized (excl. fair
value gains and losses)
    
    US$/oz
    
    
    389
    
    
    
    370
    
    
    
    350
 51




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Fair value gains and losses
    
    
    
    
    
    
    (9
    )
    
    
    15
    
    
    
    20Average gold price realized
(excl. fair value gains and
losses)
    
    US$/oz
    
    
    380
    
    
    
    385
    
    
    
    370Average gold price realized (excl.
fair value gains and losses)
    
    US$/oz
    
    
    389
    
    
    
    370
    
    
    
    350Average spot price
    
    US$/oz
    
    
    445
    
    
    
    409
    
    
    
    364Premium/(discount) to spot price
    
    
    %
    
    
    
    (13
    )
    
    
    (10
    )
    
    
    (4
    )
 Gold
Prices
   Hedging 
    52




---



##### Table of Contents



Deferred
    
    Residual Other
    
    Total OCIhedging Costs
    
    Comprehensive
    
    recycled to/ (Gains)
    
    Income
    
    incomeYear
    
    US$ millions
    
    US$ millions
    
    US$ millions2006
    
    
    (2.1
    )
    
    
    60.1
    
    
    
    58.02007
    
    
    (2.2
    )
    
    
    69.9
    
    
    
    67.72008
    
    
    (2.8
    )
    
    
    58.1
    
    
    
    55.32009
    
    
    (1.5
    )
    
    
    59.5
    
    
    
    58.02010
    
    
    (0.1
    )
    
    
    39.3
    
    
    
    39.22011
    
    
    
    
    
    
    21.6
    
    
    
    21.62012
    
    
    
    
    
    
    2.2
    
    
    
    2.22013
    
    
    
    
    
    
    2.6
    
    
    
    2.6Total
    
    
    (8.7
    )
    
    
    313.3
    
    
    
    304.6
     53




---



##### Table of Contents



Production and Operating Costs
  2005
    
    
    2004
    
    
    2003Ore Processed (Tonnes 000s)
    
    
    3,482
    
    
    
    4,091
    
    
    
    3,926Gold Produced (Ounces)
    
    
    595,966
    
    
    
    599,386
    
    
    
    550,772Grade (g Au/t)
    
    
    5.98
    
    
    
    5.11
    
    
    
    4.95Operating Expenses (US$000s)Mining expenses
    
    
    95,304
    
    
    
    89,687
    
    
    
    68,017Exploration expenses
    
    
    6,198
    
    
    
    5,306
    
    
    
    10,506Processing costs
    
    
    41,654
    
    
    
    41,524
    
    
    
    35,326Power generation costs
    
    
    27,413
    
    
    
    29,237
    
    
    
    26,473General and administrative costs
    
    
    57,884
    
    
    
    53,102
    
    
    
    45,444Refining, royalty and management fees
    
    
    6,813
    
    
    
    7,144
    
    
    
    8,322Deferred mining costs
    
    
    (25,048
    )
    
    
    (37,865
    )
    
    
    (7,163
    )Costs deferred and transferred to inventories
    
    
    (39,208
    )
    
    
    (28,781
    )
    
    
    (24,378
    )171,010
    
    
    
    159,354
    
    
    
    162,547Refining
    
    
    751
    
    
    
    780
    
    
    
    670Royalties
    
    
    4,862
    
    
    
    4,864
    
    
    
    4,204Management Fee
    
    
    1,200
    
    
    
    1,500
    
    
    
    3,448Refining, royalty and management fees
    
    
    6,813
    
    
    
    7,144
    
    
    
    8,322
 Production Costs(US$ per tonne of ore processed)
    
    2005
    
    
    2004
    
    
    2003Mining
    
    
    27.4
    
    
    
    21.9
    
    
    
    17.3Exploration
    
    
    1.8
    
    
    
    1.3
    
    
    
    2.7Processing
    
    
    12.0
    
    
    
    10.2
    
    
    
    9.0Power generation
    
    
    7.9
    
    
    
    7.1
    
    
    
    6.7General and Administrative
    
    
    16.6
    
    
    
    13.0
    
    
    
    11.6Total
    
    
    65.7
    
    
    
    53.5
    
    
    
    47.3
   
    
    February / March multiple power supply interruptions, largely due to higher than
normal asphaltine levels in the Heavy Fuel Oil (HFO) resulting in fuel flow
blockages in the diesel generators,
 54




---



##### Table of Contents




    
    The ingress of oil into the autoclave oxygen supply system via leaking steam
heaters in the HFO tanks resulted in a 12 day delay in bringing autoclave 1 back
online after the March Total Plant Shutdown (TPS),
    
    The Kapit earth movement initially resulted in multiple short duration repairs to
the leaking main water supply line, culminating in the final slip which resulted in
approximately one months lost production (refer Item 3  Key Information; D  Risk
Factors),
    
    The overall lower autoclave availability due to a number of valve, flushing water
line, seal water line and towards the end of the year, Geho pump component
failures.
    
    The milling circuit experienced difficulties in treating sandy ore in the latter
months of the year resulting in ingress of rocks into the autoclave circuit, with
the consequential impact of reducing autoclave throughputs.
       Mining Expenses 
  55




---



##### Table of Contents



Processing
Costs
 Power Generation Costs
 General and Administrative Expenses
  Royalty,
Refining and Management Fees
 56




---



##### Table of Contents



Unit Costs and Total Cash Costs 
 US$/ounce2005
    
    
    2004
    
    
    2003Gross operating costs
    
    
    378
    
    
    
    356
    
    
    
    335- Exploration
    
    
    (10
    )
    
    
    (9
    )
    
    
    (18
    )- Other corporate costs
    
    
    (4
    )
    
    
    
    
    
    
    (7
    )Direct mining expenses *
    
    
    364
    
    
    
    347
    
    
    
    310- Deferred mining costs
    
    
    (37
    )
    
    
    (53
    )
    
    
    (1
    )- Refining costs *
    
    
    1
    
    
    
    1
    
    
    
    1- Inventory adjustment
    
    
    (54
    )
    
    
    (33
    )
    
    
    (17
    )Cash operating costs
    
    
    274
    
    
    
    262
    
    
    
    293- Royalties *
    
    
    8
    
    
    
    8
    
    
    
    8Total cash cost
    
    
    282
    
    
    
    270
    
    
    
    301- Depreciation
    
    
    60
    
    
    
    55
    
    
    
    52- Restoration and mine closure
    
    
    
    
    
    
    
    
    
    
    - Non-cash deferred mining costs
    
    
    (5
    )
    
    
    (10
    )
    
    
    (11
    )- Non-cash inventory adjustment
    
    
    (1
    )
    
    
    (2
    )
    
    
    (5
    )- Economic Grade Stockpile Adjustment  Non
Cash
    
    
    (5
    )
    
    
    (12
    )
    
    
    Total production costs
    
    
    331
    
    
    
    301
    
    
    
    337
 
 *
    
    Components of Gross Cash Costs  Other Charges
 57




---



##### Table of Contents



Depreciation and Amortization 
    Interest Expense 
   Tax Expense 
  58




---



##### Table of Contents



Impairment Provisions
 Impairment testing of asset values
   59




---



##### Table of Contents



Impairment testing of economic grade stockpiles
   Foreign Currency Fluctuations
  Recently Issued US Financial Accounting Standards
 Accounting for stripping costs during production
    60




---



##### Table of Contents



Accounting for inventory costs
 Accounting for Inventory Costs
 Accounting for exchanges of nonmonetary assets
 Accounting for Exchanges of Nonmonetary Assets
 Accounting changes and error corrections
 Accounting Changes and Error Corrections Accounting Changes eporting Accounting Changes in Interim Financial
Statements
 Other statements and interpretations
   Consolidation of Variable Interest Entities
 61




---



##### Table of Contents



Amendment of Statement 133 on Derivative Instruments and
Hedging Activities
   Recently Issued IFRS Standards
          62




---



##### Table of Contents



B. Liquidity and Capital Resources
   Gold Loan and New Project Financing Facility
     Capital Raisings and Debt Facility  2003 to 2005
   63




---



##### Table of Contents



Net Debt/Cash Position
  Net debt as at December 31US$ thousands2005
    
    
    2004
    
    
    2003EIB facility
    
    
    
    
    
    
    
    
    
    
    (14,039
    )Syndicated facility agreement  revolving credit facility
    
    
    
    
    
    
    (19,509
    )
    
    
    (19,509
    )Syndicated facility agreement  gold loan
    
    
    (215,520
    )
    
    
    
    
    
    
    Bank overdraft
    
    
    
    
    
    
    
    
    
    
    Less cash on hand
    
    
    127,836
    
    
    
    83,559
    
    
    
    152,630Net (debt)/cash
    
    
    (87,684
    )
    
    
    64,050
    
    
    
    119,082Equity
    
    
    (783,472
    )
    
    
    (837,223
    )
    
    
    (461,390
    )Net debt to debt plus equity
    
    
    10.0
    %
    
    
    N/A
    
    
    
    N/A
     Net Cash Flow From Operating Activities
  64




---



##### Table of Contents



Cash Flow From Financing Activities
   Tabular Disclosure of Contractual Obligations
  US$ thousands
 Less than 1
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    year
    
    1 to 3 years
    
    4 to 5 years
    
    yearsLong term debt  revolving credit
facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital (finance) lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    3,752
    
    
    
    356
    
    
    
    570
    
    
    
    332
    
    
    
    2,494Management fee obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    86,287
    
    
    
    86,287
    
    
    
    
    
    
    
    
    
    
    
    Other liabilities reflected on the
companys balance sheet*
    
    
    281,672
    
    
    
    46,398
    
    
    
    77,005
    
    
    
    105,846
    
    
    
    52,423Total in cash
    
    
    371,711
    
    
    
    133,041
    
    
    
    77,575
    
    
    
    106,178
    
    
    
    54,917
 
 *
    
    The majority of these liabilities are out-of-the-money hedge positions at December 31, 2005
totaling $263.2m. Gold ounces
 Less than 1
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    year
    
    1 to 3 years
    
    4 to 5 years
    
    yearsLong term debt 
revolver credit
facility
    
    
    480,000
    
    
    
    
    
    
    
    290,000
    
    
    
    190,000
    
    
    
    Total in ounces
    
    
    480,000
    
    
    
    
    
    
    
    290,000
    
    
    
    190,000
    
    
    
    
 Off-balance Sheet Arrangements
  
 C. Research and Development, Patents and Licenses, etc
 65




---



##### Table of Contents



D. Trend Information
         
 E. Events Subsequent to Signing of the Financial Statements
  66




---



##### Table of Contents



Item 6. Directors, Senior Management and Employees
 
 A. Directors and Senior Management
 Directors
  67




---



##### Table of Contents



Dr Ross Garnaut AO  Chairman, Independent director
BA, PhD
   Dr Peter Cassidy  Independent director
BSc (Eng), PhD, DIC, ARSM CEng, FAusIMM, FIMM
   Mrs Winifred Kamit  Independent director
BA, LLB
   Mr Geoff Loudon  Independent director
MSc, FAusIMM
   Mr John OReilly  MSc, DIC, BSc, ARSM, FIMM
  68




---



##### Table of Contents



Mr Bruce Brook  Independent director
BCom, BAcc, FCA, MAICD
   Mr Neil Swan  Managing Director and Chief Executive Officer (until October 2005)
BE (Hons)
  Mr Arthur Hood  Managing Director and Chief Executive Officer (from October 2005)
BSc (Hons), M AusIMM, MICE, CEng
  Management
   69




---



##### Table of Contents



Name
    
    Position with Lihir Gold Limited
    
    Year JoinedArthur Hood
    
    Managing Director & Chief Executive Officer
    
    
    2005Neil Swan
    
    Managing Director & Chief Executive Officer
    
    
    2001
    
    
    (Until September 2005)Jan Andersen
    
    Executive General Manager
    
    
    2003
    
    
    (Until February 2006)Geoffrey Day
    
    General Manager External Affairs &
Sustainable Development
    
    
    1998
    
    
    (until May 2005)Joseph Dowling
    
    Manager Investor Relations
    
    
    2005Murray Eagle
    
    General Manager External Affairs &
Sustainable Development
    
    
    2005Noel Foley
    
    Executive General Manager Operations
    
    
    2006Graham Folland
    
    General Manager Corporate Development
    
    
    2006Paul Fulton
    
    Chief Financial Officer
    
    
    2004Mark Laurie
    
    Company Secretary, General Counsel,
Manager Corporate & Towns
    
    
    2003
 Neil Swan:
 Arthur Hood:
 Jan Andersen :
 Geoffrey Day:
 Joseph Dowling:
 Murray Eagle:
 Noel Foley:
 Graham Folland:
 Paul Fulton:
 Mark Laurie:
 70




---



##### Table of Contents



B. Compensation
 Non-Executive Directors Remuneration
 Non- executive directors
     Board fees(1)Directors (non-executive)
    
    AU$Dr Ross Garnaut
    
    
    166,238Mr John OReilly (3)
    
    
    4,932Mr Geoff Loudon (2)
    
    
    60,000Dr Peter Cassidy
    
    
    60,000Mrs Winifred Kamit (2)
    
    
    60,000Mr Bruce Brook (4)
    
    
    4,439
 
 Notes
    
    (1)
    
    Board fees are denominated in Australian dollars.(2)
    
    Fees are paid to Mrs Kamit and Mr Loudon in PNG Kina. Mr Loudons fees are
donated to the Port Moresby City Mission.(3)
    
    Fees became payable to Mr OReilly from December 2, 2005, coinciding with the
disposal by Rio Tinto of its interest in the company and Mr OReilly ceasing to be a
nominee of that group.(4)
    
    Mr Brook was appointed on December 4, 2005.
 71




---



##### Table of Contents



Senior management remuneration
 Pre-October 2005
    Remuneration
    
    Paid byBase salary
    
    Lihir Gold LimitedAt-risk cash bonus incentive plan
    
    Lihir Management Company Limited
(Rio Tinto subsidiary)Superannuation
    
    Lihir Gold LimitedOther benefits
    
    Lihir Gold Limited
   
    
    focusing participants on achieving goals which contribute to sustainable shareholder value, and
    
    providing significant bonus differential based on delivered performance against challenging personal,
business, and other targets.
   72




---



##### Table of Contents



Incentive(1)
    
    Other(2)Base Salary
    
    Superannuation
    
    Payments
    
    Payments
    
    TotalExecutive Officers
    
    $AU
    
    $AU
    
    $AU
    
    $AU
    
    $AUNeil Swan(3)Managing
Director
    
    
    449,904
    
    
    
    72,964
    
    
    
    91,284
    
    
    
    34,124
    
    
    
    648,276Jan Andersen
(5)
General Manager
Operations
    
    
    491,135
    
    
    
    47,725
    
    
    
    49,416
    
    
    
    46,061
    
    
    
    634,337Paul Fulton
(5)
General Manager
Commercial
    
    
    393,666
    
    
    
    52,915
    
    
    
    43,232
    
    
    
    24,518
    
    
    
    514,331Geoff Day
(4)
General Manager
ExternalAffairs &
Sustainable
Development
    
    
    137,555
    
    
    
    16,876
    
    
    
    30,335
    
    
    
    12,871
    
    
    
    197,637
 
 (1)
    
    Incentive payments were paid by Rio Tinto. Payments relate to the 2004 year.(2)
    
    Other payments include medical and life insurance expenses, airfare
entitlements and education assistance.(3)
    
    Mr Swan ceased to be a key executive of the company on October 1, 2005.(4)
    
    Dr Day ceased to be a key executive of the company on May 31, 2005.(5)
    
    Remuneration amounts are for the full 2005 financial year, including
remuneration received in relation to the period from October 1 to December 31, 2005 when
employed directly by the company. From October 2005
   
    
    To provide total remuneration which is competitive in structure and quantum with comparator organizations so
as to attract, retain and motivate appropriately qualified and experienced executives;
    
    To achieve alignment between the structure of remuneration incentives for individual employees with
shareholder value creation;
    
    To tie variable elements of remuneration to the achievement of challenging performance criteria that are
consistent with the best interests of the company and shareholders; and
    
    To provide an appropriate balance of fixed and variable or at-risk remuneration.
   73




---



##### Table of Contents



Superannuation
    
    Short Term(3)Base Salary
    
    contribution
    
    Incentive/bonus paid
    
    Other benefits(4)Paid
    
    TotalExecutive Officers
    
    $AU
    
    $AU
    
    $AU
    
    $AU
    
    $AUArthur Hood
(1)
Managing Director
    
    
    140,023
    
    
    
    25,147
    
    
    
    
    
    
    
    
    
    
    
    165,170Jan Andersen
(2)
Executive General
Manager
    
    
    491,135
    
    
    
    47,725
    
    
    
    49,416
    (5)
    
    
    46,061
    
    
    
    634,337Paul Fulton
(2)
Chief Financial
Officer
    
    
    393,666
    
    
    
    52,915
    
    
    
    43,232
    (5)
    
    
    24,518
    
    
    
    514,331Mark LaurieCompany
Secretary/General
Counsel,Manager
Corporate & Towns
    
    
    281,154
    
    
    
    30,600
    
    
    
    11,735
    
    
    
    12,877
    
    
    
    336,366Murray Eagle
(6)General
Manager External
Affairs& Sustainable
Development
    
    
    182,599
    
    
    
    27,200
    
    
    
    
    
    
    
    9,217
    
    
    
    219,016
 
 (1)
    
    Arthur Hood commenced employment on October 1, 2005.(2)
    
    Messrs Andersen and Fultons titles changed from October 1. Remuneration amounts are
for the full 2005 year.(3)
    
    Incentive payments all relate to the 2004 year. Incentive payments relating to the
2005 year will be determined and paid in April 2006.(4)
    
    Other payments include medical and life insurance expenses, airfare entitlements and
education assistance.(5)
    
    Incentive payments were paid by Rio Tinto.(6)
    
    Murray Eagle commenced employment on April 6, 2005. Retirement Benefits
   
 C. Board Practices
 Board of Directors
  
    
    the board may, in accordance with the companys constitution, be comprised of a minimum
of five directors and maximum of twelve; and
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
    
    the roles of the Chairman of the board and of Managing Director should be exercised by
different individuals
       Year AppointedName
    
    Position
    
    As Director
    
    Term EndsRoss Garnaut
    
    Chairman of Board
    
    1995Member of Audit CommitteeMember of Environmental &
Lihir Impact CommitteeChairman of Remuneration &
Nomination CommitteeGeoffrey Loudon
    
    Director
    
    1995Member of Safety &
Technical CommitteeMember of Environmental &
Lihir Impact CommitteeJohn OReilly
    
    Director
    
    1995-2002, 2003
    
    December 31, 2006Member of Environmental &
Lihir Impact CommitteePeter Cassidy
    
    Director
    
    2003Chairman of Safety &
Technical CommitteeMember of Audit CommitteeMember of Remuneration &
Nomination Committee
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Year AppointedName
    
    Position
    
    As Director
    
    Term EndsWinifred Kamit
    
    Director
    
    2004Chair of Environmental &
Lihir Impact CommitteeMember of Remuneration &
Nomination CommitteeArthur Hood
    
    Managing Director
    
    2005
    
    October 1, 2010Bruce Brook
    
    Director
    
    2005Chairman of Audit Committee
  Directors Service Contracts Providing for Benefits on Termination of Contract
   If employment is terminated
    
    the relevant multiple isBefore October 1, 2006

    
    3Between October 1, 2006 and September 30, 2008
    
    The number of whole months
in the period commencing on
the day after the date of
termination of employment
and ending on October 1,
2010, divided by 24.Between October 1, 2008 and September 30, 2010
    
    1 or, if the date of
termination of employment
is after October 1, 2009,
the relevant multiple is a
fraction, the numerator of
which is the number of
whole months in the period
commencing the day after
the date of termination of
employment and the
denominator of which is 12.
 Board committees
  
    
    Audit;
    
    Remuneration & Nomination;
    
    Environmental & Lihir Impact; and
    
    Safety & Technical
  76




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Audit committee
  
   (a)
    
    determining the appropriateness of accounting principles and disclosure practices
adopted by management and monitoring compliance with applicable accounting standards and
other requirements;(b)
    
    overseeing the preparation and audit of, and verifying and ensuring the integrity of,
the companys financial statements and reports;(c)
    
    the appointment, compensation, retention and oversight of the companys external
auditor or any other public accounting firm engaged for the purpose of performing audit,
review or attestation services for the company;(d)
    
    reviewing and evaluating the independence, qualifications and performance of the
external auditor and managing the relationship between the company and its external
auditor;(e)
    
    monitoring the adequacy of the companys internal financial controls, risk management,
and compliance systems and processes;(f)
    
    overseeing the retention, tasking and resourcing of the companys internal auditors,
monitoring their progress and evaluating their performance; and(g)
    
    reviewing the financial management of the company generally and undertaking such other
tasks as the board or the managing director may request from time to time.
    Auditor independence
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
    
    requires that no person may play a significant role in managing the audit for more than
five out of any seven successive years;
    
    must approve all non audit work which may be undertaken by the external auditor and
exclude them from undertaking such work where it may give rise to a conflict of interest;
    
    receives periodic statements, at least annually, from the auditors outlining all work
undertaken for the Lihir Gold Group, and confirming that the auditor has satisfied all
professional regulations relating to auditor independence; and
    
    meets with the external auditor independently of management.
 Risk oversight and management
     Remuneration and Nomination committee
  
   
    
    reviewing remuneration of non-executive directors, the managing director and other
senior executives;
    
    establishing criteria for membership of the board and its committees, and processes for
the identification of suitable candidates;
    
    reviewing membership of the board and its committees;
    
    nominating members of the board and its committees;
    
    formulating policies relating to the retirement of non-executive directors;
    
    reviewing management succession planning
    
    reviewing human resources and remuneration policies for the company generally; and
    
    ensuring the companys obligations in relation to employee benefits and entitlements,
including superannuation, are met.
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Environmental and Lihir Impact Committee
  
  
    
    the interaction between the companys activities and the local community, and the ways
in which these activities contribute to social and economic development;
    
    policies and practices followed in dealings with the local community in relation to land;
    
    maintaining and improving community health; and
    
    the impact and associated risks of the companys activities on the natural marine,
atmospheric and terrestrial environment, together with monitoring compliance with the
applicable regulatory regime.
  Safety and Technical Committee
  
  
    
    occupational health and safety standards, policies and issues;
    
    technical issues associated with the companys exploration, mining and processing
activities, with reference to the standards set by the company and the standards and
norms of the industry more generally; and
    
    the status of major capital projects approved by the board.
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D. Employees
  2005
    
    2004
    
    2003Management
    
    
    14
    
    
    
    13
    
    
    
    12Commercial, human resources, towns and site
services, community and environment
    
    
    340
    
    
    
    300
    
    
    
    279Mining operations and mine technical
    
    
    414
    
    
    
    407
    
    
    
    362Plant operations and maintenance
    
    
    359
    
    
    
    350
    
    
    
    336Total Lihir employees
    
    
    1,127
    
    
    
    1,070
    
    
    
    989Total contractors (full-time equivalent)
    
    
    1,506
    
    
    
    1,500
    
    
    
    1,371Total
    
    
    2,633
    
    
    
    2,570
    
    
    
    2,360
     
 E. Share Ownership
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Interest held by director in shares of Lihir Gold Limited
 DirectorRoss Garnaut
    
    53,225Peter Cassidy
    
    33,225Geoffrey Loudon
    
    143,840Winifred Kamit
    
    2,000Bruce Brook
    
    10,000Arthur Hood
    
    43,300
     Invitation to participate
   Performance hurdles
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Exercise of share rights
     Cessation of employment
  (i)
    
    If an executive ceases to be employed more than 6 months after the effective date
of grant of share rights but before the testing date (that is, before the share rights
have vested) other than because of misconduct, then the Board may in its discretion
determine that the executive may retain his or her unvested share rights or that those
unvested rights are to lapse. (If the Board does not make any determination, the
unvested share rights will automatically lapse.) If the Board determines that the
executive may retain the unvested share rights, then unless the Board determines
otherwise, the performance hurdles will be tested by reference to the testing date (being
the testing date originally specified in the invitation) and the maximum number of share
rights which may vest will be determined pro rata based on the proportion of the
performance period for which the executive was employed.(ii)
    
    If an executive ceases to be employed within 6 months after the effective date of
grant of share rights, his or her share rights will automatically lapse.(iii)
    
    If an executive ceases to be employed after share rights have vested, other than
because of voluntary resignation or misconduct, then the board may in its discretion
determine that the executive may exercise his or her share rights within the next 90 days
or may determine that the rights lapse. (If the Board does not make any determination,
the share rights will automatically
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lapse.) If able to be exercised and the rights are
not exercised within that 90 period, then unless the period is extended by the board, the
executives share rights will lapse.
 (iv)
    
    If an executive ceases to be employed while holding shares that are restricted shares,
other than because of misconduct, then the board may in its discretion determine
that the executive may retain his or her shares, in which case they will no longer be
restricted shares, or that the interest in the restricted shares is to be forfeited.
Unless the board exercises its discretion to the contrary, the executive will
automatically forfeit his or her interest in the restricted shares.(v)
    
    If an executive ceases to be employed because of voluntary resignation, all share
rights (unvested and vested) will lapse unless the board determines otherwise and the
executive forfeits his or her interest in all restricted shares.
  Change of control
  (i)
    
    as a result of a takeover bid a person (either alone or with associates) becomes
legally or beneficially entitled to more than 50% of the issued ordinary shares in the
company;(ii)
    
    scheme of arrangement or other merger is approved by shareholders which, if
implemented, will involve more than 50% of the issued ordinary shares in the company
being held by one person (either alone or with associates); or(iii)
    
    the companys shareholders pass a resolution for it to be wound up, or a court
orders the company to be wound up.
 Other terms
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Performance conditions
   Tranche 1 - 20% of the award will be subject to the Strategic Performance ConditionThis performance condition will be assessed by the board against 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.Tranche 2 - 20% of the award will be subject to the NPV Performance ConditionThis 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.Tranche 3 - 30% of the award will be subject to the Comparator TSR Performance ConditionThis performance condition will be assessed
by the board against the performance of
the:
    
    If the companys annual TSR when compared
with the Comparator Groups annual TSR:
    
    Companys total shareholder
return over the performance period against
announcement date VWAP (expressed as a
percentage); and
    
    
    
    is greater by 10% or more, all of
the rights subject to this condition will
vest;
    
    average total shareholder return
of the Comparator Group over the
performance period against the Comparator
Groups VWAP on the announcement date
(expressed as a percentage).
    
    
    
    does not exceed the Comparator
Groups, no rights subject to this
condition will vest; or
is greater by less than 10%; a
straight-line calculated proportion of the
rights subject to this condition will vest.Tranche 4 - 30 % of the award will be subject to the TSR Growth Performance ConditionWhether or not this performance condition
is met will depend on the extent to which
the companys total shareholder return
increases over the performance period
compared to the announcement date VWAP
(expressed as a percentage).
    
    If the companys TSR over the performance
period increases by:
    
    15% or more, Mr Hood will  be
entitled to all of the  TSR growth shares;
    
    5% or less, Mr Hood will not be
entitled to any TSR growth shares; or
    
    more than 5% but less than 15%, Mr
Hood will be entitled to a pro rated number
of TSR growth shares calculated on a
straight line basis.
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Item 7. Major Shareholders and Related Party Transactions
 
 A. Major Shareholders
  RelevantName of Substantial Shareholder
    
    interest
    
    
    Percentage (1)NWQ Investment Management Company LLC
    
    
    182,994,274
    
    
    
    14.25Merrill Lynch Investment Managers (Group)
    
    
    123,023,780
    
    
    
    9.58
     85




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Class B shares  Niugini Mining Limited
     PNG Government Participation and Mineral Resources Lihir Limited Shareholding
   86




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American Depositary Shares and US Resident Shareholders
    Share Options
  Control
  87




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B. Related Party Transactions
     
    
    Dr Garnaut was re-appointed as chairman for a three-year period
commencing on May 1, 2004, subject to his continuing to hold office as
a director and to certain other termination rights set out in the
agreement;
    
    Gross fees payable to Dr Garnaut for the 2005 calendar year were to
amount to AU$162,025, which for 2005, was to be increased by the
percentage change in the Australian Consumer Price Index during 2004;
    
    No fees or benefits are payable to Dr Garnaut by reason of his
retirement or other termination of office;
    
    The company has agreed to indemnify Dr Garnaut against any liability
incurred in defending any proceedings arising from the performance of
his duties and responsibilities in which judgment is given his favour,
he is acquitted, or relief is granted to him under the Companies Act
1997. The indemnity does not apply to the extent it would be
inconsistent with the companys constitution or to the extent the
liability is otherwise insured.
   88




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##### Table of Contents



C. Interests of Experts and Counsel
  
 Item 8. Financial Information
 A. Consolidated Statements and Other Financial Information
  Export sales
  Legal or arbitration proceedings
  Dividend distributions
  
 B. Significant Changes
  89




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Item 9. Share Price and Capitalization
    Ordinary Shares
    
    American Depositary SharesHigh
    
    Low
    
    High
    
    LowBy Fiscal Year
    
    A$
    
    A$
    
    US$
    
    US$2000
    
    
    1.12
    
    
    
    0.52
    
    
    
    13.75
    
    
    
    5.502001
    
    
    1.28
    
    
    
    0.54
    
    
    
    12.93
    
    
    
    5.442002
    
    
    1.65
    
    
    
    1.02
    
    
    
    19.13
    
    
    
    11.502003
    
    
    1.83
    
    
    
    1.25
    
    
    
    24.17
    
    
    
    13.992004
    
    
    1.59
    
    
    
    0.90
    
    
    
    24.20
    
    
    
    12.582005
    
    
    2.35
    
    
    
    0.99
    
    
    
    37.01
    
    
    
    15.30
 Ordinary Shares
    
    American Depositary SharesQuarter Ending
    
    High
    
    Low
    
    High
    
    LowBy Quarter
    
    
    
    
    
    A$
    
    A$
    
    US$
    
    US$2004
    
    March 31
    
    
    1.59
    
    
    
    1.01
    
    
    
    24.85
    
    
    
    15.25June 30
    
    
    1.23
    
    
    
    0.90
    
    
    
    18.61
    
    
    
    12.58September 30
    
    
    1.20
    
    
    
    0.97
    
    
    
    17.80
    
    
    
    13.29December 31
    
    
    1.32
    
    
    
    1.10
    
    
    
    21.03
    
    
    
    16.002005
    
    March 31
    
    
    1.18
    
    
    
    1.02
    
    
    
    18.85
    
    
    
    15.30June 30
    
    
    1.28
    
    
    
    0.99
    
    
    
    19.77
    
    
    
    15.45September 30
    
    
    1.92
    
    
    
    1.18
    
    
    
    29.95
    
    
    
    17.41December 31
    
    
    2.35
    
    
    
    1.57
    
    
    
    37.01
    
    
    
    22.672006
    
    March 31
    
    
    2.67
    
    
    
    1.99
    
    
    
    37.99
    
    
    
    29.11
 Ordinary Shares
    
    American Depositary SharesHigh
    
    Low
    
    High
    
    LowBy Month
    
    A$
    
    A$
    
    US$
    
    US$December 2005
    
    
    2.24
    
    
    
    2.08
    
    
    
    34.40
    
    
    
    30.21January 2006
    
    
    2.47
    
    
    
    2.18
    
    
    
    37.99
    
    
    
    32.50February 2006
    
    
    2.41
    
    
    
    1.99
    
    
    
    37.39
    
    
    
    29.11March 2006
    
    
    2.67
    
    
    
    2.14
    
    
    
    37.95
    
    
    
    31.69April 2006
    
    
    3.17
    
    
    
    2.68
    
    
    
    50.26
    
    
    
    37.73May 2006
    
    
    3.60
    
    
    
    2.67
    
    
    
    57.80
    
    
    
    37.62
 90




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Item 10. Additional Information
 
 A. Share Capital
  
 B. Memorandum and Articles of Association
  PNG Companies and Securities Laws
    
    
    the acquisition of, or an agreement to acquire, whether contingent
or not, assets the value of which is more than half the value of
assets of the company before the acquisition;
    
    the disposal of, or an agreement to dispose of, whether contingent
or not, assets of the company the value of which is more than half
the value of the assets of the company before the disposal; or
    
    a transaction which has or is likely to have the effect of the
company acquiring rights or interests, or incurring obligations or
liabilities, the value of which is more than half the value of the
assets of the company before the transaction.
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
    
    the power to control the exercise of any right to vote attached to a voting share
    
    the power to acquire or dispose of the voting share; or
    
    having the above powers by virtue of any trust, arrangement, agreement or understanding.
  Constitution
     
    
    The company is incorporated and registered in Papua New Guinea (Number C1-23423) and is a registered foreign company in
Australia (ARBN 069 803 998). Under section 17 of the Companies Act, a company has full capacity to carry on or
undertake any business or activity, do any act or enter into any transaction, and in respect of these purposes, it has
full rights, powers and privileges. Therefore it is not necessary to list the objects and purposes of the company in
its constitution.
 92




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
    
    In accordance with clause 17, a director may vote on a proposal, arrangement or contract in which he is materially
interested provided that he has complied with the Companies Act, the Official Listing Rules of the Australian Stock
Exchange and provided the board does not otherwise determine.
 
    
    The constitution contains provisions for the remuneration of directors (including reimbursement of expenses), the
indemnification of directors in respect of certain liability or for costs incurred in defending or settling any claim
or proceedings relating to such liability, and for effecting insurance for directors to the extent permitted under the
Act. These are general powers of the company which may in the normal course be exercised by a resolution of the board.
An interested director who has declared his or her interest would be entitled to vote on any such resolution unless
the board has determined that the director should not exercise any power in relation to the matter. The interested
director is not entitled to vote on a resolution to make that preliminary determination.
 
    
    There are no specific provisions relating to borrowing powers in the constitution. Clause 20.1 provides that the board
has all necessary power for managing, and for directing and supervising the management of, the business and affairs of
the company to the exclusion of the Shareholders and in accordance with clause 21.9 every resolution of the board is
decided by a majority of votes. Therefore, the borrowing by the company is determined by a majority decision of the
board.
 
    
    An exercise of the borrowing power may in certain circumstances be subject to the provisions of the Companies Act
(section 110) requiring shareholder approval for major transactions.
 
    
    There are no provisions for retirement or non-retirement of directors under an age limit in the constitution.
 
    
    Clause 15.5 provides that a director of the company need not be a shareholder.
 
    
    Clause 10A.2(b) provides that Class B shares have no entitlement to dividends.
 
    
    Clause 24.1 provides that the Board may declare distributions to the Shareholders (other than Class B shareholders)
including declaring the property to constitute the distribution and the time of the distribution. Shareholder approval
is not required for a distribution. Clause 24.3 provides that where the Board has declared a dividend the obligation
of the company to make the distribution only arises when the Board fixes the time for distribution and that time has
arrived. Clause 24.8 provides that each dividend in respect of each share must be distributed according to the amount
paid up on that share save to the extent that the terms of issue of a share provide otherwise. The company does not
have any partly paid shares on issue.
 
    
    Clause 24.18 provides that all dividends declared but unclaimed may (in the case of dividends not to be distributed as
money) be realized into money and (in any case) be invested for the benefit of the company until claimed or until
required to be dealt with under any applicable law dealing with unclaimed money.
 
    
    Clause 5.6 provides that if a call in relation to a share is due and payable and not paid, the shareholder has no right
to receive any dividends and has no right to vote.
 
    
    Clause 10A.2(a) provides that the Class B Shareholders do not have any voting rights.
 
    
    Clause 13.2 provides that each shareholder who is entitle to vote on a resolution (where not disqualified from voting
pursuant to the Listing Rules or the Act) has one vote on voting by voice or show of hands, and on a poll he has the
number of votes equal to the number of fully paid shares held by that person.
 
    
    Under clause 15.3, one third of the directors (excluding the managing director) retire by rotation each year and are
eligible for re-election.
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
    
    Clause 27.3 provides that after distribution of assets to repay paid up capital any surplus assets will be distributed
to the shareholders in proportion to the amount paid up by the shareholder on each share, save to the extent that the
terms of issue of a share provide otherwise.
 
    
    Clause 10A.2(d) provides that the Class B shares are redeemable at the option of the company for consideration of K100
per million (or part thereof) of those shares.
 
    
    Clause 2.6(b) provides that the company is authorized to redeem any redeemable shares subject to the provisions of the
Listing Rules and the securities clearing house business rules of Australia.
 
    
    There are no provisions in the constitution in relation to sinking funds.
 
    
    Clause 5 provides that the Board may make calls on a shareholder in respect of any or all of the amount unpaid on the
share unless the terms of issue make that payment payable at a fixed time. The constitution does not expose the
shareholders to any liability to further capital calls by the company.
 
    
    There are no provisions discriminating against any existing or prospective holder of such securities as a result of
such shareholder owning a substantial number of shares in the constitution.
 
    
    Under the Companies Act, any provision of the constitution can be altered by special resolution of the shareholders
requiring a 75% majority vote of those attending and voting.
 
    
    Clause 8.2 provides that where the company by ordinary shareholders resolution consolidates, divides or sub-divides
its shares, the company may also by special resolution determine that, as between the shares resulting from the
consolidation, division or sub-division, one or more of those shares has some preference or special advantage as
regards dividends, capital, voting or otherwise over or compared with the other shares.
 
    
    Clause 8.3 provides that if the shares are divided into different classes of shares, the rights attached to any class
of shares may only be varied or abrogated with either the written consent of 75% of the shareholders of that class, or,
sanction of a special resolution passed at a separate meeting of that class of shareholders.
 
    
    Clause 8.4 provides that the board may do anything to give effect to any resolution authorizing or effecting the
alteration of the share capital of the company, the variation or abrogation of rights attaching to any class of shares,
or to adjust the rights of all parties.
 
    
    Clause 11.3 provides that the board may convene a special meeting of the company at any time. Alternatively, clause
11.4 provides that the shareholders may requisition the holding of a special meeting as provided by section 102(b) of
the Act, which requires a written request of shareholders holding shares carrying not less than 5% of the voting
rights.
 
    
    Clause 11.2 provides that the company must hold an annual general meeting in accordance with the Act, which must be
held not later than 15 months after the previous annual general meeting.
 
    
    Fourteen days written notice of the meeting must be sent to the shareholders, directors and auditor of the company,
stating the nature of the business, the text of any special resolution and, if required by the Australian Stock
Exchange Listing Rules, include a form of proxy.
 
    
    All shareholders (including Class B shareholders) may attend a meeting of shareholders either in person, by proxy, by
attorney or (in the case of a shareholder which is a body corporate) by a representative.
 
    
    Clause 12.2 provides that no business may be transacted by a meeting of shareholders unless a quorum of three is
present. Clause 12.3 provides that, where a quorum is not present within 30 minutes after the time appointed for the
meeting, (in the case of a meeting requisitioned by shareholders), the meeting is
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dissolved, or in the case of any
other meeting, it is adjourned to the same time and the same place the following week, and if there is not a quorum
within 30 minutes of the appointed time of that meeting, it is dissolved.In 1995, the company was granted an exemption with respect to the quorum requirement under
NASDAQ Rule 4350(f), which requires each issuer to provide for a quorum as specified in its
by-laws for any meeting of the holders of common stock, which shall in no case be less than 33
1/3% of the outstanding shares of the companys common voting stock. The company complied with the quorum
requirements set forth in the previous paragraph.
    
    There are no limitations on rights to own securities, including
the rights of non-resident or foreign shareholders to hold or
exercise voting rights on the securities imposed by foreign law,
or by the charter or other constituent document of the company in
the constitution.
 
    
    There are no provisions in the constitution that would have an
effect of delaying, deferring or preventing a change in control of
the company, and that would operate only with respect to a merger,
acquisition or corporate restructuring involving the company (or
any of its subsidiaries).
 
    
    There are no provisions in the constitution governing the
ownership threshold above which shareholder ownership must be
disclosed.
 
    
    The company is incorporated, and has its principal activities, in
Papua New Guinea. As such it is subject to the Act, the
Securities Act of Papua New Guinea and the Takeovers Code under
the Securities Act. The general effect of this legislation is
referred to elsewhere in this Form 20-F.
 
    
    In relation to an increase in capital by the issue of new shares,
clause 2.1 provides that this power is conferred on the board of
directors subject to the listing rules of any applicable stock
exchange (namely the Australian Stock Exchange, Port Moresby Stock
Exchange and NASDAQ National Market). The conditions in this
regard are no more stringent than is required by law. There are
no pre-emptive rights of existing shareholders.
 
 C. Material Contracts
 Lihir Management
 Until
October 10, 2005,
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
    
    approve any contract with a value greater than US$1,000,000 with a corporation related to it or with any other party
for a term of more than one year and a value in excess of US$5,000,000
 
    
    approve any financial or operating lease for terms exceeding one year with capitalized values in excess of US$5,000,000
 
    
    settle any litigation or arbitration that would require the company to pay any amount in excess of US$500,000
 
    
    dispose of any of the companys property having an original cost, or being sold at a price, greater than US$5,000,000
 
    
    dispose of the special mining lease or any portion or all of the exploration license
 
    
    suspend operations or resume operations after any suspension except as permitted by the mining development contract
 
    
    make any changes in the approved proposal for development except as permitted there under
 
    
    undertake any business or exploration not contemplated in the approved proposal for development
 
    
    make voluntary pre-payments or alter the terms of any debt financing facility of the company.
  
    
    nominate directors to the board of directors and to appoint the chairman of the board of directors
 
    
    commit the company to raise equity or to borrow funds and to approve any documents under which securities may be issued
 
    
    determine treasury policies, including foreign currency and interest rate exposure, as well as to determine risk
management policies
 
    
    approve interim and annual reports, engage auditors and set accounting policies
 
    
    determine dividend policies and approve dividends
 
    
    engage auditors to review and report to the board on the companys internal controls and compliance with statutory and
regulatory requirements.
  96




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Guarantee of Financial Obligations under Management Contract.
 Technical Support Agreement.
  97




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##### Table of Contents



On October 10, 2005
 
    
    the agreements referred to above were terminated;
    
    the company acquired all of the shares of Lihir Management Company Limited with
consideration consisting of a nominal sum, together with transfer of the cash holdings,
accrued accounts receivable and net income tax credits receivable at that date;
    
    the Rio Tinto Group agreed to provide, at the companys option, certain defined
technical and procurement services to the company on certain commercial terms for a
term of up to 2 years; and
    
    the company granted certain releases and indemnities to the Rio Tinto Group in
connection with the termination of the management agreements.
  (a)
    
    Share Sale and Purchase Agreement between Rio Tinto Western Holdings Limited and the company
dated October 10, 2005;
 (b)
    
    General Termination and Releases Deed between the company, Lihir Management Company Limited,
Rio Tinto Western Holdings Limited and Rio Tinto plc dated October 10, 2005; and
 (c)
    
    Technical and Procurement Services Agreement between Technological Resources Pty Ltd, Rio
Tinto Services Limited and the company, also dated October 10, 2005.
  PNG Mining Laws
  Mineral Resources Authority Act 2005 Mining Act 1992, the Mining (Safety) Act (Chapter 195A),
 Mineral Resources Authority Act 2005
    98




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Related Agreements with PNG Government
 Exploration License.
 99




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##### Table of Contents



Special Mining Lease.
   Mining Development Contract.
      100




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##### Table of Contents




    
    to construct the mine and operate in accordance with the approved proposal for development (including the
environmental plan)
 
    
    not to incur debt in violation of certain coverage tests
 
    
    to convert its foreign currency revenues into Kina, subject to certain exceptions
 
    
    not to keep gold in inventory for a period greater than three months without placing in its Kina bank account an
amount equivalent to the cash value of such gold
 
    
    to comply with PNG Government notices forbidding certain sales of gold
 
    
    to comply with its various obligations to hire PNG employees or suppliers or contractors
 
    
    not to suspend its operations other than as permitted by the Mining Development Contract
 
    
    to comply in all material respects with the environment plan (see Information on the Company  Property, Plant and
Equipment  Environmental Considerations  Environmental Plan).
   101




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##### Table of Contents



Local Community Agreements
   Lihirian Equity Settlement Agreement
  
    
    MRDC and LMC agreed to each contribute K3,532,759 and US$2,635,000 to MRL; and
    
    MRL agreed to sell down a proportion of its shareholding in the company in two separate
tranches and to invest the portion of the proceeds remaining, after meeting current
commitments to the EIB, to enable it to meet future financing commitments to the EIB.
  Operations Agreements
 Pressure Oxidation Technology License
 Blasting Contract
  102




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##### Table of Contents



Financing Agreements
     
    
    a Gold Facility of up to $480,000 ounces of gold; and
 
    
    a revolving credit facility of US$50 million (RCF).
  1.
    
    To repay the Original SFA;
 103




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##### Table of Contents



2.
    
    To assist in funding the expansion of the companys gold production by approximately 140,000
ounces per year on average through the addition of a 3 million ton per annum floatation
processing facility; and
 3.
    
    To finance a restructuring of the companys hedge book.
       Syndicated Facilities Agreement  documents Term and Conditions
  
    
    Purpose: See above
    
    Pricing:Benchmark rate for Gold Facility  Reuters screen page GOFOBenchmark rate for RCF  Reuters screen page LIBOR 01Interest Margin 1.90%Political risk premium 0.95%Certain limited circumstances (such as changes in law and official regulations) could
increase the cost of funds.
    
    Prepayment: The gold loan can be prepaid on any interest payment date without penalty or at any other time on
payment of any break costs, subject to a minimum amount of 10,000 ounces and giving 2 days notice. Cash advances
under the RCF can be prepaid on any interest payment date without penalty or at any other time on the payment of any
break costs, subject to a minimum of
 104




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##### Table of Contents



US$2,500,000 and the giving of 2 days notice. Any undrawn commitments under
the RCF may be cancelled without penalty on giving 10 days notice.
    
    Repayments: Gold loans are repayable in gold ounces to be delivered to the banks in 16 quarterly instalments from
September 2007 through to June 2011 inclusive. Cash advances under the RCF must be repaid on 30 June 2011.
    
    Security: The banks and the hedge providers have the benefit of charges and mortgages over the assets of the company.
    
    Conditions: The Gold Facility is fully drawn. No drawings may be made under the RCF if an event of default or a
potential event of default subsists.
    
    Representations and Warranties: The company was required to make customary representations and warranties, certain
of which are required to be repeated every 6 months.
    
    Undertakings: 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.
 
    
    Distributions to subordinated lenders and shareholders: If,
at December 31 and June 30 in any year the debt service cover
ratio for the preceding 12 months is equal to or greater than
1.35:1 and the loan life cover ratio is equal to or greater
than 1.65:1, the company will have the right to withdraw from
the secured accounts excess project cash flow which exceeds a
minimum liquidity balance of US$15 million (Permitted
Dividend)This withdrawal right commences after December 31,
2007, and that minimum liquidity balance must be maintained at
all times.
    
    Mandatory Prepayment:If a Permitted Dividend is paid, the
company must deliver to the Facility Agent a quantity of gold
which has a US dollar value equal to 50% of that Permitted
Dividend.If on any December 31 or June 30, the debt service cover ratio is below 1.65:1, on the next
interest payment date, the company must apply:
 (i)
    
    any excess project cash flow which would have been available
to pay a Permitted Dividend had the requisite ratio tests been met; and;(ii)
    
    any surplus gold (being gold in its unallocated bullion account which is
not required to meet gold delivery obligations under the New SFA on that
interest payment date), to reduce the gold loan. Any mandatory prepayment must
be applied in inverse order of maturity.
 
    
    Events of Default: In addition to the normal default provisions relating to the non
payment, financial distress, misrepresentation, cross-default and breach of undertakings, the
New 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.
 105




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If an event of default is continuing, the Facility Agent acting on the consent of a majority
of the banks (being banks whose RCF commitments exceed 66% of total RFC commitments) may
cancel the RCF commitment and accelerate redelivery of all gold outstandings and the
repayment of cash advances under the RCF.
    
    Review Event: If without the consent of the Facility Agent (acting on the instructions of
a majority of the banks), a person not in control of the company acquires such control, then
the banks may within 30 days of being notified, request the company to agree to required
amendments to the facilities (including a change in margin and facility limits). If no
agreement is reached, the banks may require all Gold outstanding to be redelivered and cash
advances under the RCF to be repaid.
 106




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Security Trust Deed
   
 D. Exchange Controls
       107




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E. Taxation
 Prospective purchasers of ordinary shares or ADSs are urged to consult
their tax advisors concerning the U.S. federal, state, local and foreign tax consequences including
the PNG consequences, of owning and disposing of ordinary shares or ADS.
 United States Federal Income Taxation
   Taxation of Dividends
  108




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Taxation of Capital Gains
  Passive Foreign Investment Company Considerations
   109




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110




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##### Table of Contents



Australian Taxation
  Papua New Guinea Taxation
  
    
    is domiciled in PNG, unless the persons permanent place of abode is outside PNG; or
    
    has been in PNG for more than one half of the year of income, unless that person has a
usual place of abode outside PNG and does not intend to take up residence in PNG.
    111




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##### Table of Contents




    
    if transferred through a stock broker registered to operate on the Port Moresby Stock
Exchange, the transfer is exempt from stamp duty;
    
    if transferred through a recognized broker or brokers agent, at the rate of 0.2%
payable by the vendor and 0.2% payable by the purchaser of the sale/purchase price for the
securities; and
    
    otherwise at the rate of 1% of the value of the securities, payable by the purchaser or
transferee.
  
 F. Dividends and Paying Agents
  112




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G. Statement by Experts
  
 H. Documents on Display
   
 I. Subsidiary Information
  
 Item 11. Quantitative and Qualitative Disclosure about Market Risk
 
 A. Quantitative Information about Market Risk
 Gold Commodity Price Risk
   Put Options Bought
 AverageStrike price
    
    Put Revenue *1Year
    
    Ounces
    
    (US$/Oz)
    
    (US$ millions)2006
    
    
    19,000
    
    
    
    315.00
    
    
    
    5.92007
    
    
    76,000
    
    
    
    315.00
    
    
    
    23.92008
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    13,000
    
    
    
    375.00
    
    
    
    4.92012
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.82013
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.8Total
    
    
    160,000
    
    
    
    339.38
    
    
    
    54.3
 113




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##### Table of Contents



*1
    
    Lihir has the option to sell the above ounces in the future years at the price
corresponding to that year. Normally, these options would only be exercised by Lihir, if the
spot price for gold is below the put price at the time this put option is due for delivery. 114




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##### Table of Contents



Call Options Sold
 AverageStrike price
    
    Call Revenue *2Year
    
    Ounces
    
    (US$/Oz)
    
    (US$ millions)2006
    
    
    19,000
    
    
    
    307.00
    
    
    
    5.82007
    
    
    76,000
    
    
    
    307.00
    
    
    
    23.32008
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    13,000
    
    
    
    375.00
    
    
    
    4.92012
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.82013
    
    
    26,000
    
    
    
    375.00
    
    
    
    9.8Total
    
    
    160,000
    
    
    
    334.63
    
    
    
    53.6
 
 *2
    
    Lihir can be called upon to sell the above ounces in the future years at the price
corresponding to that year. Normally, these options would only be exercised against Lihir, if
the spot price for gold is above the call price at the time the call option is due for
delivery. Forwards
 AverageStrike price
    
    RevenueYear
    
    Ounces
    
    (US$/Oz)
    
    (US$ millions)2006
    
    
    187,500
    
    
    
    331.72
    
    
    
    62.22007
    
    
    115,000
    
    
    
    330.26
    
    
    
    38.02008
    
    
    145,000
    
    
    
    327.12
    
    
    
    47.42009*
    
    
    240,000
    
    
    
    371.67
    
    
    
    89.22010*
    
    
    240,000
    
    
    
    371.67
    
    
    
    89.22011*
    
    
    120,000
    
    
    
    371.67
    
    
    
    44.62012
    
    
    
    
    
    
    
    
    
    
    2013
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,047,500
    
    
    
    353.80
    
    
    
    370.6
 
 *
    
    The gross price for the forwards in these years is shown. The price net of fees is
US$350.00.  115




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Hedging Valuations Summary
 As at Dec 31,
    
    As at Dec 31,
    
    As at Dec 31,2005
    
    2004
    
    2003Prevailing spot price
    
    US$
    517.38
    
    
    US$
    438.00
    
    
    US$
    417.50minimum revenue from hedge programs
    
    US$
    424
    m
    
    US$
    639
    m
    
    US$
    671
    mRevenue generated from same number
of ounces at prevailing spot price
    
    US$
    625
    m
    
    US$
    843
    m
    
    US$
    847
    mOut-of-the-money position
    
    US$
    263.2
    m
    
    US$
    233.6
    m
    
    US$
    199.4
    mFair value reserve
    
    US$
    304.6
    m
    
    US$
    232.2
    m
    
    US$
    206.5
    mRevaluation (costs) / benefits
relating to ineffective hedges
    
    (US$
    5.4
    m)
    
    US$
    8.6
    m
    
    US$
    12.1
    m
     Interest Rate and Exchange Rate Risk
   116




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B. Qualitative Information about Market Risk
   
 Item 12. Description of Securities Other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds
  117




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Item 15. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   
 Item 16A. Audit Committee Financial Expert
   
 Item 16B. Code of Ethics
  
    
    commitment to a work environment where the health, safety and well-being of employees,
contractors, visitors and other parties affected by the companys operations are paramount.
    
    compliance with all laws, regulations and other requirements relating to all aspects of
business and personal conduct within PNG and the countries with which the company
interacts.
    
    integrity, honesty, transparency and respect in all interactions (whether internal or
with groups outside the company) including with Lihirian and other representative groups in
relation to issues important to the community.
 118




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##### Table of Contents




    
    excellence in the management of environmental responsibilities to ensure minimisation of
any adverse effects on the environment or impact on the local community.
    
    adoption of the highest standards of business administration, accountability and
corporate governance, including the ethical use of all company resources, funds, equipment,
information and time.
    
    fairness, within the framework of commitments to local community groups, to potential
and existing employees in all areas of recruitment, training and administration of employee
benefits.
    
    initiative and personal commitment by all employees, contractors and agents working on
behalf of the company, to the highest standards of work performance and the effective
achievement of company objectives.
    
    accountability and willingness to take responsibility.
  
 Item 16C. Principal Accountant Fees and Services
  (a)
    
    review the performance of the external auditors at least annually and be responsible for
recommending to the Board their appointment, re-appointment or termination;(b)
    
    review the scope of the annual audit program, or audit plan and approve the scope of the
audit services to be provided;(c)
    
    review any engagement fees or terms proposed by the external auditors;(d)
    
    consider whether the external auditors provision of non-audit services to the company and
any other relationship between the external auditor and the company (if any) is compatible
with maintaining the independence and objectivity of the external auditor and maintaining the
quality of the audit services provided;(e)
    
    if applicable, take appropriate action in response to the external auditors report to
satisfy itself of the external auditors independence for the purposes of making a
recommendation to the Board.
   2005 Fees
    
    2004 Fees
    
    2003 FeesServices provided
    
    US$000
    
    US$000
    
    US$000Audit fees
    
    
    384,000
    
    
    
    262,000
    
    
    
    207,000Audit-related fees
    
    
    38,000
    
    
    
    75,000
    
    
    
    Tax fees
    
    
    70,000
    
    
    
    27,000
    
    
    
    28,000
 119




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##### Table of Contents



Item 16D. Exceptions from Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by Issuer and Affiliates
  
 PART IV
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  120




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Item 19. Exhibits
 Exhibit 1
    
    Constitutionof Lihir Gold Limited, effective as of April
28, 1998 (incorporated by reference to Lihirs annual
report on Form 20-F for the fiscal year ended December 31,
2000).Exhibit 2 (a)
    
    Syndicated Facilities Agreementbetween Lihir, ABN AMRO
Australia Limited, ABN AMRO Bank N.V. (Australia Branch),
Australia and New Zealand Banking Group Limited, Bayerische
Hypo-und Vereinsbank AG, BNP Paribus, Bank of Western
Australia Limited, Commonwealth Bank of Australia,
Macquarie Bank Limited, National Australia Bank Limited,
Natexis Banques Populaires, Societe General, Societe
Generale Australia Branch, WestLB AG, and Westpac Banking
Corporation dated 13 September 2005.Exhibit 2 (b)
    
    Refinancing Coordination Deed 2005between Lihir, ABN AMRO
Australia Limited, ABN AMRO Bank NV, Commonwealth Bank of
Australia, Macquarie Bank Limited,
Société Génerale and
Société Génerale Australia
Branch, dated 13 September 2005.Exhibit 2 (c)
    
    Amending Deed (Security Trust Deed)between Lihir Niugini
Mining Limited, Niugini Mining (Australia) Pty Ltd, ABN
AMRO Australia Limited, ABN AMRO Bank NV, Commonwealth Bank
of Australia, Macquarie Bank Limited,
Société Génerale and
Société Génerale Australia
Branch, Mitsui & Co. Precious Metals Inc., and J. Aron &
Company dated 13 September 2005.Exhibit 2 (d)
    
    Lihir Gold Security Trust Deedbetween Lihir, Niugini
Mining Limited, Niugini Mining (Australia) Pty Ltd, ABN
AMRO Australia Limited, ABN AMRO Bank NV, Citibank N.A.,
and J. Aron & Company dated 22 November 2000.Exhibit 2 (e)
    
    Lihir Gold Limited Offshore Chargebetween Lihir and ABN
AMRO Australia Limited dated 13 September 2005.Exhibit 2 (f)
    
    Lihir Gold Deed of Security (PNG) 2005between Lihir and
ABN AMRO Australia Limited dated 13 September 2005.Exhibit 2 (g)
    
    Lihir Gold Mortgage of Bullion Accountbetween Lihir and
ABN AMRO Australia Limited dated 13 September 2005.Exhibit 4 (a)
    
    Special Mining Lease, dated as of March 17, 1995, between
Lihir and the PNG Government (incorporated by reference to
Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (b)
    
    Mining Development Contract, dated as of March 17, 1995,
between Lihir and the PNG Government (incorporated by
reference to Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (c)
    
    Lihir Project Management Agreement, dated as of March 17,
1995, between Lihir and Lihir Management Company
(incorporated by reference to Lihirs Form F-1 filed
September 6, 1995).Exhibit 4 (d)
    
    Technical Support Agreement, dated as of June 30, 1995,
between Lihir Management Company and Rio Tinto
(incorporated by reference to Lihirs
 121




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##### Table of Contents



Form F-1 filed September 6, 1995).Exhibit 4 (e)
    
    Guaranteedated May 22, 1995 of the financial obligations of
Lihir Management Company Limited under the Management
Agreement dated March 17, 1995 given by RTZ Western Holdings
Limited in favour of Lihir (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 2003).Exhibit 4 (f)
    
    Share Sale and Purchase Agreementbetween Rio Tinto Western
Holdings Limited and Lihir dated 10 October 2005.Exhibit 4 (g)
    
    Technical and Procurement Services Agreementbetween
Technological Resources Pty Ltd, Rio Tinto Services Limited
and Lihir dated 10 October 2005.Exhibit 4 (h)
    
    General Termination and Release Deedbetween Lihir, Lihir
Management Company Ltd, Rio Tinto Western Holdings Ltd and
Rio Tinto plc dated 10 October 2005.Exhibit 4 (i)
    
    Compensation Agreement for Land, Crops, Water and Air, dated
as of April 26, 1995, between Lihir Management Company,
Lihir Mining Area Landowners Association Incorporated, Block
Executives (for and on behalf of the Landowners), Catholic
Mission (Kavieng Property Trust) and the United Church in
PNG and the Solomon Islands (incorporated by reference to
Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (j)
    
    Putput and Ladolam Relocation Agreementdated as of April
26, 1995, between Lihir Management Company, Lihir Mining
Area Landowners Association Incorporated and the persons
named in various schedules to the agreement (incorporated by
reference to Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (k)
    
    Integrated Benefits Package Review Status Statementbetween
Nimamar Rural Local Level Government, Lihir Mining Area
Landowners Association, the State of Papua New Guinea, New
Ireland Provincial Government and Lihir dated 9 November
2005.Exhibit 4 (l)
    
    Amended and Restated Lihirian Equity Settlement Agreement
dated 27 January 2006 between Mineral Resources Development
Company Limited, Mineral Resources Lihir Limited and the
European Investment Bank.Exhibit 4 (m)
    
    Contract Explosives Services Contract, dated as of March 14,
1996 between Lihir Management Company for on behalf of Lihir
and ICI Dulux Papua New Guinea Pty Limited, and Deed of
Assignment relating to same (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 1995)Exhibit 4 (n)
    
    Patent and Know-How License Agreementdated August, 5 1995
between Sherritt Inc and Lihir Management Company Limited
for and on behalf of Lihir, together with amendment thereto
dated August 18, 1995 (incorporated by reference to Lihirs
annual report on Form 20-F for the fiscal year ended
December 31, 2003).Exhibit 4 (o)
    
    Deed of Variation to Contract Explosives Services Contract,
dated as of June 4, 1999, between Lihir Management Company for on behalf of Lihir,
 122




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##### Table of Contents



Thiess Contractors (PNG) Pty Ltd,
Roche Bros (PNG) Pty Ltd, Orica Papua New Guinea Limited and
Orica Australia Pty Ltd (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 2003).
 123




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##### Table of Contents



Exhibit 4 (p)
    
    Agreement for the Servicesof Professor Ross Garnaut as
Chairman of Lihir, dated April 26, 2004 between Lihir and
Maccullochella Pty Ltd. (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 2004).Exhibit 4 (q)
    
    Employment agreementfor the services of Mr Arthur Hood as
Managing Director of Lihir dated 26 August 2005.Exhibit 4 (r)
    
    Employment agreementfor the services of Mr Paul Fulton as
Chief Financial Officer of Lihir dated 4 April 2006.Exhibit 4 (s)
    
    Employment agreementfor the services of Mr Murray Eagle as
General Manager External Affairs & Sustainable Development
of Lihir dated 9 February 2005.Exhibit 4 (t)
    
    Employment agreementfor the services of Mr Mark Laurie as
Company Secretary of Lihir dated 14 May 2003, together with
amendments thereto dated 28 January 2005 and 21 September
2005.Exhibit 8
    
    Significant subsidiaries.Exhibit 12.1
    
    Certification of the Registrants Chief Executive Officer
pursuant to Section 302 of the Sarbanes Oxley Act of 2002.Exhibit 12.2
    
    Certification of the Registrants Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 13.1
    
    Certification of the Registrants Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 13.2
    
    Certification of the Registrants Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 124




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Certain Definitions
                     125




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##### Table of Contents



Glossary of Certain Technical Terms
 Alteration
    
    Change in the mineral composition of a rockAnhydrite
    
    Mineral form of calcium sulfateArgillic alteration
    
    Alteration composed of clay mineralsArsenopyrite
    
    A sulfide mineral of iron and arsenicAutoclave
    
    Vessel used for chemical reactions at high temperature and pressure;
for example, to oxidize sulfide oreAutogenous threshold
    
    The level of sulfur feed at which the heat generated by oxidation of
the sulfides is sufficient to propagate the reaction.Ball mill
    
    A mill using metal balls as the grinding mediumBench
    
    The horizontal floor along which mining progresses in a pit, also
used to describe the horizontal segment between two such floors. The
thickness of such a segment is referred to as the bench height. As
the pit progresses to lower levels, safety benches are left in the
walls to catch any rock falling from above.Brecciation; breccia
    
    Fracturing of pre-existing rocks by natural forces; a rock type
formed in this mannerBullion
    
    Gold or silver in bars or ingotsCalcining
    
    To reduce to a powder or friable state by heatCaldera
    
    Large basin shaped, typically circular crater resulting from volcanic
activityCarbon-in-leach
    
    Method of extracting gold from solution using carbonConcentrate
    
    Material that has been processed to increase the content of contained
metal or mineral relative to the contained wasteCounter-current decantation
or CCD
    
    The clarification and concentration
of slurry material by the use of several thickeners in series, with the washing solution flowing in
the opposite direction to the slurry
 126




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##### Table of Contents



Cut-off grade
    
    In resource/reserve estimation, the lowest grade of mineralized
material that can be economically extractedCyanidation
    
    A standard method of extracting gold and silver from crushed or
ground mineralized rock using sodium cyanideCyanide leaching
    
    The extraction of a precious metal from an ore by its dissolution in
a cyanide solutionDilution
    
    Waste which is commingled with ore in the mining processDore
    
    A mixture of gold and other metals, mostly silver, usually the raw
metal produced from a precious metal mineElectro-winning
    
    The process of removal of gold from solution by the action of
electric currentsElution
    
    The process of desorption (taking of gold from carbon)Epithermal
    
    A term applied to deposits formed at shallow depths from ascending
solutions of moderate temperaturesExsolution
    
    To be removed from solutionFeasibility study
    
    A technical and financial study of a project at sufficient level of
accuracy and detail to allow a decision as to whether the project
should proceedFlocculent
    
    An additive introduced to promote aggregation in a solution.Free gold
    
    Gold not chemically or physically entrapped and hence amenable to
relatively simple extraction processes.Friable
    
    Said of a rock or mineral that crumbles naturally or is easily
broken, pulverized, or reduced to powder, such as soft or poorly
cemented sandstone.Fumaroles
    
    Vents in a volcanic region from which gases and vapors emanate at
high temperaturesGAAP
    
    Generally accepted accounting principles.Geochemistry
    
    The study of the variation of chemical elements in rocks and soils; a
method of exploration based on thisGeotechnical
    
    Pertaining to the engineering properties of rocks and soilsGeothermal
    
    Pertaining to the heat of the earths interiorGrade
    
    The metal (or mineral) content per unit of rock
 127




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##### Table of Contents



Grinding
    
    Reducing mineralized rock to the consistency of fine sand by crushing
the abrading in a rotating steel grinding millGyratory Crusher
    
    A primary crusher consisting of a vertical spindle, the foot of which
is mounted in an eccentric bearing within a conical shell. The top
carries a conical crushing head revolving eccentrically in a conical
maw.Hydrological
    
    Pertaining to the science of hydrologykPa
    
    A unit of pressure  an abbreviation for kilopascals, gauge.Joint venture
    
    An arrangement in which two entities unite to form a new,
jointly-owned entity to achieve a specific purpose.Lime
    
    Calcium oxide; artificially made from limestoneLimestone
    
    Rock composed mainly of calcium carbonateLithology
    
    The physical characteristics of rockMafic
    
    Descriptive of rocks containing or made up of ferro-magnesian
minerals (usually dark in color)Magma; magmatic
    
    Liquid molten rock; pertaining to processes and rocks involving magmaMarcasite
    
    Iron sulfide mineral (a form of pyrite)Metallurgy
    
    The science and technology of metals, usually pertaining to the
processing of metals and minerals in miningMill feed grade
    
    The grade of material feed to the mill, equivalent to received at millMilling/mill
    
    The comminution of the ore, although the term has come to cover the
broad range of machinery inside the treatment plant where
economically valuable minerals are separated from the oreMineable
    
    The portion of a resource for which extraction is technically and
economically feasibleMineral deposit
    
    A mineralized underground body which has been intersected by a
sufficient number of closely-spaced drill holes and/or underground
sampling to support sufficient tonnage and ore grade to warrant
further exploration or development; a mineral deposit or mineralized
material does not qualify as a commercially mineable ore body
(Reserves), as prescribed under standards of the Commission, until a
final and comprehensive economic, technical, and legal feasibility
study based upon the test results is concluded.Net smelter returns
    
    The value received for a mineral after refining, less the cost of
transporting the mineral to the refinery and the cost of refiningOpen pit
    
    Surface mining in which the ore is extracted from a pit. The geometry
of the pit may vary with the characteristics of the ore body.
 128




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##### Table of Contents



Ore
    
    Material that contains one or more minerals, at least one of which
has commercial value and which can be recovered at a profitOre body
    
    A continuous well defined mass of material of sufficient ore content
to make extraction economically feasibleOre grade
    
    The average amount of the valuable metal or mineral contained in a
specific mass of ore; for gold, this is usually expressed as troy
ounces per short ton (2,000 pounds avoirdupois) or grams per tonneOunces
    
    Troy ounces of 31.103 grams, or 1.097 Avoirdupois ouncesOutcrop
    
    That part of a rock formation exposed on surfaceOxide ore
    
    Gold ore that has been subjected to oxidation through natural
weathering and surface water percolation to the extent that the
minerals are readily treatable by standard processesPhyllic alteration
    
    Hydrothermal alteration of rocks involving the secondary formation of
quartz and sericitePit shell
    
    Designed outline of an open pit mine containing all the open pit ore
reservesPleistocene
    
    A subdivision of geologic time, about 10,000  2 million years before
the presentPotassic alteration
    
    Hydrothermal alteration of rock involving the secondary formation of
potash feldspar, commonly the mineral orthoclase, usually with
biotitePressure oxidation
    
    A method of processing refractory sulfide orePropylitic alteration
    
    Hydrothermal alteration of basic rocks involving the secondary
formation of chlorite, epidote, calcite and sulfidePyrite
    
    Iron sulfide mineralRC hole
    
    A reverse circulation drill hole produced by percussion drilling in
which rock cuttings are recovered instead of core. Reverse
circulation refers to the air flow which flows downward around the
outside of the drill pipe, returning with the rock cuttings through
the drill bit face and stem.Reactive sulfur
    
    In mineral processing involving pressure oxidation, sulfur in the
form of sulfideRefining
    
    The final stage of metal production in which final impurities are
removed from the molten metal by introducing air and fluxes. The
impurities are removed as gases or slagRefractory ore
    
    Ore not amenable to standard processing techniquesSampling
    
    Taking small pieces of rock at intervals along exposed mineralization
for assay (to determine the mineral content)
 129




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SAG
    
    Semi-autogenous grinding, a method of comminution that utilizes the
rock fragments to assist in the grinding processSeismic
    
    Pertaining to shock waves that pass through the earthShotcreting
    
    Application by pressure spraying of a setting medium with the
characteristics of concrete for stabilization of rock faces.Silt curtain
    
    A flooding barrier to be deployed offshore from watercourses, which
causes temporary ponding of sediment laden fresh water within its
confines to enhance settling, and mixing with sea water, as the
turbid stream is forced underneath the barrierSlurry
    
    A fluid comprising fine solids suspended in a solution (generally
water containing additives)Smelting
    
    Thermal processing whereby molten metal is liberated from
beneficiated ore or concentrate with impurities separating as lighter
slagStockpile
    
    A store of unprocessed oreStripping
    
    The process of removing overburden to expose oreStripping ratio
    
    In open pit mining, the ratio of waste material to ore, usually
expressed as tonnes waste : tonnes oreSulfide ore
    
    Ore characterized by the inclusion of metal in the crystal structure
of a sulfide mineral. This type of ore is often refractory oreSuperannuation fund
    
    A contributory pension fund.Surface mixed layer
    
    Uppermost layer of the ocean that is constantly mixed by wind and
wave actionTailings
    
    The finely-ground waste product from ore processing
 130




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##### Table of Contents



Conversion Table
  US$/ oz. Gold
    
    US dollars per troy ounce of goldUS$/ t ore
    
    US dollars per tonne of oreC
    
    Degrees Celsiusg Au/t
    
    Grams of gold per tonneha
    
    Hectareskg
    
    Kilogramskg Au/t
    
    Kilograms of gold per tonnekPa
    
    kilo Pascalskt
    
    kilo tonnesm2
    
    Square metersm3
    
    Cubic metersmtpy
    
    Million tonnes per yeart/d
    
    Tonnes per dayt/h
    
    Tonnes per hour
  Celsius degrees
    
    (Fahrenheit degrees minus 32.0) times 5/91 cubic meter
    
    35.314 cubic feet1 gram
    
    0.03215 troy ounces1 gram Au/tonne
    
    0.02917 troy ounces gold/ton1 hectare
    
    2.471 acres1 kilogram
    
    2.205 pounds1 kilometer
    
    0.62 statute miles1 kilopascal
    
    0.145 pounds per square inch1 kilo tonne
    
    1102.31 short tons1 meter
    
    3.281 feet1 millimeter
    
    0.039 inches1 square kilometer
    
    0.3861 square miles1 square meter
    
    10.764 square feet1 tonne
    
    1.1023 short tons
 131




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Name:
    
    /s/ Arthur HoodTitle:
    
    Managing Director
  132




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Exhibit Index
 Exhibit
    
    Description
    
    PageExhibit 1
    
    Constitutionof Lihir Gold Limited, effective as
of April 28, 1998 (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal
year ended December 31, 2000).Exhibit 2 (a)
    
    Syndicated Facilities Agreementbetween Lihir, ABN
AMRO Australia Limited, ABN AMRO Bank N.V.
(Australia Branch), Australia and New Zealand
Banking Group Limited, Bayerische Hypo-und
Vereinsbank AG, BNP Paribus, Bank of Western
Australia Limited, Commonwealth Bank of Australia,
Macquarie Bank Limited, National Australia Bank
Limited, Natexis Banques Populaires, Societe
General, Societe Generale Australia Branch, WestLB
AG, and Westpac Banking Corporation dated 13
September 2005.Exhibit 2 (b)
    
    Refinancing Coordination Deed 2005between Lihir,
ABN AMRO Australia Limited, ABN AMRO Bank NV,
Commonwealth Bank of Australia, Macquarie Bank
Limited, Société
Génerale and Société
Génerale Australia Branch, dated 13
September 2005.Exhibit 2 (c)
    
    Amending Deed (Security Trust Deed)between Lihir
Niugini Mining Limited, Niugini Mining (Australia)
Pty Ltd, ABN AMRO Australia Limited, ABN AMRO Bank
NV, Commonwealth Bank of Australia, Macquarie Bank
Limited, Société
Génerale and Société
Génerale Australia Branch, Mitsui & Co.
Precious Metals Inc., and J. Aron & Company dated
13 September 2005.Exhibit 2 (d)
    
    Lihir Gold Security Trust Deedbetween Lihir,
Niugini Mining Limited, Niugini Mining (Australia)
Pty Ltd, ABN AMRO Australia Limited, ABN AMRO Bank
NV, Citibank N.A., and J. Aron & Company dated 22
November 2000.Exhibit 2 (e)
    
    Lihir Gold Limited Offshore Chargebetween Lihir
and ABN AMRO Australia Limited dated 13 September
2005.Exhibit 2 (f)
    
    Lihir Gold Deed of Security (PNG) 2005between
Lihir and ABN AMRO Australia Limited dated 13
September 2005.Exhibit 2 (g)
    
    Lihir Gold Mortgage of Bullion Accountbetween
Lihir and ABN AMRO Australia Limited dated 13
September 2005.Exhibit 4 (a)
    
    Special Mining Lease, dated as of March 17, 1995,
between Lihir and the PNG Government (incorporated
by reference to Lihirs Form F-1 filed September
6, 1995).Exhibit 4 (b)
    
    Mining Development Contract, dated as of March 17,
1995, between Lihir and the PNG Government
(incorporated by reference to Lihirs Form F-1
filed September 6, 1995).Exhibit 4 (c)
    
    Lihir Project Management Agreement, dated as of
March 17, 1995, between Lihir and Lihir Management
Company (incorporated by reference to Lihirs Form
F-1 filed September 6, 1995).Exhibit 4 (d)
    
    Technical Support Agreement, dated as of June 30,
1995, between Lihir Management Company and Rio
Tinto (incorporated by reference to Lihirs Form
F-1 filed September 6, 1995).
 133




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##### Table of Contents



Exhibit
    
    Description
    
    PageExhibit 4 (e)
    
    Guaranteedated May 22, 1995 of the financial obligations of
Lihir Management Company Limited under the Management
Agreement dated March 17, 1995 given by RTZ Western Holdings
Limited in favour of Lihir (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 2003).Exhibit 4 (f)
    
    Share Sale and Purchase Agreementbetween Rio Tinto Western
Holdings Limited and Lihir dated 10 October 2005.Exhibit 4 (g)
    
    Technical and Procurement Services Agreementbetween
Technological Resources Pty Ltd, Rio Tinto Services Limited
and Lihir dated 10 October 2005.Exhibit 4 (h)
    
    General Termination and Release Deedbetween Lihir, Lihir
Management Company Ltd, Rio Tinto Western Holdings Ltd and
Rio Tinto plc dated 10 October 2005.Exhibit 4 (i)
    
    Compensation Agreement for Land, Crops, Water and Air, dated
as of April 26, 1995, between Lihir Management Company,
Lihir Mining Area Landowners Association Incorporated, Block
Executives (for and on behalf of the Landowners), Catholic
Mission (Kavieng Property Trust) and the United Church in
PNG and the Solomon Islands (incorporated by reference to
Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (j)
    
    Putput and Ladolam Relocation Agreementdated as of April
26, 1995, between Lihir Management Company, Lihir Mining
Area Landowners Association Incorporated and the persons
named in various schedules to the agreement (incorporated by
reference to Lihirs Form F-1 filed September 6, 1995).Exhibit 4 (k)
    
    Integrated Benefits Package Review Status Statementbetween
Nimamar Rural Local Level Government, Lihir Mining Area
Landowners Association, the State of Papua New Guinea, New
Ireland Provincial Government and Lihir dated 9 November
2005.Exhibit 4 (l)
    
    Amended and Restated Lihirian Equity Settlement Agreement
dated 27 January 2006 between Mineral Resources Development
Company Limited, Mineral Resources Lihir Limited and the
European Investment Bank.Exhibit 4 (m)
    
    Contract Explosives Services Contract, dated as of March 14,
1996 between Lihir Management Company for on behalf of Lihir
and ICI Dulux Papua New Guinea Pty Limited, and Deed of
Assignment relating to same (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 1995)Exhibit 4 (n)
    
    Patent and Know-How License Agreementdated August, 5 1995
between Sherritt Inc and Lihir Management Company Limited
for and on behalf of Lihir, together with amendment thereto
dated August 18, 1995 (incorporated by reference to Lihirs
annual report on Form 20-F for the fiscal year ended
December 31, 2003).Exhibit 4 (o)
    
    Deed of Variation to Contract Explosives Services Contract,
dated as of June 4, 1999, between Lihir Management Company
for on behalf of Lihir, Thiess Contractors (PNG) Pty Ltd,
Roche Bros (PNG) Pty Ltd, Orica Papua New Guinea Limited and
Orica Australia Pty Ltd (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 2003).Exhibit 4 (p)
    
    Agreement for the Servicesof Professor Ross Garnaut as
Chairman of Lihir, dated April 26, 2004 between Lihir and
Maccullochella Pty Ltd. (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year ended
December 31, 2004).
 134




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##### Table of Contents



Exhibit
    
    Description
    
    PageExhibit 4 (q)
    
    Employment agreementfor the services of Mr Arthur Hood as
Managing Director of Lihir dated 26 August 2005.Exhibit 4 (r)
    
    Employment agreementfor the services of Mr Paul Fulton as
Chief Financial Officer of Lihir dated 4 April 2006.Exhibit 4 (s)
    
    Employment agreementfor the services of Mr Murray Eagle as
General Manager External Affairs & Sustainable Development
of Lihir dated 9 February 2005.Exhibit 4 (t)
    
    Employment agreementfor the services of Mr Mark Laurie as
Company Secretary of Lihir dated 14 May 2003, together with
amendments thereto dated 28 January 2005 and 21 September
2005.Exhibit 8
    
    Significant subsidiaries.Exhibit 12.1
    
    Certification of the Registrants Chief Executive Officer
pursuant to Section 302 of the Sarbanes Oxley Act of 2002.Exhibit 12.2
    
    Certification of the Registrants Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 13.1
    
    Certification of the Registrants Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 13.2
    
    Certification of the Registrants Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 135




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##### Table of Contents



FINANCIAL STATEMENTS
 LIHIR GOLD LIMITED
 Audited financial statements
 Report of the independent accountants
    
    F-AProfit and loss accounts for the years ended December 31, 2005, 2004, and 2003
    
    F-2Balance sheets as at December 31, 2005, 2004, and 2003
    
    F-3Statements of changes in equity for the years ended December 31, 2005, 2004, and 2003
    
    F-4Statements of cash flows for the years ended December 31, 2005, 2004, and 2003
    
    F-5Notes to the financial statements
    
    F-6Supplemental schedules
    
    F-46




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##### Table of Contents



PricewaterhouseCoopers6th Floor Credit HouseCuthbertson StreetPO Box 484PORT MORESBYPAPUA NEW GUINEAWebsite: www.pwc.com.pgTelephone (675) 321 1500Facsimile (675) 321 1428
 
 Report of Independent Registered Public Accounting Firm  To the Board of Directors and Shareholders of Lihir Gold Limited
   
  
 F-A




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##### Table of Contents



LIHIR GOLD LIMITED
 
 CONSOLIDATED PROFIT AND LOSS ACCOUNTS
 For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Note
    
    
    US$000
    
    
    US$000
    
    
    US$000Sales revenue
    
    
    
    
    
    
    225,200
    
    
    
    221,465
    
    
    
    199,843Gold lease rate fees
    
    
    
    
    
    
    5,016
    
    
    
    4,595
    
    
    
    2,599Fair value(losses)/gains
    
    
    
    
    
    
    (5,390
    )
    
    
    8,608
    
    
    
    12,067Other revenue
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    Total revenue
    
    
    6
    
    
    
    224,871
    
    
    
    234,668
    
    
    
    214,509Operating expensesMining expenses
    
    
    
    
    
    
    (95,304
    )
    
    
    (89,687
    )
    
    
    (68,017
    )Exploration expenses
    
    
    
    
    
    
    (6,198
    )
    
    
    (5,306
    )
    
    
    (10,506
    )Processing costs
    
    
    
    
    
    
    (41,654
    )
    
    
    (41,524
    )
    
    
    (35,326
    )Power generation costs
    
    
    
    
    
    
    (27,413
    )
    
    
    (29,237
    )
    
    
    (26,473
    )General and administrative costs
    
    
    
    
    
    
    (57,884
    )
    
    
    (53,103
    )
    
    
    (45,444
    )Refining, royalty and management fees
    
    
    
    
    
    
    (6,813
    )
    
    
    (7,144
    )
    
    
    (8,322
    )Deferred mining costs
    
    
    
    
    
    
    25,048
    
    
    
    37,865
    
    
    
    7,163Costs deferred and transferred to inventories
    
    
    
    
    
    
    39,208
    
    
    
    3,557
    
    
    
    24,378Impairment reversal: Mine properties and deferred mining costs
    
    
    
    
    
    
    
    
    
    
    205,723
    
    
    
    31,061Impairment reversal/(charge): Economic grade stockpile
    
    
    
    
    
    
    
    
    
    
    90,200
    
    
    
    (17,079
    )Depreciation and amortisation
    
    
    
    
    
    
    (35,757
    )
    
    
    (32,929
    )
    
    
    (28,631
    )Total operating (expenses)/income
    
    
    6
    
    
    
    (206,767
    )
    
    
    78,415
    
    
    
    (177,196
    )Operating profit
    
    
    
    
    
    
    18,104
    
    
    
    313,083
    
    
    
    37,313Interest income
    
    
    
    
    
    
    1,221
    
    
    
    3,512
    
    
    
    983Finance costs
    
    
    
    
    
    
    (3,588
    )
    
    
    (2,110
    )
    
    
    (3,518
    )Profit from ordinary activities before taxation
    
    
    6
    
    
    
    15,737
    
    
    
    314,485
    
    
    
    34,778Income tax (expense)/benefit
    
    
    15
    
    
    
    (5,949
    )
    
    
    14,736
    
    
    
    Net profit from ordinary activities after taxation
    
    
    
    
    
    
    9,788
    
    
    
    329,221
    
    
    
    34,778Earnings per share
    
    
    27- Basic (cent/share)
    
    
    
    
    
    
    0.8
    
    
    
    25.6
    
    
    
    3.0- Diluted (cent/share)
    
    
    
    
    
    
    0.8
    
    
    
    25.6
    
    
    
    3.0




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##### Table of Contents



LIHIR GOLD LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 As At December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Note
    
    
    US$000
    
    
    US$000
    
    
    US$000ASSETSCURRENT ASSETSCash and cash equivalents
    
    
    7
    
    
    
    127,836
    
    
    
    83,559
    
    
    
    152,630Derivative financial instruments
    
    
    24
    
    
    
    543
    
    
    
    473
    
    
    
    9,823Inventories
    
    
    9
    
    
    
    81,712
    
    
    
    60,244
    
    
    
    57,009Receivables
    
    
    10
    
    
    
    5,347
    
    
    
    5,105
    
    
    
    10,543Prepayments
    
    
    
    
    
    
    3,696
    
    
    
    4,921
    
    
    
    680Deferred mining costs
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    2,803TOTAL CURRENT ASSETS
    
    
    
    
    
    
    219,134
    
    
    
    154,302
    
    
    
    233,488NON-CURRENT ASSETSDerivative financial instruments
    
    
    24
    
    
    
    4,236
    
    
    
    21,133
    
    
    
    11,116Inventories
    
    
    9
    
    
    
    115,494
    
    
    
    90,200
    
    
    
    Receivables
    
    
    10
    
    
    
    476
    
    
    
    536
    
    
    
    915Deferred mining costs
    
    
    11
    
    
    
    91,981
    
    
    
    66,933
    
    
    
    26,265Mine properties
    
    
    12
    
    
    
    800,346
    
    
    
    738,990
    
    
    
    477,095Deferred income tax
    
    
    15
    
    
    
    87,739
    
    
    
    84,812
    
    
    
    TOTAL NON-CURRENT ASSETS
    
    
    
    
    
    
    1,100,272
    
    
    
    1,002,604
    
    
    
    515,391TOTAL ASSETS
    
    
    
    
    
    
    1,319,406
    
    
    
    1,156,906
    
    
    
    748,879LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESDerivative financial instruments
    
    
    24
    
    
    
    40,793
    
    
    
    51,799
    
    
    
    31,375Accounts payable
    
    
    13
    
    
    
    34,426
    
    
    
    29,396
    
    
    
    20,893Provisions
    
    
    14
    
    
    
    5,614
    
    
    
    3,552
    
    
    
    4,487Borrowings
    
    
    22
    
    
    
    
    
    
    
    19,509
    
    
    
    3,510TOTAL CURRENT LIABILITIES
    
    
    
    
    
    
    80,833
    
    
    
    104,257
    
    
    
    60,265NON CURRENT LIABILITIESDerivative financial instruments
    
    
    24
    
    
    
    227,157
    
    
    
    203,392
    
    
    
    188,918Provisions
    
    
    14
    
    
    
    12,424
    
    
    
    12,034
    
    
    
    8,268Borrowings
    
    
    22
    
    
    
    215,520
    
    
    
    
    
    
    
    30,038TOTAL NON CURRENT LIABILITIES
    
    
    
    
    
    
    455,101
    
    
    
    215,426
    
    
    
    227,224TOTAL LIABILITIES
    
    
    
    
    
    
    535,934
    
    
    
    319,683
    
    
    
    287,489SHAREHOLDERS EQUITYShare capital
    
    
    19
    
    
    
    1,027,504
    
    
    
    1,027,504
    
    
    
    1,025,288Fair value and other reserves
    
    
    24
    
    
    
    (225,692
    )
    
    
    (162,153
    )
    
    
    (206,548
    )Accumulated losses
    
    
    
    
    
    
    (18,340
    )
    
    
    (28,128
    )
    
    
    (357,350
    )TOTAL SHAREHOLDERS EQUITY
    
    
    
    
    
    
    783,472
    
    
    
    837,223
    
    
    
    461,390TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    
    1,319,406
    
    
    
    1,156,906
    
    
    
    748,879




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##### Table of Contents



LIHIR GOLD LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 For the Years Ended December 31, 2005, 2004 and 2003
 RetainedShare
    
    
    Fair value
    
    
    Earnings /Capital
    
    
    Reserves
    
    
    (Losses)
    
    
    TotalNote
    
    
    US$000
    
    
    US$000
    
    
    US$000
    
    
    US$000Balance at 1 January 2003
    
    
    
    
    
    
    873,822
    
    
    
    (69,469
    )
    
    
    (377,942
    )
    
    
    426,411Profit for the year
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    34,778
    
    
    
    34,778Dividend paid
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    (14,185
    )
    
    
    (14,185
    )Issue of share capital
    
    
    19
    
    
    
    156,240
    
    
    
    
    
    
    
    
    
    
    
    156,240Share issue transaction costs
    
    
    19
    
    
    
    (4,774
    )
    
    
    
    
    
    
    
    
    
    
    (4,774
    )Fair value losses on cash flow hedges, gross for tax
    
    
    24
    
    
    
    
    
    
    
    (148,610
    )
    
    
    
    
    
    
    (148,610
    )Reclassified and reported gross of tax in the income
statement
    
    
    24
    
    
    
    
    
    
    
    11,531
    
    
    
    
    
    
    
    11,531Balance at 31 December 2003
    
    
    
    
    
    
    1,025,288
    
    
    
    (206,548
    )
    
    
    (357,349
    )
    
    
    461,391Profit for the year
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    329,221
    
    
    
    329,221Issue of share capital
    
    
    19
    
    
    
    2,286
    
    
    
    
    
    
    
    
    
    
    
    2,286Share issue transaction costs
    
    
    19
    
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    (70
    )Fair value losses on cash flow hedges, gross for tax
    
    
    24
    
    
    
    
    
    
    
    (49,611
    )
    
    
    
    
    
    
    (49,611
    )Deferred income tax on fair value losses on cash flow
hedges
    
    
    24
    
    
    
    
    
    
    
    70,076
    
    
    
    
    
    
    
    70,076Reclassified and reported gross of tax in the income
statement
    
    
    24
    
    
    
    
    
    
    
    23,930
    
    
    
    
    
    
    
    23,930Balance at 31 December 2004
    
    
    
    
    
    
    1,027,504
    
    
    
    (162,153
    )
    
    
    (28,128
    )
    
    
    837,223Profit for the year
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    9,788
    
    
    
    9,788Fair value losses on cash flow hedges, gross for tax
    
    
    24
    
    
    
    
    
    
    
    (111,134
    )
    
    
    
    
    
    
    (111,134
    )Deferred income tax on fair value losses on cash flow
hedges
    
    
    24
    
    
    
    
    
    
    
    8,876
    
    
    
    
    
    
    
    8,876Reclassified and reported gross of tax in the
income statement
    
    
    24
    
    
    
    
    
    
    
    38,719
    
    
    
    
    
    
    
    38,719Balance at 31 December 2005
    
    
    
    
    
    
    1,027,504
    
    
    
    (225,692
    )
    
    
    (18,340
    )
    
    
    783,472




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##### Table of Contents



LIHIR GOLD LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Note
    
    
    US$000
    
    
    US$000
    
    
    US$000CASH FLOWS FROM OPERATING ACTIVITIESCash receipts from customers
    
    
    
    
    
    
    243,704
    
    
    
    248,391
    
    
    
    205,851Cash payments for consumables and supplies
    
    
    
    
    
    
    (107,551
    )
    
    
    (109,223
    )
    
    
    (81,208
    )Cash payments for services
    
    
    
    
    
    
    (42,428
    )
    
    
    (39,159
    )
    
    
    (44,152
    )Cash payments in relation to employees
    
    
    
    
    
    
    (32,712
    )
    
    
    (27,022
    )
    
    
    (21,528
    )Cash payments for mining activities
    
    
    
    
    
    
    (10,370
    )
    
    
    (14,262
    )
    
    
    (9,696
    )Cash payments for processing activities
    
    
    
    
    
    
    (2,775
    )
    
    
    (3,421
    )
    
    
    (8,307
    )Cash payments for power generation
    
    
    
    
    
    
    (1,273
    )
    
    
    (1,397
    )
    
    
    (1,061
    )Cash payments for other operating activities
    
    
    
    
    
    
    (36,392
    )
    
    
    (25,741
    )
    
    
    (21,228
    )Interest received
    
    
    
    
    
    
    1,882
    
    
    
    3,512
    
    
    
    983Interest and finance charges paid to third parties
    
    
    
    
    
    
    (2,543
    )
    
    
    (1,327
    )
    
    
    (2,949
    )Net cash flows from operating activities
    
    
    8
    
    
    
    9,542
    
    
    
    30,351
    
    
    
    16,705CASH FLOWS FROM FINANCING ACTIVITIESDrawdown of term debt
    
    
    
    
    
    
    245,520
    
    
    
    
    
    
    
    Repayment of term debt
    
    
    
    
    
    
    (49,509
    )
    
    
    (14,039
    )
    
    
    (7,010
    )Hedgebook restructure and fees
    
    
    
    
    
    
    (62,200
    )
    
    
    
    
    
    
    Proceeds of equity issue
    
    
    
    
    
    
    
    
    
    
    2,286
    
    
    
    156,240Share issue transaction costs
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    (4,774
    )Dividend paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,185
    )Net cash from/(used in) financing activities
    
    
    
    
    
    
    133,811
    
    
    
    (11,823
    )
    
    
    130,271CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property plant and equipment
    
    
    
    
    
    
    (99,492
    )
    
    
    (87,663
    )
    
    
    (27,065
    )Proceeds of disposal of fixed assets
    
    
    
    
    
    
    416
    
    
    
    64
    
    
    
    199Net cash used in investing activities
    
    
    
    
    
    
    (99,076
    )
    
    
    (87,599
    )
    
    
    (26,866
    )Net increase/(decrease) in cash held
    
    
    
    
    
    
    44,277
    
    
    
    (69,071
    )
    
    
    120,110Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    83,559
    
    
    
    152,630
    
    
    
    32,520Net increase/(decrease) in cash held
    
    
    
    
    
    
    44,277
    
    
    
    (69,071
    )
    
    
    120,110Cash and cash equivalents at end of year
    
    
    7
    
    
    
    127,836
    
    
    
    83,559
    
    
    
    152,630




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##### Table of Contents



NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
    (i)
    
    ConsolidationThe consolidated financial statements of Lihir Gold Limited (the Company) include the
accounts of its subsidiaries. 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. In the separate financial statements of the Company, the
Company accounts for investments in subsidiaries at cost less any impairment.(ii)
    
    Exploration and evaluation expenditureThe Company charges exploration and evaluation costs against profits as incurred.(iii)
    
    Development propertiesA property is classified as a development property when a mine plan has been prepared,
proved and probable reserves have been established, and the Company has decided to
commercially develop the property. Development expenditure is accumulated separately for
each area of interest in which economically recoverable mineral resources have been
identified and are reasonably assured.All expenditure incurred prior to the commencement of commercial levels of production from
each development property is carried forward to the extent to which recoupment out of
revenue to be derived from the sale of production from the relevant development property, or
from sale of that property, is reasonably assured.No amortisation is provided in respect of development properties until they are reclassified
as Mine Properties, following the commencement of commercial production. For the years
ended December 31, 2003, 2004 and 2005, the Company has had no properties in the development
stage. No development expenditure is currently being incurred or capitalised.(iv)
    
    Mine propertiesMine properties represent the accumulation of all development expenditures incurred by or on
behalf of the Company in relation to areas of interest in which mining of a mineral reserve
has commenced.When future economic benefits are established by further development expenditure in respect
of a mine property after the commencement of production, 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.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.




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##### Table of Contents



Depreciation and amortisation of costs is provided for using the units-of-production
method. The units-of-production basis results in a charge proportional to the depletion of
estimated recoverable gold ounces contained in proved and probable ore reserves. Under this
process, production of a unit commences when the ore is extracted from the ground. The
amortisation charge is allocated to inventory throughout the production processes from the
point at which ore is extracted from the pit until the ore is processed into gold dorè.Where a change in estimated recoverable gold ounces contained in proved and probable ore
reserves is made, depreciation and amortisation of mine properties is accounted for
prospectively in the period of change and future periods.(v)
    
    Determination of ore reserves and remaining mine lifeThe Company estimates its ore reserves and mineral resources based on information compiled
by Competent Persons (as defined in accordance with the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves as revised December 2004 (the JORC
code). Reserves determined in this way are taken into account in the calculation of
depreciation, amortisation, impairment and restoration, 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.(vi)
    
    Deferred mining costsAs at December 31, 2005, 2004 and 2003 deferred stripping costs were capitalized in the
Companys consolidated balance sheet as deferred mining costs of US$92.0 million, US$66.9
million and US$29.1 million respectively. These costs are released to income using a
stripping ratio calculated as the ratio of total waste to ore, which results in the
recognition of the costs of waste removal activities over the life of the pit as gold is
produced. At December 31, 2005, the balance of deferred mining costs related to stripping of
the Lienetz pit.The accounting policy is discussed below and is supplemented with discussions on related
issues, being: a) impairment testing of deferred mining costs; b) the Companys decision in
2004 to switch from a phase attribution model to a pit attribution model; c) the
requirements of EITF 04-06 which relates to the treatment of post-production mining costs,
and the US GAAP disclosure requirements pertaining to such treatment.The Companys open pit mining operations make it necessary to remove overburden and other
waste materials to access mineral deposits. The costs of removing waste materials are
referred to as stripping costs. During the development of a mine, before production
commences, such costs are capitalised as part of the investment in construction of the mine.
Stripping costs have the effect of smoothing the cost of waste-rock removal over the life of
the mine, to better align the cost of stripping with the associated future benefit expected
from the ore that is accessed. This will result in deferred mining costs being fully
amortised by the end of the mining and process phase of the operation. 2042 is the
currently estimated end of the mining and processing phase of the operation.Removal of waste materials continues during the production stage of the mine. Stripping
costs incurred in the production stage of the mine are a development cost incurred to obtain
access to proved and probable reserves and are capitalised as an additional investment in
the mine. Stripping costs capitalised as part of the Companys investment in the mine are
allocated to mined reserves on the estimated ratio of waste to ore for each pit.As ore is mined the capitalised deferred mining costs are transferred to inventory being
attributed to stockpiles based upon the waste to ore strip ratio applicable to each pit.
Those costs are further apportioned to either high grade or economic grade stockpiles based
upon ounces contained within the ore produced.Upon processing of inventory stockpiles, costs of these stockpiles are apportioned in
sequence to work in progress during processing, to finished goods, and ultimately cost of
sales reducing costs deferred and transferred to inventories. Accordingly, stripping costs
are being expensed after first being recognized as a component of inventory.This accounting process is the same in periods where the waste to ore ratio is less than
average.




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##### Table of Contents



The stripping ratio throughout the mine-life of a pit will normally differ from the
pits average stripping ratio on a year-to-year basis as, once the initial pre-production
development is completed and ore is exposed, the waste required to be removed before ore is
exposed decreases progressively with ore-body depth. Variability in the strip ratios occurs
for a number of reasons including: a) short term changes in the mine plan and scheduling
within the periods; b) change in the reserves and strip ratio with a change in cut off grade
policy; and c) changes in pit wall design and operating strategies.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. During the production stage 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 production
stage of each pit, and not over the entire life of the mine.The current portion of deferred mining costs represents the unamortised costs that are
expected to be recouped within 12 months, as mining is completed for each pit.The following table reflects the calculation of deferred mining costs for the reporting
periods:
 Deferred Mining Costs
 Opening
    
    
    
    
    
    
    
    
    
    
    Endingbalance
    
    
    Deferred
    
    
    Expensed
    
    
    balanceUS$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Minifie Pit2003
    
    
    20,337
    
    
    
    0
    
    
    
    17,534
    
    
    
    2,8032004
    
    
    2,803
    
    
    
    7,903
    
    
    
    10,706
    
    
    
    02005
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Lienetz Pit2003
    
    
    1,551
    
    
    
    24,714
    
    
    
    0
    
    
    
    26,2652004
    
    
    26,265
    
    
    
    68,750
    
    
    
    28,082
    
    
    
    66,9332005
    
    
    66,933
    
    
    
    80,323
    
    
    
    55,276
    
    
    
    91,981




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##### Table of Contents



F-9




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##### Table of Contents



1.
    
    Different ore bodies characteristics require a different attribution model. As
indicated above, the Lienetz ore body is a much deeper pit than the Minifie pit and
requires significant pre-stripping to access the ore. The pre-stripping involves
larger cut backs that provide access to larger volumes of ore in the lower benches.
Therefore, access in earlier phases will benefit access to ore that will be extracted
in subsequent periods. In other words, it would be inappropriate to attribute the
costs of accessing one phase to only the ore in that phase. Consequently, there is a
greater amount of mining costs that will be incurred earlier in the pit life that will
benefit future operations. If the Company continued to apply a strip ratio on a phase
basis, this would not result in an appropriate recognition of the benefits to future
production. A schematic of the Lienetz pit appears below to confirm the interpretation
of where the ore is located, how it will be accessed and how pre-stripping will benefit
future reserves. The white area shows the extensive pre-stripping or removal of waste
rock and overburden required prior to accessing ore further below deep in the pit.
  
 2.
    
    As an objective and reliable model, the LOM ratio is a reliable benchmark. This is
because it is determined by the Company based on JORC/Industry Guide 7 approved
reserves and is communicated to the market and to regulators in conjunction with the
Reserves Statement As reserves are rigorously determined using JORC standards/
Industry Guide 7 it provides objective high quality evidence of waste to ore ratios for
each pit. On the other hand, phase ratios are entirely internal estimates that are not
subject to independent standards or regulated and subject to change over a short time
frame. Using the LOM ratio as the basis for applying stripping costs to reserves
therefore introduces greater objectivity, understandability, relevance and reliability.
 F-10




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##### Table of Contents



3.
    
    The pit attribution model provides consistency with Lihirs reserve determination
process and other accounting policies. Consistent with all mining companies, Lihir
undertakes a review of its ore reserves once a year. The process enables Lihir to
update its Reserves Statement to take into account updated experience among other
factors, mining the reserves, dilution and depletion. Any changes in reserves will
have an impact on the various accounting estimates including deferred stripping costs,
impairment, depreciation and amortization. Aligning this process with the manner in
which deferred stripping costs are accounted for will improve understandability and
consistency in reporting of the behaviour of stripping costs.
 4.
    
    The use of a phase strip ratio is susceptible to change and may be less
reliable. The Companys experience is that the mining sequence for phases may often
change, because of changes in the expected gold mineralogy and content, because of
access difficulties, changes to the expected geological, geotechnical, hydrological and
other unpredictable factors. By way of example, access to ore may be difficult and
therefore sequencing could change within the phase or alternatively, mining may be
deferred and another phase commenced. While these changes are tracked in the mining
department, they are difficult to track and adjust for accounting purposes.
 5.
    
    The use of the life of mine strip ratio is the most prevalent and understood
attribution model. Applying a life of mine stripping ratio is the most well understood
and documented attribution model used by producers, investors and analysts. The
Company believes the change enhances comparability of Lihirs accounting basis with
that applied by its peers. The LOM ratio concept was also recognized in the 2004
discussion of the EITF 04-06 task force as the most prevalent method used in the
industry.
 6.
    
    The change to a strip ratio based on a pit does not impact comparability with
prior periods as the basis was applied to an entirely new pit, which has new unique
mining conditions and circumstances which require the phase design to be changed to
meet circumstances encountered as the mining continues. The deferred mining costs in
relation to the old Minifie pit at December 31, 2004 were fully expensed with the
exception of an immaterial amount (which was expensed in the first quarter of 2005).
 7.
    
    The pit attribution model provides consistency with Lihirs management decision
making model. The decision to include gold contained in the Lienetz ore body into
reserves and then to commence mining the Lienetz pit was made on the determination of
economically recoverable reserves from the pit. Final phase design is a secondary and
changeable matter, determined after the decision to mine the ore body is made. All
economic decisions involve consideration of the pit, not the phase. The accounting
results and procedures therefore reflect managements decisions relating to the pit.8.
    
    The risk of material misstatement is mitigated by the requirements of IAS36
Impairment of Assets. It is acknowledged that any attribution model may still be
susceptible to the risk that deferred stripping costs may not be recoverable. In that
event, the Company considers that the requirements of IAS 36 will mitigate this risk
to ensure that stripping costs, which are deferred in any accounting period is not
overstated and would ensure that the Companys financial performance is accurately
reported.
    F-11




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##### Table of Contents



items capitalized under existing practices including capital costs
related to commercial mineral deposits, which can include costs of prospecting, mineral
property acquisition, exploration, appraisal, development, construction, and removal and
restoration.
  Accounting for the Extractive Industries, Stripping Costs Incurred in the Production Phase of a Mining Operation,
        
    
    accepted under the IFRS framework and the tentative views of the IASB Steering
Committee on Extractive Industries;
    
    consistent with the view taken by other standard setting bodies;
 F-12




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##### Table of Contents




    
    consistent with long established and clearly understood mining industry practice; and
    
    has been consistently applied since the Companys inception.
 The Company believes that the allocation of stripping costs is appropriate and allocation of
all stripping costs to current production will distort the reporting of the operational and
financial performance of the Company. The Company believes the rational for deferral is
widely understood by mining industry financial readers and investors.For US GAAP purposes, the Company is currently reviewing the impact on its US GAAP accounts.
The period 2003 through 2005 included substantial pre-production mining costs for
establishing the Lienetz pit and the Company is assessing the required treatment for this
portion of the mining costs. The Company will apply the transitional provisions in EITF
04-06 Accounting for Post-Production Stripping Costs in the Mining Industryfor the fiscal
year beginning on January 1, 2006 in order to conform with the consensus. This will result
in a GAAP difference between IFRS and US GAAP.(vii)
    
    Capitalisation of financing costsInterest and other financing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalised as part of the cost of that
asset. To the extent that funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalisation on that asset is
determined as the actual borrowing costs incurred on that borrowing during the period.
Capitalisation of borrowing costs ceases when all the activities necessary to prepare the
qualifying asset for its intended use or sale are substantially complete. Interest earned
on the temporary investment of borrowed funds is deducted from interest paid on the borrowed
funds in arriving at the amounts so capitalised. These 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, 2005 an amount of $1.8 million was capitalised (2004 and
2003: nil). This capitalisation relates to the gold loan drawn down (refer note 22) to the
extent that the funds are applied to the construction of the flotation plant.(viii)
    
    Mine buildings, plant and equipmentMine buildings, plant and equipment are stated at cost less accumulated depreciation
and impairments/(impairment 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 i.e. the mining and processing period, being approximately 38 years, to reflect
the continued use of these assets through to the end of the processing period. This is
accomplished using the units-of-production method based on estimated recoverable gold ounces
contained in proved and probable ore reserves. Some assets are not expected to be used
during the processing period (all assets that will cease to have useful lives upon the
completion of the mining period), and having a shorter useful life, are depreciated over
their useful lives if shorter, or over the expected 16 year mining period. In accordance
with the policy on inventories (refer note (ix)), the cost of inventories includes an
appropriate allocation of depreciation, depletion and amortization of assets used in the
production of inventory.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.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. Assets which have an estimated useful life that is shorter than the 38
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 mining and processing period are depreciated over
that period on a units-of-production basis.
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Percentage
    
    Percentagedepreciated
    
    depreciatedFixed asset classification
    
    as units-of-use
    
    as straight lineDeferred expenditure
    
    
    100
    %
    
    
    Land & buildings
    
    
    100
    %
    
    
    Plant & equipment
    
    
    85
    %
    
    
    15
    %Total average
    
    
    90
    %
    
    
    10
    %
 The classification of Land and Buildings does not include freehold land as depreciable
assets. 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)).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. (Refer to note 1 (x)).Major spares 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.The classification of Land and Buildings does not include freehold land as depreciable
assets. The Company does not own any freehold land, and only occupies land by leasehold
tenure. All lease costs are expensed as incurred.(ix)
    
    InventoriesInventories of ore and metal are physically measured or estimated and valued at the lower of
cost and net realisable value. 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.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.In accordance with IAS 2 Inventories, non-current ore stockpiles is defined as ore which
is not scheduled to be processed in the twelve months after the balance sheet date. The
Company believes the processing of these stockpiles will have a future economic benefit to
the Company and accordingly values these stockpiles at the lower of cost and net realisable
value. Net realisable value is assessed annually based on the product expected to be
obtained from the ore at the estimated selling price less costs as calculated for other
inventories of ore and metal, less all further costs to completion and all anticipated costs
to be incurred prior to its sale.Inventories of consumable supplies and spare parts expected to be used in production are
valued at the lower of weighted average cost, which includes the cost of purchase as well as
transportation and statutory charges, and net realisable value.As a result of the landslide that occurred on 9 October 2005, 38,079 ounces held within
non-current ore stockpiles have been expensed at cost at the value of $2.9m (see note 6).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, 2005 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.
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##### Table of Contents



(x)
    
    Impairment of assetsIn accordance with IAS 36 Impairment of Assets, mine properties and other non-current
assets (other than stock) are reviewed for impairment losses at each balance date for
indication that the carrying amount may not be recoverable. Impairments of assets are
recognised whenever the carrying amount of an asset exceeds its recoverable value. In
determining recoverable value, reasonable and supportable future cash flow projections of
the economic conditions that will exist over the remaining life of each asset are developed.
The recoverable amount is measured as the higher of net selling price and value in use as
determined under IFRS.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, and is calculated by discounting
future net 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 11 and mine properties (being buildings, plant and equipment,
deferred expenditure and rehabilitation asset costs) as disclosed in Note 12 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 2000 and 1999, impairment losses of US$340.2 million were recognised, (2000: US$116.4
million, 1999: US$223.8 million), 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, a long-term gold price assumption of US$300 (1999: US$325) and a
pre-tax real discount rate of 6% (1999: 7%).In 2001, after applying the same principles as in 2000 and using a gold price of US$280 and
a pre-tax real discount rate of 6%, 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, an impairment reversal
of US$205.7 million (2003: US$31.1 million; 2002: US$37.9 million) was credited to the
income statement in accordance with IAS 36, based on a long-term gold price assumption of
US$380 (2003: $US340; 2002: US$305) and a pre-tax real discount rate of 7% (2003 and 2002:
7%). In 2004, all previous remaining asset impairments were fully reversed to the extent
allowed by IAS 36.In 2005, having applied the same principles as prior years and revisiting critical
assumptions, no impairment reversal nor impairment loss was required to be recognised in
accordance with IAS 36, based on a long-term gold price assumption of US$425 and a pre-tax
real discount rate of 7%.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 2005. Recent gold price averages over 2-3 years
were also considered.The critical assumptions used in the impairment assessment were based on extensive and
rigorous analysis conducted by the Company, including consideration of assessments of proved
and probable reserves conducted by competent persons, including the Companys Chief
Geologist and Chief Mining Engineer, independent reviews and other mine financial and
operational assessments conducted by independent mine consultants.The following is a summary of factors considered:
 2005
    
    2004
    
    2003Average spot price for the month of December
    
    $510
    
    $442
    
    $
    407Year-end spot price for December 31
    
    $517
    
    $435
    
    $
    4163 year weighted average
    
    $422
    
    $384
    
    $
    338Bank/Analyst long-term forecasts
    
    $424
    (Nov-Dec)
    $358
    (Oct)
    $
    350Global Gold Price Survey
    
    $425
    
    $375
    
    $
    347Rising trend for the last four years
    
    +65%
    
    +47%
    
    
    +31
    %
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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 2005 was a revision to the gold
price to US$425/oz. This represents a US$45/oz increase on the Companys 2004 assumptions,
and an US$85/oz increase on the Companys 2003 assumptions.The ore reserves used in the Companys impairment calculations for 2005 are based on the
Companys 31 December 2004 reserves statement, which confirms proved and probable reserves
of 17.5 million ounces (2003: 17.5 million ounces). A reserve restatement is planned for
early 2007.(xi)
    
    Restoration, rehabilitation and environmental expenditureIn accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a
provision is raised for anticipated expenditure to be made on restoration and rehabilitation
to be undertaken after mine closure. These costs include the costs of dismantling and
demolition of infrastructure or decommissioning, the removal of residual material and the
remediation of disturbed areas. The provision is only raised in respect of damage incurred
up to balance date. The amount of any provision recognised is the full amount that has been
estimated based on current costs required to settle present obligations, discounted using a
pre-tax discount rate, reflecting current market assessments of the time value of money and
those risks specific to the liability, of 6.2% (2004: 6.5%; 2003: 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.A corresponding asset, which represents future economic benefits, is raised and subsequently
amortised using the units of production method.Site rehabilitation and closure involves the dismantling and demolition of infrastructure
not intended for subsequent community use, the removal of residual materials and the
remediation of disturbed areas. Community requirements and long-term land use objectives are
also taken into account.(xii)
    
    LeasesLeases of property, plant and equipment where substantially all the risks and benefits
incidental to the ownership of the asset, but not the legal ownership are assumed by the
Company, are classified as finance leases. Finance leases are capitalised, recording an
asset and liability equal to the present value of the minimum lease payments, including any
guaranteed residual values. Leased assets are amortised over the shorter of their estimated
useful lives or the lease term. Lease payments are allocated between the reduction of the
lease liability and the lease interest expense for the period.Lease payments for operating leases, where substantially all the risks and benefits remain
with the lessor, are charged as expenses in the periods in which they are incurred.Penalties paid for early settlement of leases are expensed.(xiii)
    
    Trade receivablesTrade receivables are carried at original invoice amount less provision made for impairment
of these receivables. A provision for impairment of trade 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)
    
    BorrowingsBorrowings are recognised initially at the proceeds received, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost. In compliance with the
provisions of IAS 39, the gold loan (note 22) 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.
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##### Table of Contents



(xv)
    
    Accounting for derivative financial instruments and hedging activitiesThe Company uses derivative financial instruments to hedge some of its exposure to
fluctuations in gold prices. In order to protect against the impact of falling gold prices,
the Company enters into hedging transactions which provide a minimum price to cover
non-discretionary operating expenses and sustaining capital. The majority of the Companys
production is un-hedged, which allows it to take advantage of increases in gold prices.Derivative financial instruments are initially recognised in the balance sheet at cost and
are subsequently remeasured 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.Changes in the fair value of derivatives that are designated against future production,
qualify as cash flow hedges and are deemed highly effective, 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 IAS39.While the Company has a fixed schedule of deliveries designated for its forward contracts,
the Company is sometimes able to roll-over these contracts with its hedging counterparties,
subject to normal credit approvals. As cash flow hedges, any subsequent changes in the fair
value are effective are deferred through Other Comprehensive Income (OCI) The amounts
deferred in OCI are recognized when the forecasted delivery occurs. There is no direct cash
cost associated with a rollover, rather it is the strike price (negotiated to include a
usually insignificant cost component) for the contract, that increases.At the inception of the transaction, the Company documents the relationship between hedging
instruments and hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. This process includes linking all derivatives
designated as hedges to specific forecast gold sales. The Company also documents its
assessment, both at the hedge inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes in fair
values or cash flows of hedged items.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.(xvi)
    
    Share capitalOrdinary shares are classified as equity. Incremental external costs directly attributable
to the issue of new shares, other than in connection with a business combination, are shown
in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly
in connection with a business combination are included in the cost of acquisition. Where
the Company or its subsidiaries purchases the Companys equity share capital, the
consideration paid including any attributable incremental external costs net of income taxes
is deducted from total shareholders equity as treasury shares until they are cancelled.
Where such shares are subsequently sold or reissued, any consideration received is included
in shareholders equity.(xvii)
    
    Revenue recognitionThe Companys revenue comes from the sale of refined gold in the international market.
Generally, gold doré bars are sent to a refiner to produce bullion that meets the required
market standard of 99.95% pure gold. Under the terms of refining agreements, the gold doré
bars are refined for a fee, and the Companys share of the refined gold is credited to its
bullion account or delivered to buyers.
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##### Table of Contents



(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.
 Sales revenue represents the gross proceeds receivable from the customer.The Company generally sells its gold or doré at a price agreed and fixed during the month in
which the gold doré is delivered to the customer. The Company recognizes revenue from the
sale when the price is determinable and agreed, the gold doré has been delivered, the title
has been transferred to the customer and collection of the sales price is reasonably
assured.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 contacts 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.(xviii)
    
    Interest IncomeInterest income is recognised on a time proportion basis using the effective interest rate method.(xix)
    
    Cash and cash equivalentsFor the purpose of the statement of cash flows and balance sheet, cash includes:
   (xx)
    
    Employee benefitsThe amounts expected to be paid to employees for their pro-rata entitlement to annual and
sick leave are accrued annually at current pay rates 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 to a defined contribution plan for its 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.
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##### Table of Contents



(xxi)
    
    ProvisionsProvisions are recognised when the Company has a present legal or constructive obligation as
a result of past events, it is probable that an outflow of resources will be required to
settle the obligation, and a reliable estimate of the amount can be made.(xxii)
    
    DividendsDividends are recorded in the Companys financial statements in the period in which they are
approved by the Companys shareholders.(xxiii)
    
    Income taxTax effect accounting procedures are followed using the liability method for all temporary
differences arising between the tax bases of assets and liabilities and their carrying
values for financial reporting purposes. Income tax on temporary differences is set aside to
the deferred tax liability and deferred tax asset accounts at current enacted tax rates.
Deferred tax assets relating to deductible temporary differences and tax losses are only
carried forward as an asset to the extent that it is probable that future taxable profit
will be available against which the deductible temporary differences and tax losses can be
utilised.(xxiv)
    
    Foreign currency translationAs the Companys revenue is denominated in US dollars and the majority of its fixed asset
purchases and costs are in US dollars or currencies related to US dollars, the Companys
directors have adopted the US dollar as the Companys measurement and reporting currency.Foreign currency transactions (other than US dollars) are initially translated into US
currency at the rate of exchange at the date of the transaction. At the date of the balance
sheet, amounts payable and receivable in foreign currencies are translated to US dollars at
rates of exchange current at that date. Resulting exchange differences are brought to
account in determining the profit or loss for the year.(xxv)
    
    Segment reportingA business segment is a group of assets and operations engaged in providing products or
services that are subject to risks and returns that are different to those of other business
segments.A geographical segment is engaged in providing products or services within a particular
economic environment and is subject to risks and returns that are different from those of
segments operating in other economic environments. Within the geographical segment risks
associated with sales revenues are different from those associated with assets and
liabilities.(xxvi)
    
    Comparative figuresWhere necessary, comparative figures have been adjusted to conform to changes in
presentation in the current year.(xxvii)
    
    Rounding of amountsThe Financial Statements have been rounded to the nearest thousand dollars.(xxviii)
    
    Significant risks and uncertaintiesThe Lihir operation 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 17 March 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 operation. 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 operation.
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##### Table of Contents



(xxix)
    
    Critical accounting estimates and judgementsThe 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 judgements 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.The most significant estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next
financial year relate to the recoverability of long-lived assets and non-current ore
stockpiles, the provision for restoration and rehabilitation obligations and the
recoverability of deferred tax assets. The resulting accounting estimates will, by
definition, seldom equal the related actual results. Management believes the assumptions
that they have adopted are reasonable and supportable.Key estimates and assumptions made in the preparation of these financial statements are
described below:Recoverability of long-lived assetsAs 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 US$425 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 affect 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 stockpilesAs set out in note 1 (ix) and note 9 certain assumptions are required to 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 affect on the carrying
value of non-current ore stockpiles.Provision for restoration and rehabilitation obligationsAs set out in note 1 (xi) and note 14 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 US$0.9m increase in the liability and in the carrying value of assets. An
increase in the discount rate to 7.2% will result in a US$1.6m decrease in the liability and
in the carrying value of assets.Recoverability of deferred tax assetsSee note 1 (xxiii) and note 15 for key assumptions.As noted above, judgements 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 judgement that warrant separate
disclosure.
 NOTE 2: CHANGE IN ACCOUNTING POLICY
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NOTE
3: SPECIAL MINING LEASE
  NOTE
4: REQUIREMENTS REGARDING CASH RESERVES
   NOTE
5: DIVIDEND RESTRICTIONS
    -
    
    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.
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NOTE 6: OPERATING PROFIT
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Operating profit before taxation has been determined after
crediting / (charging):SALES AND OTHER REVENUEGold sales at spot
    
    
    263,919
    
    
    
    245,397
    
    
    
    211,374Realisation of hedging instruments
    
    
    (25,233
    )
    
    
    (6,764
    )
    
    
    (2,956
    )Gold lease rate fees
    
    
    5,016
    
    
    
    4,595
    
    
    
    2,599Fair value(losses)/ gains
    
    
    (5,390
    )
    
    
    8,608
    
    
    
    12,067Realisation of deferred hedging income
    
    
    661
    
    
    
    661
    
    
    
    220Realisation of deferred hedging costs
    
    
    (14,147
    )
    
    
    (17,829
    )
    
    
    (8,795
    )Other revenue
    
    
    45
    
    
    
    
    
    
    
    224,871
    
    
    
    234,668
    
    
    
    214,509REFINING, ROYALTY AND MANAGEMENT FEESRefining and related costs
    
    
    (751
    )
    
    
    (780
    )
    
    
    (670
    )Royalties on sales
    
    
    (4,862
    )
    
    
    (4,864
    )
    
    
    (4,204
    )Management fees
    
    
    (1,125
    )
    
    
    (1,500
    )
    
    
    (3,448
    )(6,738
    )
    
    
    (7,144
    )
    
    
    (8,322
    )OTHER OPERATING COSTSOperating consumables
    
    
    (108,914
    )
    
    
    (103,542
    )
    
    
    (81,745
    )Contracted services
    
    
    (45,944
    )
    
    
    (43,729
    )
    
    
    (44,152
    )Staff costs
    
    
    (33,523
    )
    
    
    (27,561
    )
    
    
    (21,528
    )Mining levy
    
    
    (6,389
    )
    
    
    (8,461
    )
    
    
    (5,952
    )Insurance
    
    
    (4,744
    )
    
    
    (5,221
    )
    
    
    (5,108
    )Air travel
    
    
    (4,896
    )
    
    
    (4,419
    )
    
    
    (3,920
    )Operating lease rentals
    
    
    (687
    )
    
    
    (2,015
    )
    
    
    (1,753
    )Consultants
    
    
    (5,262
    )
    
    
    (3,883
    )
    
    
    (4,210
    )Donations and community assistance
    
    
    (5,370
    )
    
    
    (3,636
    )
    
    
    (2,438
    )Net foreign exchange gains/(losses)
    
    
    1,358
    
    
    
    (5,900
    )
    
    
    (4,130
    )Provision for stores stock obsolescence
    
    
    (982
    )
    
    
    (963
    )
    
    
    (780
    )Provision for doubtful debts
    
    
    (354
    )
    
    
    (389
    )
    
    
    (490
    )Deferred mining costs
    
    
    25,048
    
    
    
    37,865
    
    
    
    7,163Costs deferred and transferred to inventories
    
    
    42,128
    
    
    
    3,557
    
    
    
    24,378Inventory write-off: Economic grade stockpile
    
    
    (2,920
    )
    
    
    
    
    
    
    Impairment reversal: Mine properties and deferred mining costs
    
    
    
    
    
    
    205,723
    
    
    
    31,061Impairment reversal/(charge) Economic grade stockpile
    
    
    
    
    
    
    90,200
    
    
    
    (17,079
    )Other costs
    
    
    (12,821
    )
    
    
    (9,138
    )
    
    
    (9,559
    )(164,272
    )
    
    
    118,488
    
    
    
    (140,242
    )DEPRECIATION AND AMORTISATIONDepreciation and amortisation of mine properties
    
    
    (35,757
    )
    
    
    (32,929
    )
    
    
    (28,631
    )(35,757
    )
    
    
    (32,929
    )
    
    
    (28,631
    )TOTAL OPERATING INCOME/(EXPENSE)
    
    
    (206,767
    )
    
    
    78,415
    
    
    
    (177,196
    )NET FINANCING COSTSInterest income
    
    
    1,221
    
    
    
    3,512
    
    
    
    983Interest expense on gold loan
    
    
    (438
    )
    
    
    
    
    
    
    Other finance costs
    
    
    (3,150
    )
    
    
    (2,110
    )
    
    
    (3,518
    )(2,367
    )
    
    
    1,402
    
    
    
    (2,535
    )
 F-22




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##### Table of Contents



NOTE 7: CASH AND CASH EQUIVALENTS
 2005
    
    
    2004
    
    
    2003US$000
    
    

US$000
    
    

US$000Cash at bank and on hand
    
    
    2,596
    
    
    
    17,228
    
    
    
    62,505Short term deposits with financial institutions
    
    
    125,240
    
    
    
    66,331
    
    
    
    90,125127,836
    
    
    
    83,559
    
    
    
    152,630
  NOTE 8: NET CASHFLOW FROM OPERATING ACTIVITIES
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Reconciliation of cash flow from operating activities to
operating profit after taxOperating profit after tax
    
    
    9,788
    
    
    
    329,221
    
    
    
    34,778Depreciation and amortisation
    
    
    35,757
    
    
    
    32,929
    
    
    
    28,631Fair value gains
    
    
    5,390
    
    
    
    (8,608
    )
    
    
    (12,067
    )Impairment reversal  mine properties and deferred mining costs
    
    
    
    
    
    
    (205,723
    )
    
    
    (31,061
    )Impairment (reversal)/charge  economic grade stockpiles
    
    
    
    
    
    
    (90,200
    )
    
    
    17,079Amortisation of deferred hedging income
    
    
    (661
    )
    
    
    (661
    )
    
    
    (220
    )Amortisation of deferred hedging costs
    
    
    14,147
    
    
    
    17,829
    
    
    
    8,795Provision for doubtful debts
    
    
    354
    
    
    
    389
    
    
    
    490Profit on disposal of assets
    
    
    2,492
    
    
    
    (49
    )
    
    
    (187
    )Income tax (expense)/benefit
    
    
    5,949
    
    
    
    (14,736
    )
    
    
    Decrease/(increase) in debtors and prepayments
    
    
    689
    
    
    
    1,187
    
    
    
    (4,759
    )Increase in inventories
    
    
    (49,682
    )
    
    
    (3,236
    )
    
    
    (27,117
    )Inventory write-off: Economic grade stockpile
    
    
    2,920
    
    
    
    
    
    
    
    Increase in deferred mining costs
    
    
    (25,048
    )
    
    
    (37,865
    )
    
    
    (7,163
    )Increase in creditors
    
    
    5,029
    
    
    
    8,504
    
    
    
    6,511Increase in provisions
    
    
    2,418
    
    
    
    1,370
    
    
    
    2,995Net cash flow from operating activities
    
    
    9,542
    
    
    
    30,351
    
    
    
    16,705
  NOTE 9: INVENTORIES
 2005
    
    
    2004
    
    
    2003US$000
    
    

US$000
    
    

US$000CURRENTStores
    
    
    43,567
    
    
    
    34,269
    
    
    
    33,627Less: Provision for obsolescence
    
    
    (5,229
    )
    
    
    (4,317
    )
    
    
    (3,354
    )38,268
    
    
    
    29,952
    
    
    
    30,273Production work in progress
    
    
    2,824
    
    
    
    1,500
    
    
    
    2,461Finished goods
    
    
    4,584
    
    
    
    1,511
    
    
    
    1,880Ore stockpiles
    
    
    36,036
    
    
    
    27,281
    
    
    
    22,39543,444
    
    
    
    30,292
    
    
    
    26,736Total current inventories
    
    
    81,712
    
    
    
    60,244
    
    
    
    57,009
 F-23




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##### Table of Contents



NOTE 9: INVENTORIES (cont.)
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000NON-CURRENTOre stockpiles
    
    
    115,494
    
    
    
    90,200
    
    
    
    64,976Less: Impairment provision
    
    
    
    
    
    
    
    
    
    
    (64,976
    )Total non-current inventories
    
    
    115,494
    
    
    
    90,200
    
    
    
    Total inventories
    
    
    197,206
    
    
    
    150,444
    
    
    
    57,009
   
 NOTE 10: RECEIVABLES
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000CURRENTTrade receivables
    
    
    
    
    
    
    3
    
    
    
    5,166Other debtors  related parties
    
    
    48
    
    
    
    454
    
    
    
    2,022Other amounts receivable from third parties
    
    
    7,878
    
    
    
    6,873
    
    
    
    5,191Less: provision for doubtful debts
    
    
    (2,579
    )
    
    
    (2,225
    )
    
    
    (1,836
    )5,347
    
    
    
    5,105
    
    
    
    10,543NON-CURRENTOther debtors  related parties
    
    
    474
    
    
    
    534
    
    
    
    913Other amounts receivable
    
    
    2
    
    
    
    2
    
    
    
    2576
    
    
    
    536
    
    
    
    915Total amounts receivable
    
    
    5,823
    
    
    
    5,641
    
    
    
    11,458
  Leases accounted for as a lessor (included in other debtors  related parties).
  F-24




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##### Table of Contents



NOTE 10: RECEIVABLES (cont.)
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Gross investments in finance leasesAmounts receivable not later than one year
    
    
    
    
    
    
    414
    
    
    
    763Amounts receivable later than one year but not later than five years
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    414
    
    
    
    1,177Unearned finance income on finance leases
    
    
    
    
    
    
    (15
    )
    
    
    (81
    )Net investment in finance leases
    
    
    
    
    
    
    399
    
    
    
    1,096Amounts receivable not later than one year
    
    
    
    
    
    
    399
    
    
    
    697Amounts receivable later than one year but not later than five years
    
    
    
    
    
    
    
    
    
    
    399
    
    
    
    399
    
    
    
    1,096
 Loan (included in other debtors  related parties)
  2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Gross investments in loanAmounts receivable not later than one year
    
    
    135
    
    
    
    132
    
    
    
    1,431Amounts receivable later than one year but not later than five years
    
    
    528
    
    
    
    530
    
    
    
    462Amounts receivable later than five years
    
    
    
    
    
    
    121
    
    
    
    222663
    
    
    
    783
    
    
    
    2,115Unearned finance income on loan
    
    
    (141
    )
    
    
    (194
    )
    
    
    (276
    )Net investment in loan
    
    
    522
    
    
    
    589
    
    
    
    1,839Amounts receivable not later than one year
    
    
    48
    
    
    
    55
    
    
    
    1,325Amounts receivable later than one year but not later than five years
    
    
    474
    
    
    
    418
    
    
    
    313Amounts receivable later than five years
    
    
    
    
    
    
    116
    
    
    
    201522
    
    
    
    589
    
    
    
    1,839
 NOTE 11: DEFERRED MINING COSTS
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000CURRENTDeferred mining costs
    
    
    
    
    
    
    
    
    
    
    2,803
    
    
    
    
    
    
    
    2,803NON-CURRENTDeferred mining costs
    
    
    91,981
    
    
    
    66,933
    
    
    
    26,26591,981
    
    
    
    66,933
    
    
    
    26,265Total Deferred Mining Costs
    
    
    91,981
    
    
    
    66,933
    
    
    
    29,068
 F-25




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##### Table of Contents



NOTE 12: MINE PROPERTIES
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000CAPITAL WORKS IN PROGRESSCost brought forward
    
    
    65,966
    
    
    
    8,160
    
    
    
    18,482Additions
    
    
    99,492
    
    
    
    87,663
    
    
    
    27,064Transfer to fixed assets
    
    
    (98,563
    )
    
    
    (29,857
    )
    
    
    (37,386
    )Total capital work in progress
    
    
    66,895
    
    
    
    65,966
    
    
    
    8,160FIXED ASSETS AND DEFERRED EXPENDITUREPlant and equipmentCost brought forward
    
    
    620,652
    
    
    
    595,598
    
    
    
    560,967Transfers from capital works in progress
    
    
    55,437
    
    
    
    25,809
    
    
    
    35,311Disposals
    
    
    (6,065
    )
    
    
    (755
    )
    
    
    (680
    )Cost carried forward
    
    
    670,024
    
    
    
    620,652
    
    
    
    595,598Depreciation brought forward
    
    
    (202,284
    )
    
    
    (282,936
    )
    
    
    (282,269
    )Charge for the year
    
    
    (27,005
    )
    
    
    (26,162
    )
    
    
    (22,160
    )Impairment reversal
    
    
    
    
    
    
    106,076
    
    
    
    20,829Disposals
    
    
    3,721
    
    
    
    738
    
    
    
    664Depreciation carried forward
    
    
    (225,568
    )
    
    
    (202,284
    )
    
    
    (282,936
    )Net book value  plant and equipment
    
    
    444,456
    
    
    
    418,368
    
    
    
    312,662Land and BuildingsCost brought forward
    
    
    80,132
    
    
    
    79,442
    
    
    
    77,939Transfers from capital works in progress
    
    
    37,565
    
    
    
    690
    
    
    
    1,503Cost carried forward
    
    
    117,697
    
    
    
    80,132
    
    
    
    79,442Depreciation brought forward
    
    
    (22,824
    )
    
    
    (45,294
    )
    
    
    (46,187
    )Charge for the year
    
    
    (2,456
    )
    
    
    (1,471
    )
    
    
    (1,381
    )Impairment reversal
    
    
    
    
    
    
    23,941
    
    
    
    2,274Depreciation carried forward
    
    
    (25,280
    )
    
    
    (22,824
    )
    
    
    (45,294
    )Net book value  land and buildings
    
    
    92,417
    
    
    
    57,308
    
    
    
    34,148Deferred ExpenditureCost brought forward
    
    
    271,781
    
    
    
    268,422
    
    
    
    267,850Transfers from capital works in progress
    
    
    5,561
    
    
    
    3,359
    
    
    
    572Cost carried forward
    
    
    277,342
    
    
    
    271,781
    
    
    
    268,422Depreciation brought forward
    
    
    (78,346
    )
    
    
    (148,929
    )
    
    
    (151,918
    )Charge for the year
    
    
    (6,249
    )
    
    
    (5,123
    )
    
    
    (4,969
    )Impairment reversal
    
    
    
    
    
    
    75,706
    
    
    
    7,958Depreciation carried forward
    
    
    (84,595
    )
    
    
    (78,346
    )
    
    
    (148,929
    )Net book value  deferred expenditure
    
    
    192,747
    
    
    
    193,435
    
    
    
    119,493
 F-26




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##### Table of Contents



NOTE 12: MINE PROPERTIES (cont.)
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Sub-total for fixed assets and deferred expenditureCost brought forward
    
    
    972,565
    
    
    
    943,462
    
    
    
    906,756Transfers from capital work in progress
    
    
    98,563
    
    
    
    29,858
    
    
    
    37,386Disposals
    
    
    (6,065
    )
    
    
    (755
    )
    
    
    (680
    )Cost carried forward
    
    
    1,065,063
    
    
    
    972,565
    
    
    
    943,462Depreciation brought forward
    
    
    (303,454
    )
    
    
    (477,159
    )
    
    
    (480,374
    )Charge for the year
    
    
    (35,710
    )
    
    
    (32,756
    )
    
    
    (28,510
    )Impairment reversal
    
    
    
    
    
    
    205,723
    
    
    
    31,061Disposals
    
    
    3,721
    
    
    
    738
    
    
    
    664Depreciation carried forward
    
    
    (335,443
    )
    
    
    (303,454
    )
    
    
    (477,159
    )Net book value
    
    
    729,620
    
    
    
    669,111
    
    
    
    466,303RehabilitationCost brought forward
    
    
    6,242
    
    
    
    4,792
    
    
    
    11,314Additions/(deductions)
    
    
    (35
    )
    
    
    1,450
    
    
    
    (6,522
    )Cost carried forward
    
    
    6,207
    
    
    
    6,242
    
    
    
    4,792Amortisation brought forward
    
    
    (2,329
    )
    
    
    (2,156
    )
    
    
    (2,035
    )Charge for the year
    
    
    (47
    )
    
    
    (173
    )
    
    
    (121
    )Amortisation carried forward
    
    
    (2,376
    )
    
    
    (2,329
    )
    
    
    (2,156
    )Net book value  rehabilitation
    
    
    3,831
    
    
    
    3,913
    
    
    
    2,632Total mine properties
    
    
    800,346
    
    
    
    738,990
    
    
    
    477,095
 NOTE 13: ACCOUNTS PAYABLE
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000CURRENTTrade creditors and accruals
    
    
    33,950
    
    
    
    28,720
    
    
    
    20,747Amounts payable to related parties
    
    
    476
    
    
    
    677
    
    
    
    14634,426
    
    
    
    29,397
    
    
    
    20,893
 F-27




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##### Table of Contents



NOTE 14: PROVISIONS
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000CURRENTEmployee provisions
    
    
    5,614
    
    
    
    3,552
    
    
    
    4,4875,614
    
    
    
    3,552
    
    
    
    4,487NON CURRENTEmployee provisions
    
    
    2,616
    
    
    
    2,799
    
    
    
    1,253Rehabilitation provision- opening balance
    
    
    9,235
    
    
    
    7,015
    
    
    
    13,209- (Reduction in)/additional provision for changes in
estimated cash outflows
    
    
    (1,868
    )
    
    
    957
    
    
    
    - change in discount rate
    
    
    
    
    
    
    
    
    
    
    (7,586
    )- additional provision due to ground disturbance
    
    
    451
    
    
    
    497
    
    
    
    1,421- life of mine variation
    
    
    1,382
    
    
    
    
    
    
    
    (598
    )- interest charge
    
    
    608
    
    
    
    766
    
    
    
    569- closing balance
    
    
    9,808
    
    
    
    9,235
    
    
    
    7,01512,424
    
    
    
    12,034
    
    
    
    8,268Total provisions
    
    
    18,038
    
    
    
    15,586
    
    
    
    12,755
  2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Annual leave
    
    
    2,427
    
    
    
    2,012
    
    
    
    1,396Sick leave
    
    
    559
    
    
    
    529
    
    
    
    29Superannuation
    
    
    265
    
    
    
    55
    
    
    
    Service bonus
    
    
    2,363
    
    
    
    956
    
    
    
    3,062Total
    
    
    5,614
    
    
    
    3,552
    
    
    
    4,487
   NOTE 15: INCOME TAX
  2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000INCOME TAX (BENEFIT)/EXPENSECurrent tax
    
    
    
    
    
    
    
    
    
    
    Deferred tax  current year
    
    
    4,654
    
    
    
    96,676
    
    
    
    Deferred tax  prior year
    
    
    1,295
    
    
    
    (111,412
    )
    
    
    Total income tax expense/(benefit)
    
    
    5,949
    
    
    
    (14,736
    )
    
    
    
  F-28




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##### Table of Contents



NOTE 15: INCOME TAX (cont.)
 2005
    
    
    2004
    
    
    2003US$000
    
    

US$000
    
    

US$000Profit before tax
    
    
    15,737
    
    
    
    314,485
    
    
    
    34,778Prima facie income tax expense on operating profit at 30%
    
    
    4,721
    
    
    
    94,345
    
    
    
    10,433Permanent differences- Expenses not deductible for tax purposes
    
    
    8
    
    
    
    2,391
    
    
    
    - Section 72A double deductions
    
    
    (75
    )
    
    
    (60
    )
    
    
    4,654
    
    
    
    96,676
    
    
    
    10,433Recognition of previously unrecognised deferred tax asset
    
    
    
    
    
    
    (111,412
    )
    
    
    Deferred income tax asset recognised
    
    
    1,295
    
    
    
    
    
    
    
    (10,433
    )Tax expense/(benefit)
    
    
    5,949
    
    
    
    (14,736
    )
    
    
    DEFERRED INCOME TAXDeferred Tax Assets:- Deferred tax asset to be recovered within 12 months
    
    
    14,268
    
    
    
    16,222
    
    
    
    - Deferred tax asset to be recovered after more than 12 months
    
    
    138,580
    
    
    
    126,996
    
    
    
    152,848
    
    
    
    143,218
    
    
    
    Deferred Tax Liabilities:- Deferred tax liabilities to be recovered within 12 months
    
    
    (6,538
    )
    
    
    
    
    
    
    - Deferred tax liabilities to be recovered after more than 12 months
    
    
    (58,571
    )
    
    
    (58,406
    )
    
    
    (65,109
    )
    
    
    (58,406
    )
    
    
    The gross movement of the deferred tax account is as follows:Balance at beginning of year
    
    
    84,812
    
    
    
    
    
    
    
    Income statement (charge)/credit
    
    
    (5,949
    )
    
    
    14,736
    
    
    
    Tax credit to equity
    
    
    8,876
    
    
    
    70,076
    
    
    
    Balance at end of year
    
    
    87,739
    
    
    
    84,812
    
    
    
    
  Movements in deferred tax assets and deferred tax liabilities:
 Provisions of assets
    
    
    Inventories
    
    
    Derivatives
    
    
    Tax losses
    
    
    Other
    
    
    TotalDeferred tax assets:At 1 January 2005
    
    
    7,151
    
    
    
    
    
    
    
    70,076
    
    
    
    65,945
    
    
    
    46
    
    
    
    143,218(Charged)/credited to the
income statement
    
    
    (966
    )
    
    
    1,590
    
    
    
    
    
    
    
    (332
    )
    
    
    462
    
    
    
    754(Charged)/credited to
equity
    
    
    
    
    
    
    
    
    
    
    8,876
    
    
    
    
    
    
    
    
    
    
    
    8,876At 31 December 2005
    
    
    6,185
    
    
    
    1,590
    
    
    
    78,952
    
    
    
    65,613
    
    
    
    508
    
    
    
    152,848Accelerated taxdepreciation
    
    Consumable stores
    
    Deferred mining
    
    Prepaid insurance
    
    OtherDeferred tax liabilities:At 1 January 2005
    
    
    (34,172
    )
    
    
    (3,965
    )
    
    
    (20,080
    )
    
    
    (189
    )
    
    
    
    
    
    
    (58,406
    )(Charged)/credited to the
income statement
    
    
    3,196
    
    
    
    (2,449
    )
    
    
    (7,514
    )
    
    
    64
    
    
    
    
    
    
    
    (6,703
    )(Charged)/credited to
equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At 31 December 2005
    
    
    (30,976
    )
    
    
    (6,414
    )
    
    
    (27,594
    )
    
    
    (125
    )
    
    
    
    
    
    
    (65,109
    )
 F-29




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##### Table of Contents



NOTE 15: INCOME TAX (cont.)
  NOTE 16: REMUNERATION AND RETIREMENT BENEFITS
 (a) Directors remuneration, including the value of benefits received during the year:
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Cassidy, Peter
    
    
    45
    
    
    
    45
    
    
    
    40Garnaut, Ross
    
    
    126
    
    
    
    121
    
    
    
    114Kamit, Winifred (appointed 20 October, 2004)
    
    
    44
    
    
    
    
    
    
    
    Leslie, Jonathan (retired 1 March, 2003)
    
    
    
    
    
    
    
    
    
    
    Loudon, Geoff
    
    
    47
    
    
    
    45
    
    
    
    43OReilly, John (retired 1 November, 2002,
reappointed 1 March,2003)
    
    
    
    
    
    
    
    
    
    
    Roberts, Alan (retired 31 March, 2003)
    
    
    
    
    
    
    
    
    
    
    195Siaguru, Anthony (deceased 16 April, 2004)
    
    
    
    
    
    
    21
    
    
    
    65Soipang, Mark (retired 7 March, 2003)
    
    
    
    
    
    
    
    
    
    
    Swan, Neil (retired 1 October 2005)
    
    
    498
    
    
    
    456
    
    
    
    402Arthur Hood (appointed 1 October 2005)
    
    
    126
    
    
    
    
    
    
    
    Bruce Brook (appointed 4 December 2005)
    
    
    
    
    
    
    
    
    
    
    
 (b) The number of employees, not including directors, whose
remuneration and benefits exceeded the equivalent of PNG Kina
100,000 for 2004 fall into the following bands:
 Remuneration and benefit band
    
    Number of EmployeesUS$
    
    2005
    
    
    2004
    
    
    2003$30,001 -   $40,000
    
    
    11
    
    
    
    6
    
    
    
    9$40,001 -   $50,000
    
    
    7
    
    
    
    5
    
    
    
    $50,001 -   $60,000
    
    
    6
    
    
    
    7
    
    
    
    4$60,001 -   $70,000
    
    
    2
    
    
    
    6
    
    
    
    1$70,001 -   $80,000
    
    
    3
    
    
    
    5
    
    
    
    2$80,001 -   $90,000
    
    
    4
    
    
    
    3
    
    
    
    7$90,001 -   $100,000
    
    
    5
    
    
    
    5
    
    
    
    5$100,001 - $110,000
    
    
    10
    
    
    
    6
    
    
    
    10$110,001 - $120,000
    
    
    4
    
    
    
    7
    
    
    
    12$120,001 - $130,000
    
    
    9
    
    
    
    9
    
    
    
    9$130,001 - $140,000
    
    
    5
    
    
    
    3
    
    
    
    4$140,001 - $150,000
    
    
    9
    
    
    
    1
    
    
    
    1$150,001 - $160,000
    
    
    7
    
    
    
    7
    
    
    
    2$160,001 - $170,000
    
    
    6
    
    
    
    5
    
    
    
    $170,001 - $180,000
    
    
    7
    
    
    
    3
    
    
    
    $180,001 - $190,000
    
    
    
    
    
    
    
    
    
    
    3$190,001 - $200,000
    
    
    3
    
    
    
    1
    
    
    
    1$200,001 - $210,000
    
    
    3
    
    
    
    
    
    
    
    1$210,001 - $220,000
    
    
    3
    
    
    
    2
    
    
    
    $220,001 - $230,000
    
    
    2
    
    
    
    1
    
    
    
    $230,001 - $240,000
    
    
    1
    
    
    
    1
    
    
    
    $240,001 - $250,000
    
    
    1
    
    
    
    1
    
    
    
    $250,001 - $260,000
    
    
    
    
    
    
    1
    
    
    
    $260,001 - $270,000
    
    
    
    
    
    
    
    
    
    
    1$270,001 - $280,000
    
    
    
    
    
    
    1
    
    
    
    $280,001 - $290,000
    
    
    1
    
    
    
    1
    
    
    
    $390,001 - $400,000
    
    
    1
    
    
    
    
    
    
    
    $470,001 - $480,000
    
    
    1
    
    
    
    
    
    
    
    
 F-30




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##### Table of Contents



NOTE 17: RETIREMENT BENEFITS
   NOTE 18: AUDITORS REMUNERATION
 2005
    
    
    2004
    
    
    2003Fees paid / payable to the Groups auditors for:
    
    US$000
    
    
    US$000
    
    
    US$000Auditing the financial statementsPricewaterhouseCoopers, PNG firm
    
    
    249
    
    
    
    218
    
    
    
    147PricewaterhouseCoopers, other overseas firms
    
    
    105
    
    
    
    147
    
    
    
    70Other services (assurance)PricewaterhouseCoopers, PNG firm
    
    
    52
    
    
    
    
    
    
    
    PricewaterhouseCoopers, other overseas firms
    
    
    59
    
    
    
    
    
    
    
    Other services (tax)
    
    
    129
    
    
    
    27
    
    
    
    28594
    
    
    
    392
    
    
    
    245
 NOTE 19: SHARE CAPITAL
 (a) Issued and paid up capital
 US$0002005
    
    
    2004
    
    
    2003Ordinary sharesOpening balance
    
    
    1,027,504
    
    
    
    1,025,288
    
    
    
    873,822Shares issued
    
    
    
    
    
    
    2,286
    
    
    
    156,240Share issue transaction costs
    
    
    
    
    
    
    (70
    )
    
    
    (4,774
    )Closing balance
    
    
    1,027,504
    
    
    
    1,027,504
    
    
    
    1,025,288
 (b) Issued and paid up capital
 Number of shares (000s)2004
    
    
    2003
    
    
    2002Opening balance
    
    
    1,284,225
    
    
    
    1,282,334
    
    
    
    1,142,334Shares issued
    
    
    
    
    
    
    1,891
    
    
    
    140,000Closing balance
    
    
    1,284,225
    
    
    
    1,284,225
    
    
    
    1,282,334Consisting of:Total shares
    
    
    1,445,752
    
    
    
    1,445,752
    
    
    
    1,443,861Treasury shares
    
    
    (161,527
    )
    
    
    (161,527
    )
    
    
    (161,527
    )Closing balance
    
    
    1,284,225
    
    
    
    1,284,225
    
    
    
    1,282,334
   F-31




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##### Table of Contents



NOTE 20: CAPITAL AND LEASING COMMITMENTS
 (a) Operating Lease Commitments
  2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Payable- not later than one year
    
    
    356
    
    
    
    531
    
    
    
    502- later than one year but not later than two years
    
    
    356
    
    
    
    401
    
    
    
    501- later than two years but not later than five years
    
    
    546
    
    
    
    237
    
    
    
    628- later than 5 years
    
    
    2,494
    
    
    
    
    
    
    
    3,752
    
    
    
    1,169
    
    
    
    1,631
 (b) Capital Expenditure Commitments
  2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Payable- not later than one year
    
    
    86,287
    
    
    
    34,656
    
    
    
    20,65186,287
    
    
    
    34,656
    
    
    
    20,651
  NOTE 21: CONTINGENT LIABILITIES
 Claims
  NOTE 22: BORROWINGS AND FINANCE FACILITIES
  (a)
    
    Project Financing FacilityA new Syndicated Finance Facility, signed on 13 September 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, Société Générale, WestLB AG, and Westpac Banking
Corporation.The first part is a US$50 million revolving credit facility. The interest applicable to the
facility, inclusive of political risk insurance, is 1.90% over LIBOR plus a PRI premium of
0.95%.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).
 F-32




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##### Table of Contents



Delivery (in ounces)
    
    First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth Quarter
    
    Full Year2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    60,0002008
    
    
    30,000
    
    
    
    30,000
    
    
    
    15,000
    
    
    
    25,000
    
    
    
    100,0002009
    
    
    50,000
    
    
    
    35,000
    
    
    
    30,000
    
    
    
    15,000
    
    
    
    130,0002010
    
    
    40,000
    
    
    
    25,000
    
    
    
    15,000
    
    
    
    20,000
    
    
    
    100,0002011
    
    
    40,000
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    90,000
    b)
    
    Loan facility European Investment Bank (EIB)/Mineral Resources Development Company Ltd
(MRDC)The Company entered into an Agreement with EIB and MRDC whereby the European Investment Bank
has loaned funds to MRDC which then on lent those funds to the Company. The amount of the
loan was US$26.5 million when fully drawn down. The funds are provided to MRDC at a
concessionary rate of interest. The interest rate payable by the Company is 8.42%. The
loan principal is repayable in 16 semi-annual instalments commencing four years after loan
signature. The loan was unsecured and fully repaid in April 2004.
  Syndicated Finance FacilityRevolving CreditFacility
    
    
    Gold Loan
    
    
    EIB Facility
    
    
    TotalUS$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Repayment Maturity
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003CurrentLess than one year
    
    
    
    
    
    
    19,509
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,510
    
    
    
    
    
    
    
    19,509
    
    
    
    3,510Non-currentBetween one and two years
    
    
    
    
    
    
    
    
    
    
    19,509
    
    
    
    26,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,510
    
    
    
    26,940
    
    
    
    
    
    
    
    23,019Between two and three years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,510
    
    
    
    44,900
    
    
    
    
    
    
    
    3,510In excess of three years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,509
    
    
    
    143,600
    
    
    
    
    
    
    
    3,509
    
    
    
    
    
    
    
    19,509
    
    
    
    215,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,529
    
    
    
    215,520
    
    
    
    
    
    
    
    30,038Total
    
    
    
    
    
    
    19,509
    
    
    
    19,509
    
    
    
    215,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,549
    
    
    
    215,520
    
    
    
    19,509
    
    
    
    33,548
 NOTE 23: FINANCIAL RISK MANAGEMENT
   F-33




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##### Table of Contents



NOTE 24: DERIVATIVE FINANCIAL INSTRUMENTS
  2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Derivative Financial InstrumentsCurrent Assets- Forward contracts
    
    
    543
    
    
    
    298
    
    
    
    9,733- Put options bought
    
    
    
    
    
    
    175
    
    
    
    90543
    
    
    
    473
    
    
    
    9,823Non-Current Assets- Forward contracts
    
    
    4,236
    
    
    
    19,382
    
    
    
    7,437- Put options bought
    
    
    
    
    
    
    1,751
    
    
    
    3,6794,236
    
    
    
    21,133
    
    
    
    11,116Current Liabilities- Forward contracts
    
    
    36,531
    
    
    
    40,915
    
    
    
    30,179- Call option sold
    
    
    4,262
    
    
    
    10,884
    
    
    
    1,19640,793
    
    
    
    51,799
    
    
    
    31,375Non-Current Liabilities- Forward contracts
    
    
    192,224
    
    
    
    179,615
    
    
    
    161,290- Call options sold
    
    
    34,933
    
    
    
    23,777
    
    
    
    27,628227,157
    
    
    
    203,392
    
    
    
    188,918Shareholders equity  Fair value and other reserves- Forward contracts
    
    
    (280,333
    )
    
    
    (215,214
    )
    
    
    (177,152
    )- Call options sold
    
    
    (32,975
    )
    
    
    (31,382
    )
    
    
    (26,542
    )- Deferred hedging gains/(losses)
    
    
    8,664
    
    
    
    14,367
    
    
    
    (2,854
    )- Deferred taxation
    
    
    78,952
    
    
    
    70,076
    
    
    
    (225,692
    )
    
    
    (162,153
    )
    
    
    (206,548
    )
 F-34




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##### Table of Contents



NOTE 24: DERIVATIVE FINANCIAL INSTRUMENTS (cont.)
  2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Forward contracts
    
    
    (53,476
    )
    
    
    (40,183
    )
    
    
    (20,851
    )Deferred hedging gains/(losses)
    
    
    1,965
    
    
    
    6,117
    
    
    
    (6,101
    )Deferred taxation
    
    
    12,075
    
    
    
    15,682
    
    
    
    (39,436
    )
    
    
    (18,384
    )
    
    
    (26,952
    )
   Forward Sales
    
    
    Put Options Bought
    
    
    Call Options SoldOunces
    
    
    Price
    
    
    Ounces
    
    
    Price
    
    
    Ounces
    
    
    Price0-3 months
    
    
    30,000
    
    
    $
    318.43
    
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0003-6 months
    
    
    40,000
    
    
    $
    333.63
    
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0006-9 months
    
    
    62,500
    
    
    $
    324.89
    
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0.009-12 months
    
    
    55,000
    
    
    $
    345.33
    
    
    
    19,000
    
    
    $
    315.00
    
    
    
    19,000
    
    
    $
    307.002007
    
    
    115,000
    
    
    $
    330.26
    
    
    
    76,000
    
    
    $
    315.00
    
    
    
    76,000
    
    
    $
    307002008
    
    
    145,000
    
    
    $
    327.12
    
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0.002009*
    
    
    240,000
    
    
    $
    371.67
    
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0.002010*
    
    
    240,000
    
    
    $
    371.67
    
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0.002011*
    
    
    120,000
    
    
    $
    371.67
    
    
    
    13,000
    
    
    $
    375.00
    
    
    
    13,000
    
    
    $
    375.002012
    
    
    0
    
    
    $
    0.00
    
    
    
    26,000
    
    
    $
    375.00
    
    
    
    26,000
    
    
    $
    375.002013
    
    
    0
    
    
    $
    0.00
    
    
    
    26,000
    
    
    $
    375.00
    
    
    
    26,000
    
    
    $
    375.001,047,500
    
    
    $
    353.80
    
    
    
    160,000
    
    
    $
    339.38
    
    
    
    160,000
    
    
    $
    334.63
 
 *
    
    The gross price for the Forwards in these years is shown. The price net of fees is $350.00.       F-35




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##### Table of Contents



NOTE 25: SEGMENT REPORTING
 Primary Reporting (Business Segments)
 Gold
    
    
    Other
    
    
    Unallocated
    
    
    Group2005
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Segment revenue
    
    
    224,826
    
    
    
    45
    
    
    
    
    
    
    
    224,871Segment result
    
    
    17,616
    
    
    
    45
    
    
    
    (1,924
    )
    
    
    15,737Income tax expense
    
    
    (6,512
    )
    
    
    (14
    )
    
    
    577
    
    
    
    (5,949
    )Net profit
    
    
    11,104
    
    
    
    31
    
    
    
    (1,347
    )
    
    
    9,788Segment assets
    
    
    1,319,324
    
    
    
    
    
    
    
    82
    
    
    
    1,319,406Segment liabilities
    
    
    535,484
    
    
    
    
    
    
    
    450
    
    
    
    535,934Acquisition of segment assets
    
    
    99,410
    
    
    
    
    
    
    
    82
    
    
    
    99,492Segment depreciation and amortisation
    
    
    35,757
    
    
    
    
    
    
    
    
    
    
    
    35,757
 Gold
    
    
    Other
    
    
    Unallocated
    
    
    Group2004
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Segment revenue
    
    
    234,668
    
    
    
    
    
    
    
    
    
    
    
    234,668Segment result
    
    
    315,270
    
    
    
    
    
    
    
    (785
    )
    
    
    314,485Income tax benefit
    
    
    14,501
    
    
    
    
    
    
    
    235
    
    
    
    14,736Net profit
    
    
    329,771
    
    
    
    
    
    
    
    (550
    )
    
    
    329,221Segment assets
    
    
    1,156,906
    
    
    
    
    
    
    
    
    
    
    
    1,156,906Segment liabilities
    
    
    319,683
    
    
    
    
    
    
    
    
    
    
    
    319,683Acquisition of segment assets
    
    
    87,663
    
    
    
    
    
    
    
    
    
    
    
    87,663Segment depreciation and amortisation
    
    
    32,929
    
    
    
    
    
    
    
    
    
    
    
    32,929
 F-36




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##### Table of Contents



Gold
    
    
    Other
    
    
    Unallocated
    
    
    Group2003
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Segment revenue
    
    
    214,509
    
    
    
    
    
    
    
    
    
    
    
    214,509Segment result
    
    
    35,525
    
    
    
    
    
    
    
    (747
    )
    
    
    34,778Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net profit
    
    
    35,525
    
    
    
    
    
    
    
    (747
    )
    
    
    34,778Segment assets
    
    
    748,879
    
    
    
    
    
    
    
    
    
    
    
    748,879Segment liabilities
    
    
    287,489
    
    
    
    
    
    
    
    
    
    
    
    287,489Acquisition of segment assets
    
    
    27,064
    
    
    
    
    
    
    
    
    
    
    
    27,064Segment depreciation and amortisation
    
    
    28,631
    
    
    
    
    
    
    
    
    
    
    
    28,631
  Secondary Reporting (Geographical Segments)
 Segment Sales
    
    
    
    
    
    
    Acquisition of
    
    
    SegmentRevenue
    
    
    Segment Assets
    
    
    Segment Assets
    
    
    Liabilities2005
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Papua New Guinea
    
    
    
    
    
    
    1,314,627
    
    
    
    99,410
    
    
    
    259,806Australia
    
    
    175,019
    
    
    
    4,779
    
    
    
    82
    
    
    
    231,853Europe
    
    
    47,260
    
    
    
    
    
    
    
    
    
    
    
    Asia
    
    
    16,407
    
    
    
    
    
    
    
    
    
    
    
    44,275Unallocated
(non-cash deferred
hedging
realisation)
    
    
    (13,486
    )
    
    
    
    
    
    
    
    
    
    
    Total Group
    
    
    225,200
    
    
    
    1,319,406
    
    
    
    99,492
    
    
    
    535,934
 Segment Sales
    
    
    
    
    
    
    Acquisition of
    
    
    SegmentRevenue
    
    
    Segment Assets
    
    
    Segment Assets
    
    
    Liabilities2004
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Papua New Guinea
    
    
    
    
    
    
    1,135,300
    
    
    
    87,663
    
    
    
    56,281Australia
    
    
    211,428
    
    
    
    19,446
    
    
    
    
    
    
    
    186,525Europe
    
    
    20,743
    
    
    
    336
    
    
    
    
    
    
    
    41,816Asia
    
    
    6,462
    
    
    
    1,824
    
    
    
    
    
    
    
    35,061Unallocated
(non-cash deferred
hedging
realisation)
    
    
    (17,168
    )
    
    
    
    
    
    
    
    
    
    
    Total Group
    
    
    221,465
    
    
    
    1,156,906
    
    
    
    87,663
    
    
    
    319,683
 Segment Sales
    
    
    
    
    
    
    Acquisition of
    
    
    SegmentRevenue
    
    
    Segment Assets
    
    
    Segment Assets
    
    
    Liabilities2003
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000
    
    
    US$ 000Papua New Guinea
    
    
    
    
    
    
    727,940
    
    
    
    27,064
    
    
    
    67,196Australia
    
    
    151,199
    
    
    
    15,960
    
    
    
    
    
    
    
    148,331Europe
    
    
    57,219
    
    
    
    1,495
    
    
    
    
    
    
    
    43,016Asia
    
    
    
    
    
    
    3,484
    
    
    
    
    
    
    
    28,946Unallocated
(non-cash deferred
hedging
realisation)
    
    
    (8,575
    )
    
    
    
    
    
    
    
    
    
    
    Total Group
    
    
    199,843
    
    
    
    748,879
    
    
    
    27,064
    
    
    
    287,489
  F-37




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##### Table of Contents



NOTE 26: RELATED PARTY TRANSACTIONS
       NOTE 26: RELATED PARTY TRANSACTIONS (cont.)
 2005
    
    
    2004
    
    
    2003US$000
    
    
    US$000
    
    
    US$000Amounts included in the
determination of profit from
ordinary activities before
taxation that resulted from
transactions with related partiesThe Rio Tinto Group supplies
labour on a secondment basis and
bears expenses on behalf of the
Company which are subsequently
recharged to the Company- Secondment of management
    
    
    995
    
    
    
    1,250
    
    
    
    737- Technical services
    
    
    1,680
    
    
    
    1,520
    
    
    
    227- Insurance brokerage fees
    
    
    
    
    
    
    111
    
    
    
    129- Other services
    
    
    
    
    
    
    
    
    
    
    182,675
    
    
    
    2,881
    
    
    
    1,111LMC management fee
    
    
    1,125
    
    
    
    1,500
    
    
    
    3,449Interest received from related
entities on finance provided
(refer note 10)
    
    
    72
    
    
    
    209
    
    
    
    369Lakaka group, a landowner group
of Companies, supplies various
services to the Company on an
arms length basis
    
    
    7,839
    
    
    
    8,235
    
    
    
    5,844Kuridala, a landowner company,
supplies various services to the
Company on an arms length basis.
    
    
    377
    
    
    
    1,570
    
    
    
    1,439Anthony Garnaut, a relative of a
director, provided consulting
services to the Company on an
arms length basis.
    
    
    18
    
    
    
    
    
    
    
    
 NOTE 27: EARNINGS PER SHARE
  2005
    
    
    2004
    
    
    2003Net profit attributable to ordinary shareholders
    
    US$000
    
    
    9,788
    
    
    
    329,221
    
    
    
    34,778Weighted average number of ordinary shares
    
    
    000
    
    
    
    1,284,225
    
    
    
    1,284,082
    
    
    
    1,158,444Basic EPS (cent/share)
    
    
    
    
    
    
    0.8
    
    
    
    25.6
    
    
    
    3.0Diluted number of ordinary shares
    
    
    000
    
    
    
    1,284,225
    
    
    
    1,284,082
    
    
    
    1,158,444Diluted EPS (cent/share)
    
    
    
    
    
    
    0.8
    
    
    
    25.6
    
    
    
    3.0
 F-38




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##### Table of Contents



NOTE 28: DIVIDENDS PER SHARE
  NOTE 29: CONTROLLED ENTITIES
 Name of subsidiary
    
    % ownership interest
    
    Country of incorporationNiugini Mining Limited
    
    100%
    
    Papua New GuineaNiugini Mining Australia Pty Ltd
    
    100%
    
    AustraliaLihir Management Company Limited
    
    100%
    
    Papua New GuineaLihir Business Development Limited
    
    100%
    
    Papua New GuineaLihir Services Australia Pty Ltd
    
    100%
    
    Australia
    NOTE 30: RECONCILIATION TO US GAAP
  (i)
    
    Rehabilitation, restoration and environmental provisions: For the purposes of US GAAP,
through 2002 the total (undiscounted) liability was accrued incrementally over the mine life
using a units of production method. Under the incremental method no asset was recorded.
Effective 1 January 2003, Lihir Gold Limited adopted the provisions of FAS 143 for US
reporting purposes, through the recognition of a cumulative effect adjustment.
 (ii)
    
    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.
 (iii)
    
    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 U.S. GAAP SFAS 34 Capitalization of Borrowing Cost, the amount of borrowing cost to be
capitalized is the portion of borrowing cost incurred that theoretically could have been
avoided if expenditures for the assets had not been made. The interest cost need not have
arisen from borrowings specifically used to acquire the asset.
 (iv)
    
    Depreciation of mine properties: Depreciation expense as calculated under U.S. 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
US$800 million, US$739 million, and US$477 million as of December 31, 2005, 2004 and 2003,
respectively. The carrying value of mine properties as determined under U.S. GAAP was US$536
million, US$464 million, and US$408 million as of December 31, 2005, 2004, and 2003,
respectively. The difference in carrying values of mine properties results from the
differences between IFRS and U.S. GAAP described in Notes 30(i), 30(ii), 30(iii) and 30(v).
 (v)
    
    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.
 F-39




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##### Table of Contents



NOTE 30: RECONCILIATION TO US GAAP (cont.)
 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.As at December 31, 2000 and 1999, the Company recognized impairment losses of US$120.6 million
and US$236.8 million, respectively, under IFRS for its mine properties as their carrying
values exceeded their value in use determined as the sum of discounted net cash flows expected
to be realized from the mine properties based on their current condition.No impairments or impairment reversals were effected in 2005. In the years ended 2004, 2003
and 2002, 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 the previously
recognized impairments, to the value of US$205.7 million, US$31.1 million and US$37.9 million
respectively. In determining the value in use, the Company used the long term gold price
assumptions of US$380, US$340 and US$305 for the years ended 2004, 2003 and 2002 respectively,
and a pre-tax real discount rate of 7% in each of those years. As a result of the reversals in
2004, all the impairments recognized in 2000 and 1999, excluding the amount that would have
been depreciated of US$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.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.For US GAAP purposes, the Company tests its mine properties for impairment on an annual basis
and whenever events or changes in circumstances indicate that their carrying amounts may not
be recoverable. As at December 31, 1999, the sum of expected undiscounted future cash flows
exceeded their US GAAP carrying values, accordingly no impairment loss was required under US
GAAP as of that date. As at December 31, 2000, the undiscounted value of expected future cash
flows was less than the US GAAP carrying values of the mine properties indicating the assets
were impaired. An impairment loss was calculated as the difference between the US GAAP
carrying value and their fair values. Fair value was estimated as the present value of
expected future cash flows. An impairment loss of US$339 million was therefore recognized for
the year ended December 31, 2000. Under FAS 144, reversal of any previously recognized
impairment losses is specifically prohibited.(vi)
    
    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 prior years and as at 31 December 2003, the Company determined that the net realizable
value of the economic grade stockpile was zero for IFRS and US GAAP purposes because of the
historically low gold prices during the periods of production and due to the long lead time
before the stockpiles were expected to be processed.In 2004, following the improvement in the gold price environment and improvements to the plant
and operating conditions, the directors resolved to reverse the 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 US$90.2 million in 2004. Under, U.S. GAAP, the cost of
the existing stockpile at 31 December 2004 continues to be recorded at zero.
 F-40




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##### Table of Contents



NOTE 30: RECONCILIATION TO US GAAP (cont.)
 No impairments or impairment reversals were effected in 2005.(vii)
    
    Deferred mining costs: Under both IFRS and U.S. GAAP, the Company defers stripping costs
as described in Note 1 (vi). Stripping costs include direct expenditures for stripping,
drilling, blasting and related depreciation expense. Until April 17, 2000, all mining
operations were outsourced to and provided by a third party. Subsequent to that date, the
Company began conducting direct mining operations on its own behalf. As disclosed in the 2003
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 2003, the error was identified
and the Company restated its previously issued 2002 US GAAP reconciliations to include the
deferral of the above mentioned 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 as 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.(viii)
    
    Cumulative effect of change in accounting policy: In 2004, the Company changed its method
of accounting for deferred mining costs. Up until 2004, deferred mining costs 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 assessing future ore
reserves from the Lienetz pit, which is the new pit relating to current mining operations.
The impact of this change to the Companys results at December 31, 2004 is set out below.(ix)
    
    Deferred income tax: The accounting for 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 U.S. 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). The value of net deferred tax assets
under IFRS and US GAAP may differ due to the difference between probable and greater than
not definitions.As at 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 carryforwards) should be reversed because realization of the deferred
tax assets was more likely than not. The difference in the deferred tax amounts as recognized
under IFRS and US GAAP is as a result of the GAAP differences described above.(x)
    
    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 carryforwards.(xi)
    
    Recent accounting pronouncements:The FASB issued FASB Interpretation No. 46 (FIN 46) Consolidation of Variable Interest
Entities(VIEs). FIN 46 requires the consolidation of variable interest entities by their
primary beneficiaries, if the entities do not effectively disperse the risks and rewards of
ownership among their owners and other parties involved. The original interpretation issued
in January 2003 was subsequently revised in December 2003 as FIN 46R. Application of this
revised interpretation is required in financial statements for companies that have interests
in previously existing VIEs or special-purpose entities for periods ending after March 15,
2004. FIN 46 is effective immediately for VIEs created after January 1, 2003. FIN 46 does
not have any impact on the Companys financial results or financial position in the reporting
periods.In 2003, the FASB issued SFAS No. 149 Amendment of Statement 133 on Derivative Instruments and
Hedging Activitiesto amend and clarify financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other contracts and for
hedging activities. The changes in this statement improve financial reporting by requiring
that contracts with comparable characteristics be accounted for similarly to achieve more
consistent reporting of contracts as either derivatives or hybrid instruments. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003. SFAS 149 did not have
any impact on the Companys financial results or financial position.
 F-41




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##### Table of Contents



NOTE 30: RECONCILIATION TO US GAAP (cont.)
 In March 2005, the Financial Accounting Standards Board ( FASB ) ratified Emerging Issues
Task Force ( EITF ) Issue No. 04-06, Accounting for Stripping Costs Incurred during
Production in the Mining Industry. EITF Issue No. 04-06
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 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 Issue No. 04-06 is effective for the first reporting period in fiscal years
beginning after December 15, 2005, with early adoption permitted. The transitional provisions
require application through recognition of a cumulative-effect adjustment to opening retained
earnings in the period of adoption in a manner similar to a cumulative-effect adjustment as
described in APB 20.For US GAAP purposes, the Company will adopt this new accounting rule as of January 1, 2006.
The expected impact of adoption is the elimination of deferred mining costs on the Companys
balance sheet that are post production and the recognition of future post-production stripping
costs as a component of inventory to be recognized in costs applicable to sales in the same
period as the revenue from the sale of inventory.The Company is in the process of quantifying the impact on its financial statements but
expects that a substantial proportion of the US$92.0 million capitalized deferred mining costs
as at December 31, 2005 will qualify as post production stripping costs, and accordingly will
result in a material cumulative-effect of an accounting change reduction to opening retained
earnings as of January 1, 2006 and may have a material impact on future income statements.
Adoption of the new guidance will have no cash flow impact.In November 2004, the FASB issued Statement of Financial Accounting Standards (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 is effective for fiscal years
beginning after June 15, 2005 and is to be applied prospectively. SFAS 151 is not expected to
have a material impact on the Companys financial statements.In December 2004, the FASB issued SFAS 153 Accounting for Exchanges of Nonmonetary Assets
which deals with the accounting for the exchanges of nonmonetary assets. SFAS 153 is an
amendment of APB Opinion 29. APB Opinion 29 requires that exchanges of nonmonetary assets
should be based on the fair value of the assets exchanged. SFAS 153 amends APB Opinion 29 to
eliminate the exception from using fair market value for nonmonetary exchanges of similar
productive assets and introduces a broader exception for exchanges of nonmonetary assets that
do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not expect that
the application of SFAS 153 will have a material impact on the financial statements.In May 2005, the FASB issued SFAS 154 Accounting Changes and Error Corrections, 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 is effective for accounting changes and correction of errors made in
fiscal years beginning after December 15, 2005.In March 2005, the FASB published FASB Interpretation No. 47 (FIN 47): Accounting for
Conditional Asset Retirement Obligationsas a clarification to FASB Statement No. 143,
Accounting for Asset Retirement Obligations.FIN 47 defines the term conditional asset
retirement obligation and clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for
fiscal years ending after December 15, 2005. The adoption of the Standard is not material for
2005 fiscal year.
 F-42




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##### Table of Contents



NOTE 30: RECONCILIATION TO US GAAP (cont.)
 2005
    
    2004
    
    2003US$000
    
    US$000
    
    US$000Shareholders Equity in accordance with IFRS GAAP783,472
    
    
    
    837,223
    
    
    
    461,390Adjusted as follows:Rehabilitation, restoration and environmental (i) Provisions
    
    
    
    
    
    
    
    
    
    
     Capitalized rehabilitation costs
    
    
    
    
    
    
    
    
    
    
    Mine properties  project financing costs (ii)
    
    
    (11,470
    )
    
    
    (11,470
    )
    
    
    (11,470
    )Mine properties  capitalised interest (iii)
    
    
    5,272
    
    
    
    1,611
    
    
    
    1,611Depreciation of mine properties (iv)
    
    
    4,127
    
    
    
    (5,078
    )
    
    
    (8,051
    )Mine properties  impairment provision under IFRS GAAP (v)
    
    
    82,740
    
    
    
    82,740
    
    
    
    288,463Mine properties  impairment provision under US GAAP (v)
    
    
    (339,154
    )
    
    
    (339,154
    )
    
    
    (339,154
    )EGS  Impairment provision under IFRS GAAP (vi)
    
    
    (90,200
    )
    
    
    (90,200
    )
    
    
    Deferred mining costs under IFRS GAAP (vii)
    
    
    (91,981
    )
    
    
    (66,933
    )
    
    
    (29,068
    )Deferred mining costs under US GAAP (vii)
    
    
    91,981
    
    
    
    66,933
    
    
    
    32,191Deferred income tax under IFRS GAAP (ix)
    
    
    (87,739
    )
    
    
    (84,812
    )
    
    
    Deferred income tax under US GAAP (x)
    
    
    195,395
    
    
    
    193,277
    
    
    
    Accumulated adjustments under US GAAP
    
    
    (241,029
    )
    
    
    (253,086
    )
    
    
    (65,478
    )Shareholders Equity under US GAAP
    
    
    542,443
    
    
    
    584,137
    
    
    
    395,912Net income/(loss) under IFRS GAAP
    
    
    9,788
    
    
    
    329,221
    
    
    
    34,778Adjusted as follows:Rehabilitation, restoration and environmental provisions (i)
    
    
    
    
    
    
    
    
    
    
    Mine properties  project financing costs (ii)
    
    
    
    
    
    
    
    
    
    
    Mine properties  capitalised interest (iii)
    
    
    3,661
    
    
    
    
    
    
    
    Depreciation of mine properties (iv)
    
    
    9,205
    
    
    
    2,974
    
    
    
    353Mine properties  Impairment reversal under IFRS GAAP (v)
    
    
    
    
    
    
    (205,723
    )
    
    
    (31,061
    )EGS Impairment reversal under IFRS GAAP (vi)
    
    
    
    
    
    
    (90,200
    )
    
    
    Deferred mining costs under IFRS GAAP (vii)
    
    
    (25,048
    )
    
    
    (37,865
    )
    
    
    (7,163
    )Deferred mining costs under US GAAP(vii)
    
    
    25,048
    
    
    
    34,742
    
    
    
    3,067Cumulative effect of change in accounting policy (viii)
    
    
    
    
    
    
    (12,768
    )
    
    
    Deferred tax benefit under US GAAP (x)
    
    
    (808
    )
    
    
    108,465
    
    
    
    Net income under US GAAP before the effect of change
in accounting policy
    
    
    21,845
    
    
    
    128,846
    
    
    
    (26
    )Cumulative effect of change in accounting policy (i)
    
    
    
    
    
    
    
    
    
    
    400Cumulative effect of change in accounting policy (viii)
    
    
    
    
    
    
    12,768
    
    
    
    Net income under US GAAP
    
    
    21,845
    
    
    
    141,614
    
    
    
    374
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##### Table of Contents



NOTE 30: RECONCILIATION TO US GAAP (cont.)
 2005
    
    2004
    
    2003Comprehensive income
    
    US$000
    
    US$000
    
    US$000Net income under US GAAP
    
    
    21,845
    
    
    
    141,614
    
    
    
    374Other comprehensive income under US GAAP (net of tax) Changes in fair value of derivatives that qualify
as cash flow hedges
    
    
    (72,415
    )
    
    
    (25,681
    )
    
    
    (137,079
    ) Deferred tax benefit under US GAAP (ix)
    
    
    8,876
    
    
    
    70,076
    
    
    
    Other comprehensive income/(loss) under US GAAP
    
    
    (63,539
    )
    
    
    44,395
    
    
    
    (137,079
    )Comprehensive income / (loss) under US GAAP
    
    
    (41,694
    )
    
    
    186,009
    
    
    
    (136,705
    )
 Deferred tax assets and deferred tax liabilities
 2005
    
    2004
    
    2003US$000
    
    US$000
    
    US$000Non-current assets  Deferred tax assetsThe balance comprises temporary differences attributable to:Amounts recognised in profit or lossProvisions
    
    
    6,185
    
    
    
    7,151
    
    
    
    4,972Depreciation and Impairment
    
    
    78,270
    
    
    
    74,293
    
    
    
    67,108Tax losses
    
    
    65,613
    
    
    
    65,945
    
    
    
    43,523Others
    
    
    508
    
    
    
    46
    
    
    
    4,392Amounts recognised directly in equityDerivatives qualified as cash flow hedges
    
    
    78,952
    
    
    
    70,076
    
    
    
    61,109229,528
    
    
    
    217,511
    
    
    
    181,104Non-current liabilities  Deferred tax liabilitiesThe balance comprises temporary differences attributable to:Amounts recognised in profit or lossDeferred mining costs
    
    
    27,594
    
    
    
    20,080
    
    
    
    9,657Prepaid insurance
    
    
    125
    
    
    
    189
    
    
    
    172Consumables
    
    
    6,414
    
    
    
    3,965
    
    
    
    4,493Derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    5,40434,133
    
    
    
    24,234
    
    
    
    19,726Total Deferred tax assets/(liabilities)
    
    
    195,395
    
    
    
    193,277
    
    
    
    161,378Less: Valuation allowance
    
    
    
    
    
    
    
    
    
    
    (161,378
    )Net Deferred tax assets/(liabilities)
    
    
    195,395
    
    
    
    193,277
    
    
    
    
 Deferred income tax assets and liabilities have been offset as the Company has a legally
enforceable right to set off current tax assets against current tax liabilities and deferred
tax assets against deferred tax liabilities relating to the same income taxes levied by the
same tax authority in Papua New Guinea.In accordance with FAS 109 Accounting for Income Taxes, a deferred tax asset is recognised
in full but this is then reduced by a valuation allowance if it is more likely than not that
some or all of the deferred tax asset will not be realised.
 F-44




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##### Table of Contents



NOTE 30: RECONCILIATION TO US GAAP (cont.)
 2005
    
    2004
    
    2003US$000
    
    US$000
    
    US$000Movements in valuation allowance:Opening balance at 1 January
    
    
    
    
    
    
    161,378
    
    
    
    132,974Change during the year
    
    
    
    
    
    
    (161,378
    )
    
    
    28,404Closing balance at 31 December
    
    
    
    
    
    
    
    
    
    
    161,378
 2005
    
    2004
    
    2003US$000
    
    US$000
    
    US$000Statement of changes in equity under US GAAPAccumulated lossesBalance at January 1
    
    
    (443,367
    )
    
    
    (629,376
    )
    
    
    (478,486
    )Comprehensive income / (loss)
    
    
    (41,694
    )
    
    
    186,009
    
    
    
    (136,705
    )Dividend
    
    
    
    
    
    
    
    
    
    
    (14,185
    )Balance at December 31
    
    
    (485,061
    )
    
    
    (443,367
    )
    
    
    (629,376
    )Paid up capitalBalance at January 1
    
    
    1,027,504
    
    
    
    1,025,288
    
    
    
    873,822Shares issued
    
    
    
    
    
    
    2,286
    
    
    
    156,240Share issue transaction costs
    
    
    
    
    
    
    (70
    )
    
    
    (4,774
    )Balance at December 31
    
    
    1,027,504
    
    
    
    1,027,504
    
    
    
    1,025,288Shareholders equity under US GAAP
    
    
    542,443
    
    
    
    584,137
    
    
    
    395,912EPS under US GAAPNet income cumulative change in accounting policy
    
    
    21,845
    
    
    
    128,846
    
    
    
    (26
    )Net Earnings Per Common Share  Basic (US$  per share)
    
    
    0.02
    
    
    
    0.10
    
    
    
    (0.00
    )Net Earnings Per Common Share  Diluted (US$  per share)
    
    
    0.02
    
    
    
    0.10
    
    
    
    (0.00
    )Net Income US$000
    
    
    21,845
    
    
    
    141,614
    
    
    
    374Net Earnings Per Common Share  Basic (US$  per share)
    
    
    0.02
    
    
    
    0.11
    
    
    
    0.00Net Earnings Per Common Share  Diluted (US$  per share)
    
    
    0.02
    
    
    
    0.11
    
    
    
    0.00
 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 2003, 2004 or 2005.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:
 (in thousands)
    
    2005
    
    2004
    
    2003Basic
    
    
    1,284,225
    
    
    
    1,284,082
    
    
    
    1,158,444Diluted
    
    
    1,284,225
    
    
    
    1,284,082
    
    
    
    1,158,444
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##### Table of Contents



SUPPLEMENTAL SCHEDULE
 Supplemental schedule  Valuation and qualifying accounts
 US$ thousands2005
    
    2004
    
    2003Provision for Doubtful DebtsBalance, beginning of year
    
    
    2,225
    
    
    
    1,836
    
    
    
    1,347Additions: charges to costs and expenses
    
    
    353
    
    
    
    389
    
    
    
    489Write-offs
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    2,578
    
    
    
    2,225
    
    
    
    1,836Provision for Stores Stock ObsolescenceBalance, beginning of year
    
    
    4,317
    
    
    
    3,354
    
    
    
    2,574Additions: charges to costs and expenses
    
    
    982
    
    
    
    963
    
    
    
    780Write-offs
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    5,299
    
    
    
    4,317
    
    
    
    3,354Deferred Tax Valuation AllowanceBalance, beginning of year
    
    
    
    
    
    
    169,139
    
    
    
    138,333Additions: (credited)/charged against income tax
    
    
    
    
    
    
    (109,333
    )
    
    
    30,806Additions: credited to equity
    
    
    
    
    
    
    (59,806
    )
    
    
    Balance, end of year
    
    
    
    
    
    
    
    
    
    
    169,139
 F-46