##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 FORM 20-F [  ]
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
  [X]
    
    ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
   [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission file number: 2-6860 Lihir Gold Limited
 Papua New Guinea 7th Floor, Pacific Place,
Cnr Champion Parade, Musgrave Street
Port Moresby, Papua New Guinea 
   
  Lihir Gold Limited Ordinary Shares of no par value
    
    NASDAQ National Market*American Depositary Shares, each of which represents twenty
    
    NASDAQ National MarketLihir Gold Limited Ordinary Shares and which areevidenced by American Depositary Receipts
 
    
  None    Lihir Gold Limited Ordinary Shares of no par value:
    
    
    1,282,334,215
    fully paid sharesLihir Gold Limited Treasury B Shares
    
    
    161,527,405
   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 1




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such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days. Yes
[X]
    
    No [  ]
 Indicate by check mark which financial statement item the registrant has elected to follow. Item 17  [  ]
    
    Item 18 [X]
 2




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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. Organization and Structure
    
    
    28D. Property, Plant and Equipment
    
    
    29Item 5. Operating and Financial Review and Prospects
    
    
    38A. Operating Results
    
    
    38B. Liquidity and Capital Resources
    
    
    53C. Research and Development, Patents and Licenses, etc
    
    
    55D. Trend Information
    
    
    55E. Events Subsequent to Signing of the Financial Statements
    
    
    56Item 6. Directors, Senior Management and Employees
    
    
    56A. Directors and Senior Management
    
    
    56B. Compensation
    
    
    59C. Board Practices
    
    
    60D. Employees
    
    
    64E. Share Ownership
    
    
    64Item 7. Major Shareholders and Related Party Transactions
    
    
    65A. Major Shareholders
    
    
    65B. Related Party Transactions
    
    
    68C. Interests of Experts and Counsel
    
    
    69Item 8. Financial Information
    
    
    69A. Consolidated statements and other financial information
    
    
    69B. Significant Changes
    
    
    70Item 9. Share Price and Capitalization
    
    
    70Item 10. Additional Information
    
    
    72A. Share Capital
    
    
    72B. PNG Companies and Securities Law
    
    
    72C. Constitution
    
    
    72D. Material Contracts
    
    
    75E. Exchange Controls
    
    
    85F. Taxation
    
    
    86G. Dividends and Paying Agents
    
    
    90H. Statement by Experts
    
    
    90
 3




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I. Documents on Display
    
    
    90J. Subsidiary Information
    
    
    90Item 11. Quantitative and Qualitative Disclosure About Market Risk
    
    
    91A. Quantitative Information about Market Risk
    
    
    91B. Qualitative Information about Market Risk
    
    
    93Item 12. Description of Securities Other than Equity Securities
    
    
    93PART II
    
    
    93Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    93Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    93Item 15 Controls and Procedures
    
    
    94Item 16A: Audit Committee Financial Expert
    
    
    94Item 16B: Code of Ethics
    
    
    95Item 16C: Audit Fees and Services
    
    
    95PART IV
    
    
    95Item 17. Financial Statements
    
    
    95Item 18. Financial Statements
    
    
    95Item 19 Exhibits
    
    
    96AGREEMENT FOR THE SERVICES OF PROFESSOR GARNAUTGUARANTEECONFIDENTIALITY AGREEMENTPATENT AND KNOW-HOW LICENSE AGREEMENTSIGNIFICANT SUBSIDIARIESCERTIFICATIONCERTIFICATIONCERTIFICATIONCERTIFICATION
  4




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Forward Looking Statements This annual report contains certain forward-looking statements, including
statements regarding (i) estimated reserves, (ii) certain plans, strategies and
objectives of management, (iii) anticipated production or construction
commencement dates, (iv) expected costs or production output, and (v) the
anticipated productive lives of projects and mines. Such forward-looking
statements are not guarantees of future performance and involve known and
unknown risks, uncertainties and other factors, many of which are beyond the
control of Lihir, which may cause actual results to differ materially from
those expressed in the statements contained in this Annual Report. For example, future revenues from operations or mines described in this annual
report will be based in part upon the market price of gold produced, which may
vary significantly from current levels. Other factors that may affect the
actual production output and anticipated lives of operations, mines or
facilities include the ability to profitably produce and transport the gold
extracted to the market, the impact of foreign currency exchange rates on cost
inputs and activities of governmental authorities in Papua New Guinea and
elsewhere, including increases in taxes, changes in environmental and other
regulations and political uncertainty. Lihir can give no assurances that the
estimated reserves figures, costs, production output or anticipated lives of
its operations and facilities will not materially differ from the statements
contained in this annual report. 5




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PART 1 
 Item 1. Identity Of Directors, Senior Management, And Advisors Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable 
 Item 3. Key Information 
 A. Selected Financial Data The following selected financial data should be read in conjunction with the
financial statements and the notes thereto, which have been audited by
PricewaterhouseCoopers of Papua New Guinea, independent public accountants,
whose report is included at Item 18 of this annual report, and Item 5 entitled
Operating and Financial Review and Prospects. The income statement data and
the expenditure and financing data set forth below with respect to the years
ended December 31, 2001, 2002 and 2003 and the balance sheet data at December
31, 2001, 2002 and 2003 are derived from, and are qualified by reference to,
the audited financial statements of Lihir Gold Limited (also referred to in
this annual report as Lihir or the company) prepared in accordance with
International Financial Reporting Standards or International Accounting
Standards (IFRS or IAS) and included elsewhere in this annual report and
should be read in conjunction with those financial statements and the notes
thereto. The income statement data and the expenditure and financing data set forth
below with respect to the years ended December 31, 1999 and 2000 and the
balance sheet data at December 31, 1999 and 2000 are derived from, and are
qualified by reference to, the audited financial statements of Lihir not
included in this annual report and should be read in conjunction with those
financial statements and notes thereto. 6




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Year ended December 31,(In US$ millions, except where indicated)2003
    
    2002
    
    2001
    
    2000
    
    1999Amounts calculated in accordance with
IFRS:Income Statement Data:Sales revenue (1)
    
    
    214.5
    
    
    
    213.2
    
    
    
    233.2
    
    
    
    226.6
    
    
    
    206.0Profit/(loss) from ordinary activities
after taxation (2)
    
    
    34.8
    
    
    
    53.2
    
    
    
    59.2
    
    
    
    (99.4
    )
    
    
    (255.3
    )Earnings per
share, basic and diluted (3)
    
    
    0.030
    
    
    
    0.047
    
    
    
    0.052
    
    
    
    (0.087
    )
    
    
    (0.262
    )Number of
ordinary shares (millions) (5)
    
    
    1,282.3
    
    
    
    1,142.3
    
    
    
    1,142.3
    
    
    
    1,137.1
    
    
    
    974.8Balance Sheet Data(5):Total assets
    
    
    748.9
    
    
    
    576.7
    
    
    
    585.3
    
    
    
    547.6
    
    
    
    643.9Cash and current receivables held
    
    
    163.2
    
    
    
    38.5
    
    
    
    53.0
    
    
    
    69.0
    
    
    
    56.7Current liabilities
    
    
    60.3
    
    
    
    27.5
    
    
    
    33.3
    
    
    
    64.8
    
    
    
    77.4Long term obligations
    
    
    227.2
    
    
    
    122.7
    
    
    
    55.7
    
    
    
    99.3
    
    
    
    138.4Total shareholders equity (6)
    
    
    461.4
    
    
    
    426.4
    
    
    
    496.3
    
    
    
    383.5
    
    
    
    428.2Paid up capital (7)
    
    
    1,025.3
    
    
    
    873.8
    
    
    
    873.8
    
    
    
    873.8
    
    
    
    819.2Cash dividends per ordinary share (3)
    
    
    0.016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expenditure and Financing Data:Cash flow from operating activities
    
    
    16.7
    
    
    
    22.8
    
    
    
    62.1
    
    
    
    39.1
    
    
    
    8.3Total expenditure on investing activities
    
    
    (26.9
    )
    
    
    (24.4
    )
    
    
    (36.5
    )
    
    
    (2.0
    )
    
    
    (33.4
    )Financing activities:Issuance of ordinary shares
    
    
    151.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130.9Restructure hedgebook
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42.6
    
    
    
    20.6Draw down of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repayment of loans
    
    
    (7.0
    )
    
    
    (3.8
    )
    
    
    (28.4
    )
    
    
    (85.8
    )
    
    
    (162.0
    )Dividend Paid
    
    
    (14.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total financing activities
    
    
    130.3
    
    
    
    (3.8
    )
    
    
    (28.4
    )
    
    
    (43.2
    )
    
    
    (10.5
    )Amounts calculated in accordance with US
GAAP: (4)Sales revenue (1)
    
    
    214.5
    
    
    
    213.2
    
    
    
    233.2
    
    
    
    226.6
    
    
    
    206.0Net income/(loss)
    
    
    0.4
    
    
    
    38.6
    (4)
    
    
    42.3
    
    
    
    (327.7
    )
    
    
    (15.8
    )Earnings per Share, basic and diluted (3)
    
    
    0.0003
    
    
    
    0.034
    (4)
    
    
    0.037
    
    
    
    (0.288
    )
    
    
    (0.016
    )Number of ordinary shares (millions) (5)
    
    
    1,282.3
    
    
    
    1,142.3
    
    
    
    1,142.3
    
    
    
    1,137.1
    
    
    
    974.8Total assets (5)
    
    
    683.4
    
    
    
    536.7
    (4)
    
    
    577.0
    
    
    
    540.8
    
    
    
    866.1Total shareholders equity (5)
    
    
    395.9
    
    
    
    395.3
    (4)
    
    
    496.2
    
    
    
    383.8
    
    
    
    656.9Long term obligations(5)
    
    
    227.2
    
    
    
    113.9
    
    
    
    47.4
    
    
    
    92.1
    
    
    
    131.9
  (1)
    
    Alternative terminology: net sales or operating revenues

For consistent disclosure with 2003, sales have been restated for 1999
 2000 to include amortization of hedging costs, which had previously
been classified as an operating cost prior to 2001.(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 the July 16, 2003.(4)
    
    As restated in the amount of US$ 7.2 million to include the costs of stripping, drilling, blasting and
related depreciation not previously capitalized in deferred mining costs
under US GAAP. Please refer note 30 (vii) of the financial statements.(5)
    
    At period end(6)
    
    Alternative terminology: net assets(7)
    
    Alternative terminology: capital stock 7




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B. Capitalisation and Indebtedness Not applicable. 
 C. Reasons for the Offer and Use of Proceeds Not applicable. 
 D. Risk Factors An investment in Lihirs American Depository Shares (ADSs) and ordinary shares
involves a significant amount of risk. The following factors, some of which
are not typically associated with investing in equity securities of companies
from the United States, should be carefully considered by prospective investors
in evaluating an investment in the ADSs and ordinary shares. Many of these
risks relate to the nature of the core activity of Lihir. The companys
underlying asset is a single mining and processing operation (having certain
physical, process, geological and environmental risks), in a developing country
(giving rise to certain sovereign and social risks) with a single gold product
(leading to market risk). Lihir is dependent on a single operation Lihir has been in full production since October 1997 and accordingly only has a
limited operating history. Other than exclusive exploration rights over the
rest of Lihir Island, the company has no assets or operations other than those
relating to the Lihir operation. While the company intends to continue to
undertake exploration elsewhere on Lihir Island, at present it is expected that
this exploration activity will be limited and that the companys principal
activity will be owning, further developing and operating the Lihir operation.
Accordingly, Lihirs commercial viability is completely dependent upon the
successful operation of the Lihir mine and associated processing plant. No
assurances can be given that the company will be able to sustain successful
mining operations or that the Lihir operation will remain commercially viable. Lihirs operations may be adversely affected by difficult geological conditions The success of the Lihir operation depends, in part, upon the success of
Lihirs engineering solutions to particular hydrological and geothermal
conditions. To Lihirs knowledge, these conditions have never been experienced
before in this combination in a mine of the size of the Lihir operation.
Significant removal of both groundwater and sea water inflow and geothermal
control is required during mining. While Lihir has achieved considerable
success to date in addressing these conditions, no assurance can be given that
future efforts will be adequate or meet expectations. A failure to resolve any
unexpected problems relating to these conditions at a commercially reasonable
cost could adversely affect the economics and/or feasibility of the Lihir
operation. See Information on the Company  Business Overview  Description
of Operations  Mining  Dewatering and Geothermal Control. In addition, Lihir Island is a volcanic seamount and the Lihir operation is
located within the caldera of a volcano believed to be inactive. Although it
is located 90 kilometers away from a seismically active area of PNG, based on
seismic investigations conducted for the joint venture in 1987 and updated in
1992, a 8




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subsequent review of publicly available information in 2000, and Lihirs
seismic network monitoring, the company believes that Lihir Island is situated
in an area of moderate seismic activity. Reviews of seismic hazard
commissioned by the company in 2000, and the PNG Geological Survey (Anton &
Ripper, 1999) have supported this position. While earthquakes of moderate
magnitude (up to 6 on the Richter Magnitude scale) have occurred from time to
time within 50 kilometers of the Lihir operation site, the level of shaking at
the site associated with these events, while noticeable, has not been severe.
The maximum credible earthquake predicted from the foregoing studies is located
at average distance of between 20 and 35 km from Lihir, with a magnitude of 7.5
and an estimated return period of between 1200 and 2000 years. A seismic
hazard study commissioned by the joint venture was used to determine seismic
design criteria for the Lihir operation. A recent review of data recorded by
Lihirs seismic network has indicated that the level of shaking experienced has
been less than that predicted by the seismic hazard study. Structures, pit
slopes and earth embankments are designed to resist without yielding the degree
of earthquake shaking estimated to have a 50% probability of being exceeded
during the Lihir operations design life and, in the case of structures, to
resist without causing major damage or injury earthquake shaking estimated to
have a 10% probability of being exceeded during the Lihir operations design
life. These criteria are accepted internationally, and exceed the requirements
of the PNG Earthquake Loading Code for the estimated mine life. Notwithstanding the foregoing, no assurance can be given that the Lihir
operation will not be adversely affected by volcanic or earthquake activity
during the life of the Lihir operation. See Information on the
Company - Property, Plant & Equipment - Environmental
Considerations - Seismic Considerations. Lihirs insurance does not address all operating risks The mine, processing plant or related facilities may have to be shut down or
operations may otherwise be disrupted by a variety of risks and hazards that
are beyond the control of the company, including environmental hazards,
industrial accidents, technical failures, labor disputes, unusual or unexpected
rock formations, geothermal and seismic activity, flooding and extended
interruptions due to inclement or hazardous weather conditions, fires,
explosions and other accidents at the mine, processing plant or related
facilities. These risks and hazards could also result in damage to, or
destruction of, mineral properties or production facilities, personal injury,
environmental damage, business interruption, monetary losses and possible legal
liability. While Lihir currently intends to maintain insurance within ranges of
coverage the company believes to be consistent with industry practice, no
assurance can be given that Lihir will continue to be able to obtain insurance
coverage at reasonable rates or that any coverage it arranges will be adequate
and available to cover any claims. See Information on the Company  Property,
Plant and Equipment - Insurance. Lihir is subject to Papua New Guinea political risks The Lihir operation is located in Papua New Guinea, or PNG, a country subject
to a relatively high degree of political risk. For example, the OECD has
graded PNG for political risk in category 6 out of 7 (1 being best). The Lihir
operation is subject to political, economic and other uncertainties, including
the risk of civil rebellion, expropriation, nationalization, renegotiation or
nullification of existing contracts, mining licenses and permits or other
agreements, changes in laws or taxation policies, currency exchange
restrictions, changing political conditions and international monetary
fluctuations. Future PNG Government actions concerning the economy, taxation,
or the operation and regulation of nationally important facilities such as
mines could have a significant effect on the company. No assurances can be
given that the Lihir operation will not be adversely affected by future
developments in PNG. As part of the syndicated facility agreement signed on
November 22, 2000, the banks have required, and Lihir has obtained for the
benefit of the banks, political risk insurance covering 100% of the borrowings
under the facility, which is a condition precedent to those borrowings, and any
termination of this political risk insurance will constitute an event of
default under the facility. No political risk insurance has been, or is
currently proposed to be, arranged for the benefit of the company. 9




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In addition to the national PNG Government, PNG has a system of 19 provincial
level governments which are funded almost entirely by direct grants from the
national PNG Government. In the past, there have been disagreements between
the PNG Government and the provincial level governments of PNG, primarily in
relation to power sharing and revenue arrangements. The New Ireland provincial government exchanged its equity participation option
in the project for undertakings by the PNG Government to provide an annual
support grant to the New Ireland province of 3,000,000 Kina per year for
expenditure on infrastructure projects. Any inability of the PNG Government to
fulfill these undertakings could have an adverse effect on the relationship
between the national and provincial governments, and this could result in the
New Ireland provincial government taking steps that may have negative
consequences for the Lihir operation. Lihir is vulnerable to civil unrest There have been instances of civil unrest within PNG. In 1989, civil unrest on
Bougainville Island (which is one of the New Guinea Islands) developed into an
armed rebellion against the PNG Government by the Bougainville Revolutionary
Army and Bougainville Island purported to secede from PNG. This resulted in,
among other things, the closure of the Panguna copper mine, which has not
reopened. Lihir believes there are important historical and cultural
differences between Bougainville and Lihir Island. The company has also
devoted significant time and effort to accommodating the concerns of the
Lihirians, and has entered into an integrated compensation, relocation and
benefits package that covers (in different ways) the affected landowners,
future affected generations and Lihirians generally. See Information on the
Company  Property Plant and Equipment - Community Affairs. To date there
have been no significant incidents of an extended nature. While the company
believes these cultural and historical differences and its efforts will
significantly reduce the risk of the type of civil unrest experienced in
Bougainville, no assurances can be given that the Lihirians will not disrupt
operations at the Lihir operation in the future. Lihir is vulnerable to landowner identification and compensation issues A high proportion of land in PNG is held under customary land tenure, the
nature and terms of which vary considerably throughout the country. In
general, land held under such tenure is difficult to alienate, largely as it is
almost entirely communally owned. Title to most land in PNG has not been
recorded or registered and there has been little surveying. As a result, title
to land (in Western legal terms) is often unclear. Disputes over land
ownership are common, especially in the context of resource developments.
Identifying all the affected landowners, and structuring compensation
arrangements that are both fair and acceptable to all of them, is often
extremely difficult. Lihir believes that the satisfactory resolution of any
local landowner concerns is essential to the development and operation of a
mine in PNG and operates accordingly. The failure to adequately address
landowner issues has contributed to the disruption of other mining projects in
PNG. While the company has spent considerable time, effort and expense in an
attempt to resolve landowner issues relating to the Lihir operation, no
assurance can be given that disruptions arising out of landowner
dissatisfaction will not occur. See Information on the Company  Business
Overview - Description of Operations  Community Affairs. Lihirs results are dependent upon volatile gold prices Because substantially all of Lihirs revenues are derived from the sale of
gold, Lihirs earnings are closely related to the price of gold. Gold prices
fluctuate widely and are affected by numerous industry factors beyond the
companys control, such as central bank sales, demand for precious metals,
forward selling by producers and purchases of gold and production cost levels
in major gold producing regions, including South Africa and the various
countries located in the former Soviet Union. Moreover, gold prices are also
affected by macro-economic factors, such as expectations regarding inflation,
interest rates, currency exchange rates, and global and regional demand, and
political and economic situations. Gold market prices are also affected by
worldwide production levels. While the current demand for, and supply of, gold
affects gold prices, this 10




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does not occur in the same manner as current demand and supply affects the
prices of other commodities. The potential supply of gold consists of new mine
production, plus existing stocks of bullion and fabricated gold held by
governments, financial institutions, industrial organizations and individuals.
Since mine production in any single year constitutes a very small portion of
the total supply of gold, normal variations in current production do not
necessarily have a significant effect on the supply of gold or its price.
Further, the central banks of several countries and multilateral organizations,
such as the European Monetary Institute and the International Monetary Fund,
had sold some of the gold held by them as reserves. They may sell additional
amounts of gold in the future, which could result in further declines in the
market price of gold. All these factors are beyond Lihirs control and
accordingly it is impossible for the management of Lihir to predict future
movements in gold prices. Gold prices declined significantly from the fourth quarter of 1997 and
continued to languish below a level of US$300 /ounce on average during 1998,
1999, 2000 and 2001. In 2003, the gold price rose through $380 per ounce, fell
to $320 and then followed an upwards trend for the remainder of the year,
reaching a high of $US416 per ounce in December 2003. (All prices are from the
London Bullion Market, London P.M. Fix). The current spot rate (as of 28
May 2004) of approximately $US 393 per ounce is well above the price levels
upon which the company originally estimated its reserves and designed its pit
shell (US$365 and US$375 per ounce, respectively). See Information on the
Company  Property, Plant and Equipment  Reserves Estimates. However, if
gold pricing was to decline over an extended period, significantly below the
current reserve price of US$340 per ounce, it could render certain of Lihirs
ore reserves uneconomic, and require a re-evaluation and/or downward adjustment
of ore reserves. It could also result in losses and write-downs of Lihirs
assets. If gold were to fall below Lihirs variable production costs for a
sustained period, Lihir might have to curtail or suspend some or all of its
operations. The following table sets forth the high, low and average afternoon fixing
prices for gold on the London Bullion Market (the London P.M. Fix) for the
periods indicated. Price in US$ 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 to May 28, 2004
    
    
    427
    
    
    
    375
    
    
    
    403
 The London P.M. Fix on 28 May 2004 was US$ 393.25 per ounce of gold. Lihir may seek to mitigate, in part, the effect of gold price volatility,
through hedging strategies, which may include periodic purchases or sales of
put or call options, spot deferred sales and forward sales covering a
portion of its gold production at fixed future prices. Certain hedging
transactions may eliminate or limit 11




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additional revenues, which Lihir would otherwise receive from any future rises
in the gold price. In addition, Lihirs profitability could be adversely
affected, if, for any reason its production of gold is unexpectedly
interrupted, and as a result it is unable to produce sufficient gold to cover
any forward sales commitments it may have made. See Operating and Financial
Review and Prospects  Financial Results of Operations  Gold Prices and
Hedging. Lihirs prospects are partly dependent on reserves estimates and future
experience The reserve estimates presented in this annual report are estimates based on a
gold price of US$340 per ounce, for a cut off grade of 1.7 g Au/t using end
2003 mine life cost estimates, and within a mine pit designed at US$340 per
ounce. No assurance can be given that the indicated amount of gold will be recovered
or at the rates estimated. Gold reserve estimates are expressions of judgment
based on knowledge, experience and industry practice, and may require revision
based on actual production experience. Estimates that are valid estimates when
made may change significantly when new information becomes available. Such
estimates are necessarily imprecise and depend to some extent on statistical
inferences, which may prove unreliable. Should Lihir encounter mineralization
or formations different from those predicted by past drilling, sampling and
similar examinations, reserve estimates may have to be adjusted and mining
plans may have to be altered in a way that might adversely affect Lihirs
operations. The reserve estimates contained in this annual report have been
determined based on assumed gold prices, cut-off grades and operating costs
that may prove to be inaccurate. Fluctuations in the market price of gold, or
increased production costs or reduced recovery rates, may render ore reserves
containing relatively lower grades of mineralization uneconomic to recover, and
may ultimately result in a restatement of reserves. Lihirs financing agreements impose limitations on its operations The syndicated facility agreement signed by Lihir on November 22, 2000 contains
numerous events of default, which would entitle the banks to prevent future
draw-downs, declare all outstanding borrowings under the facility to be
immediately due and payable and foreclose on Lihirs assets, almost all of
which have been pledged or otherwise encumbered to secure such borrowings. The
facility contains a number of covenants by the company which are likely to
restrict its future operations, including, but not limited to, agreements not
to engage in any business activities other than those relating to the Lihir
operation and the proposed exploration, to incur any additional indebtedness or
encumbrances or to pay any dividends, or make certain other restricted payments
unless certain conditions are met, in each case without the required consent of
the banks. See Operating and Financial Review and Prospects  Liquidity and
Capital Resources and Additional Information  Material Contracts  Financing
Agreements. Lihir has limited financial resources Lihir has limited financial resources. While Lihir currently believes that it
has, or will have, access to resources sufficient to finance its operations,
the adequacy of Lihirs financial resources will depend upon its ability to
generate sufficient revenues from gold production, and to keep its costs and
other expenditures within its current estimates. If Lihir is unable to
generate such revenues, keep its costs and expenditures within such estimates,
or if unexpected conditions or developments occur, Lihir could require more
funds than are currently available to it. In that case, Lihir might not be
able to borrow the necessary additional funds or to do so at reasonable rates,
because almost all of its assets have already been pledged or otherwise
encumbered to secure the borrowings, under the syndicated facility agreement.
Lihirs current syndicated debt facility is due to expire in June 2005. While
the company believes it will be able to replace this facility on acceptable
terms, there is no guarantee this will occur. 12




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Lihir is subject to environmental risks The Lihir operation is subject to PNG laws and regulations regarding
environmental matters, the abstraction of water, and the discharge of mining
wastes and materials. The Lihir operation has some environmental impacts,
including land and habitat impacts, arising from the use of land for mining and
related activities, and certain impacts on streams and the marine environment
near the project site, resulting from water use, ocean waste rock disposal,
drainage run-off, and submarine disposal of tailings by pipeline in deep water.
While the Lihir operation currently complies with the applicable license
conditions accepted by the PNG Government in granting project approval, the
eventual, cumulative environmental impacts could be greater than the estimates
in, or not contemplated by, the environmental plan approved by the PNG
Government, and in such event the PNG Government could require the company to
remedy such consequences. The costs of such remediation could be material. In
addition, PNG environmental rules and regulations have recently been revised,
and may change again, before mining is completed, and their impact on mining
and processing operations could change. Future environmental laws and
regulations could impose increased capital or operating costs on the company
and could restrict the development or operation of the Lihir mine. While the
recent changes to PNG environmental rules and regulations are not expected to
materially affect the operation, and the company is not aware of any major
environmental issues which may arise in the near future, the extent to which
unanticipated environmental consequences, or future regulations, may affect the
company cannot be predicted. See Information on the Company  Property, Plant
& Equipment  Environmental Considerations. Lihirs mining rights may be terminated under PNG law The Lihir operation is also subject to the provisions of the PNG Mining Act
1992 which governs the granting of mining rights and the conditions, upon which
those rights may be terminated. In particular, the company is party to a
mining development contract, dated March 17, 1995, with the PNG Government,
which sets forth the terms upon which Lihir 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 mine. See Additional Information 
Material Contracts  PNG Mining Laws and Related Agreements with PNG
Government. Lihir is vulnerable to a limited market for the Kina and foreign exchange
controls The PNG national currency, the Kina, is subject to exchange controls. There is
currently a relatively limited and inefficient market for the Kina, and no
assurance can be given that Lihir will be able to convert any Kina funds it has
into other currencies, at rates comparable to those at which funds were
initially remitted to PNG or at all. In addition, the PNG Central Banking
(Foreign Exchange and Gold) Regulations require the prior approval of the PNG
central bank, to convert funds from Kina into other currencies. While these
regulations also generally require PNG companies to transfer all of their
non-Kina revenues to PNG and convert them into Kina, as is ordinarily the case
with large mining and petroleum projects in PNG. Under the mining development
contract, the PNG Government has agreed to ensure that the PNG central bank
will grant to the company permission to retain certain of its funds in other
currencies in Kina, and to convert and transfer its Kina funds into offshore
accounts outside PNG. This permission is limited to certain proceeds from bank
loans, insurance policies, and the sale of gold, in an amount sufficient to
cover certain specified purposes during the following three month period. As a
result of these limitations, Lihir is still exposed to certain exchange rate
fluctuations and convertibility risks. There can be no assurance that the Kina
will not depreciate from its current position against the U.S. dollar. See
Additional Information  Exchange Controls. 13




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Agreements made by Lihir with Rio Tinto and its affiliates were not subject to
arms length negotiations The company has entered into certain agreements with Rio Tinto and its
affiliates, including the Management Agreement and the Technical Support
Agreement. For a description of these agreements, see Additional Information
 Material Contracts  Lihir Management. While Lihir believes these
agreements contain terms and conditions, at least as favorable to it as those
which might reasonably be expected to be negotiated on an arms length basis,
between unaffiliated third parties, these agreements were not the product of
such a negotiation, and no assurance can be given the terms and conditions
would meet such a standard. Lihir is dependent on Rio Tinto for the provision of certain services,
including management Following the consummation of the global offering in 1995, the initial
shareholders (who were the participants in the joint venture), have had no
continuing obligation to contribute to, or otherwise to fund, the expenses of
the Lihir operation, and the company has been responsible for obtaining and
maintaining its own external sources of funding. Lihir, however, continues to
be dependent on Rio Tinto as one of the initial shareholders, and certain of
its affiliates, in several important respects. Pursuant to the management
agreement, the board of directors has delegated management of most aspects of
the corporate affairs, operations and activities of the company to Lihir
Management Company, an affiliate of Rio Tinto. Certain technical services are provided to the company by Rio Tinto and its
affiliates under the Technical Support Agreement. As a result of these
arrangements, Lihir is dependent upon employees of Lihir Management Company,
and Rio Tinto and its affiliates, to provide the executive and senior technical
services customarily performed by direct employees of a company. In addition,
it constitutes a review event under the syndicated facility agreement signed on
November 22, 2000, if the Rio Tinto Group disposes of any of the ordinary
shares beneficially held by it or the manager of Lihir ceases to be a
wholly-owned subsidiary of the Rio Tinto Group. See Additional Information 
Material Contracts - Financing Agreements Syndicated Facility Agreement Rio Tinto is under no obligation to Lihir to ensure that these conditions
continue to be satisfied, and Lihir has no right to require such compliance by
Rio Tinto. Lihir is exposed to potential conflicts of interest Under current PNG law directors have fiduciary duties to all shareholders.
However, the representatives of Rio Tinto, on the companys board of directors,
may have actual or potential conflicts of interest between their
responsibilities to Lihir as a director, and their employment obligations to
Rio Tinto, who appointed them. Although the directors understand their
fiduciary duties, and the company is not aware of any intention on their part
to contravene such duties, it is nevertheless possible that such directors
could resolve such actual or potential conflicts, in the interests of Rio
Tinto, instead of in the interests of Lihir and its shareholders as a whole.
In addition, the employees of Rio Tinto and its affiliates, who provide
executive, managerial, technical and administrative services to the company
pursuant to the management agreement, and technical support agreement, may have
similar conflicts of interest in performing such services between their
responsibilities to Lihir, and employment obligations to Rio Tinto, and may
resolve such conflicts in the interests of Rio Tinto, rather than the company.
In the absence of certain events, the company will not be able to terminate the
management agreement, or technical support agreement, for 20 years from
signing, and under the management agreement, the company has waived its right
to bring any action against Lihir Management, Rio Tinto, Rio Tintos
subsidiaries, or any of their employees or representatives for any losses or
liabilities incurred by the company, arising out of the performance or
non-performance by Lihir Management Company, of its duties under the management
agreement, unless they result from a willful omission or willful misconduct by
Lihir Management Company. 14




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Lihirs dividends to U.S. shareholders are subject to withholding tax There is no tax treaty in effect between the United States and PNG. As a
result, under current PNG law U.S. shareholders will be subject to a 10%
withholding tax on any dividends or other distributions made by Lihir on the
ordinary shares. See Additional Information  Taxation for a discussion of
the effects of this tax. Lihirs shareholders are subject to different rights under certain
circumstances Lihirs corporate affairs are governed by its constitution and the laws of PNG.
Principles of law applicable to Lihir and its shareholders may differ from
those that would apply if Lihir were incorporated in a jurisdiction in the
United States. For example, while in most cases shareholder votes are held by
ballot in a manner similar to the practice in the United States, in certain
circumstances shareholder votes can be limited to persons actually present at a
shareholder meeting (either shareholders or representatives of shareholders),
and the quorum for such purposes can be as low as three such persons. The
board of directors also has the ability to refuse to register transfers of
ordinary shares that would breach Australian Stock Exchange (ASX) rules or
contravene laws. In addition, Lihirs shareholders may have fewer or less
well-defined rights under PNG corporate law with which to protect their
interests, against actions by its board of directors or major shareholders than
they might have as shareholders, of a corporation incorporated in a
jurisdiction in the United States. Difficulty may be experienced in the pursuit of litigation against Lihirs
executive officers, directors, or experts who are not resident in the United
States None of Lihirs executive officers or executive directors reside in the United
States. Lihir understands that the general rules in respect of service of
process issued out of US courts requires either:  
    
    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. Lihir is not aware that any of the individuals concerned have given consent to
service outside the jurisdiction. Therefore, for a claimant in US courts,
there may be a risk that such persons cannot be served with process. Certain judgments of certain foreign courts are recognized and enforceable in
Papua New Guinea by registration under the Reciprocal Enforcement of Judgments
Act (Chapter 50 of the PNG Revised Laws). This Act is applied generally on the
basis of reciprocity to prescribed countries and designated courts within those
countries. The United States is a prescribed country under the Act. The
designated courts in the United States are the New York State Court of Appeals
and any Supreme Court of the State of New York. If a foreign money judgment is
not obtained from a designated court, it may nonetheless be recognized and
enforced in Papua New Guinea at common law, by commencing a separate action in
the National Court of Papua New Guinea to sue on the judgment. In the companys prospectus issued in connection with the global offering of
shares in 1995, it was stated that the courts of PNG will not permit original
actions for civil liabilities, predicated upon the civil liability provisions
of the US federal securities laws. Lihir has no reason to believe that PNG
courts today would take a different attitude, and allow such actions against
the company, or any of its non-US resident executive officers, directors, or
experts the company has named in its registration statement. This should only
be a difficulty for US investors to the extent that an action cannot be brought
in the United States, or a judgment of a US court cannot be enforced in PNG. 15




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Item 4. Information on the Company See Certain Definitions and Glossary of Certain Technical Terms at the end
of this annual report for the definitions of certain terms used in this annual
report. 
 A. History and Development of the Company Introduction Lihir Gold Limited is a corporation incorporated in 1995 under the laws of
Papua New Guinea (PNG) and registered under the Companies Act 1997 of PNG. The
Company owns and operates a gold mining project located on Lihir Island in the
New Ireland province of PNG. Production of gold from oxide ore commenced in
May 1997. In September 1997 the company completed construction of the
processing and related facilities for the Lihir operation and commenced
production of gold from sulfide ore. The registered office of the company is
located at Seventh Floor, Pacific Place, Cnr. Champion Parade and Musgrave
Street, Port Moresby, PNG. The telephone number of the registered office is
+675 321 7711. The companys website is www.lihir.com.pg. The initial exploration and development work on the Lihir operation was
conducted by a joint venture beginning in 1982. A subsidiary of Rio Tinto plc
(referred to collectively with its subsidiaries and affiliates, as Rio
Tinto), one of the participants in the joint venture, prepared a feasibility
report on the Lihir operation dated March 1992 and amended in September 1993,
October 1994 and May 1995, which was reviewed and audited by Micon
International Limited. The joint venture, which undertook almost nine years of
test drilling and numerous geological and other studies on the Lihir operation,
spent a total of US$147 million on exploration and pre-development activities
in relation to the Lihir operation. In October 1995, the company acquired the
assets relating to the Lihir operation from the joint venture and issued and
sold ordinary shares in a global offering. As of December 31, 2003 and as of
the date of this annual report, excluding the shares in the company held by
Niugini Mining Limited (an original joint venture participant that is now a
wholly owned subsidiary of the company), the former participants in the joint
venture (or their assignees) collectively owned 262,927,557 (20.47%) of the
outstanding ordinary shares of the company, as follows: ShareholdingRio Tinto Metals Limited
    
    
    161,527,406Rio Tinto Lihir Holdings Ltd
    
    
    24,230,720Mineral Resources Lihir Ltd
    
    
    77,169,431Total
    
    
    262,927,557
 No options over the companys shares remain outstanding. See Major
Shareholders and Related Party Transactions  Major Shareholders  Share
Options. The assets acquired from the joint venture included the Special Mining Lease,
which gives the company exclusive mining rights within the leased area of Lihir
Island for 40 years from 1995. The Lihir operation relates to the mineral
deposits located within the area covered by the Special Mining Lease. The
company also holds the Exploration License (EL485), which provides the company
with the exclusive right to explore for gold and other minerals on the
remainder of Lihir Island for a renewable two year period, through to March 31,
2004. The license is in the process of being renewed. See Additional
Information-Material Contracts-Related Agreements with PNG Government. 16




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The company is managed by Lihir Management Company Limited, a wholly owned
subsidiary of Rio Tinto, pursuant to a management agreement dated March 17,
1995. Rio Tinto acquired a managing interest in the joint venture in 1989, and
the joint venture has been managed by a wholly owned subsidiary of Rio Tinto
since that time. Until April 17, 2000, all mining operations were provided by the Thiess Roche
Lihir Joint Venture pursuant to a mining services contract dated October 1995.
This mining contract was due to continue to mid-2002, subject to Lihirs rights
of early termination. Following a review of the benefits of operating under
the mining contract compared with Lihir operating the mine itself, Lihir
determined to exercise its rights of early termination. In mid-March 2000,
Lihir signed a heads of agreement with the mining contractor pursuant to which
Lihir cancelled the mining contract with effect from April 17, 2000, and
purchased the mining fleet and equipment. Lihir Management Company is responsible for managing most aspects of the
companys operations, including mine planning, ore grade control and surveying.
See Additional Information  Material Contracts  Lihir Management. For a summary of certain risks relevant to an investment in the company,
including but not limited to those relating to the companys relationship with
Rio Tinto, see Key Information - Risk Factors. Merger with Niugini Mining Limited On October 6, 1999, Lihir announced its agreement with Niugini Mining Limited,
subject to various conditions, to merge by scheme of arrangement under PNG law.
The basis of the merger was set out in the notice of special meeting forwarded
to shareholders on November 27, 1999. On December 15, 1999 Lihirs
shareholders approved the required resolutions to progress the merger. Niugini
Mining shareholders also approved the required resolutions in early January
2000 and final approval from the National Court of Papua New Guinea was
obtained on February 1, 2000. The merger was effective on February 2, 2000. In accordance with the agreement of both sets of shareholders, the total number
of shares issued to Niugini Mining shareholders was one Lihir share for each
share in Lihir held by Niugini Mining, plus shares in Lihir equal in value to
Niugini Mining Limiteds net assets (excluding its investment in Lihir).
Niugini Minings net assets were US$54.6 million, which resulted in 59,128,489
million Lihir shares being issued. With the one for one consideration for
Niugini Minings holding of 161,527,405 shares in Lihir, the total number of
shares issued to Niugini Mining shareholders was 220,655,894 shares. As
Niugini Mining had no operations, the shares issued to effect the transaction
were valued based on the fair value of the net assets acquired and transaction
costs of US$1.814 million were charged as an expense. The shares in Lihir held
by Niugini Mining were valued at the share price current on February 2, 2000,
the date of acquisition. As a result of the merger, Niugini Mining became a 100% owned subsidiary of
Lihir. Niugini Mining continues to hold 161,527,405 ordinary shares in Lihir
which have been reclassified as B class shares. See Major Shareholders and
Related Party Transactions - Major Shareholders. Capital Expenditures The feasibility report for the Lihir project originally estimated that a total
of US$673 million (in mid-1995 dollars) in capital expenditures would be
required for pre-production development and construction of the Lihir
operation, excluding the US$147 million in exploration and pre-development
expenditures made by the joint venture participants prior to the global
offering. This was subsequently re-estimated to be US$780 million (in mid-1996
dollars), when the definitive estimate for construction was completed. This
increase represented a number of changes in scope, particularly in the areas of
financing costs, pit and operations development, and working capital, inflation
and the decision to move to the early processing of oxide ore. 17




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The actual cost of construction was US$792 million, which reflected some
further changes to scope, such as a re-design of the tailings disposal system,
and accommodation, and other infrastructure. Capital expenditure over the last three financial years, as discussed in note
12 to the financial statements, has been as follows: US$ millions2003
    
    2002
    
    2001Projects
    
    
    10.0
    
    
    
    2.9
    
    
    
    9.3Mine
    
    
    10.2
    
    
    
    13.9
    
    
    
    10.3Processing
    
    
    6.9
    
    
    
    9.2
    
    
    
    17.3Total
    
    
    27.1
    
    
    
    26.0
    
    
    
    36.9
 Capital expenditure in fiscal year 2001 included US$12.7 million on the
autoclave heat recovery project, US$5.7 million on geothermal wells, US$4.2
million on 3 new haul trucks, and a dozer to supplement the mining fleet,
US$3.4 million on a twelfth generator, $US 1.1 million on preparatory work for
the pebble crusher project, and the balance on a number of projects each
costing less than US$1 million. Capital expenditure in fiscal year 2002 included US$6.1 million on geothermal
wells, US$4.7 million on the pebble crusher project, US$3.4 million on the
progressive replacement of the mining fleet, and US$3.0 million on a pilot 6MW
geothermal power station. Capital expenditure in fiscal year 2003 included, US$3.4 million on geothermal
wells, US$5.9 million on the progressive replacement of the mining fleet, US$2
million to complete the 6MW geothermal power station, US$4.3 million on the
installation of additional GEHO pumps for each of the autoclaves, and US$1.4
million on water sediment control. At year end, US$1.4 million had been spent
on site works for the proposed 30MW geothermal power station. These
expenditures were funded from operations and are located on the mine site on
Lihir Island in PNG. For fiscal year 2004, capital expenditure of US$114.0 million is projected.
This estimate includes US$40.0 million on the 30MW geo-thermal power station,
US$10.0 million to explore and develop additional geothermal power generation
capacity, US$16.0 million brought forward from 2005-06 for replacement mining
equipment, US$5.0 million on the development of the Kapit ore body, mainly
involving depressurizing activities, US$18.0 million on projects to increase
plant throughput and improve gold recovery, US$4.0 million on an expansion
study, and US$5.0 million on a waste barge. These expenditures will be funded
from the proceeds of the equity issue conducted in November 2003 and from
operational cash flows. 
 B. Business Overview Lihirs operations are limited to a single mine company that produces gold doré
(a mixture of gold and other metals) as its sole product. The gold is mined
and processed on Lihir Island in PNG. After refining by AGR Matthey in Perth -
Western Australia, the gold is sold spot location London through the
international gold market or delivered into hedge contracts with selected hedge
counter-parties (predominantly ABN-AMRO, Commonwealth Bank of
Australia, Deutsche Bank, Macquarie Bank, SG Australia, Goldman Sachs, NM Rothschild and
Sons (Australia) and Mitsui) . The gold market is not generally
regarded as being influenced by seasonal factors. See Key Information  Risk Factors for a
discussion of gold prices and Operating and Financial Review and Prospects 
Sales for discussion of hedging. Lihirs licenses to operate and mine in PNG are subject to the PNG Mining Act
1992 and the mining development conract dated March 17, 1995 with the PNG
Government. See Additional Information  Material Contracts PNG Mining Laws
and Related Agreements with PNG Government Lihirs licenses to use patent
process technologies including Dynatechs (formerly Sherritt) pressure
oxidation process and Anglo-American Research Laboratories elution system are
secured through life-of-mine license agreements. 18




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Description of Operations Overview The following is a summary of Lihirs current operations. Given the size, scope
and long remaining production life of Lihir, changes in operations may be made
in the future, and these changes could be material. See Key
Information - Risk
Factors for a discussion of possible risks to Lihirs operations. The Lihir operation is based on open pit mining of three main adjacent pits.
Most of the ore is refractory sulfide ore that must be oxidized before the gold
can be leached through cyanidation. Pressure oxidation technology licensed from
Dynatech, (formerly Sherritt), is used to treat the refractory ore. During the period of open pit mining, (the mining period), which, based on
the current preliminary mine plan, expected to continue for the next 19 years
of gold production up to and including 2023, the higher grade ore will be fed
directly into the processing plant and the lower grade stockpile ore will be
stockpiled for processing during the period after open pit mining ceases. The
stockpile processing period (the stockpile processing period) is expected to
last for a further 18 years, up to and including 2041. Accordingly, the Lihir
operation is currently expected to have a total remaining operating production
life of 37 years, with open pit mining limited to the next 19 years. The current gold-producing pit is Minifie, production from which will be scaled
back from early in 2005 as gold grades decline. The second pit, Lienetz, is
being developed in a series of phases to produce the majority of gold ore from
2005 until 2016. The third ore body, Kapit, is scheduled to produce ore from
2012 onwards and, with cutbacks to both Minifie and Lienetz will complete the
Mining Period. Because the higher grade gold will be processed first, annual gold production
is expected to drop significantly after the mining period. Based on the
current reserve estimates and current preliminary mine plan estimates,
production is expected to be approximately 600,000 ounces in 2004, and greater
than 650,000 ounces in the years 2005 to 2010 inclusive, approximately 600,000
ounces per year through to and including 2023, and approximately 300,000 ounces
per year from the end of mining during the stockpile processing period out to
2041. Operational consumables, supplies and maintenance parts are sourced from major
suppliers in the Asia Pacific region. Petroleum products are sourced from
Singapore, cyanide from Korea, lime from New Zealand, with most other
suppliers, through Lihirs regular shipments from Brisbane Australia. Supplies
are secured through contracts varying between 2 and 5 years duration. Mining General.The open pit mine is expected to produce an average of approximately
7.6 million tonnes of ore per year for the remainder of the mining period. Ore
production was 7.9 million tonnes in 2001, 9.3 million tonnes in 2002 and 11.0
million tonnes in 2003. The ore production rate is expected to average
approximately 8.3 million tonnes per year from 2004 to 2018 and decline
thereafter to an average of 5.3 million tonnes per year. Total annual
extraction of ore plus waste from the pit should range from 40 to 50 million
tonnes per year from 2004 to 2018 and decrease rapidly thereafter. The ultimate pit shell contains approximately 740 million tonnes of material,
of which approximately 130 million tonnes are proven and probable reserves and
610 million tonnes are waste, for an overall waste/ore stripping ratio of 4.7.
Most waste material will be disposed of offshore in deep water within the
confines of the Special Mining Lease. Mining of sulfide ore commenced in the Minifie area because of its higher grade
and shallower depth, and will be extended over time to encompass the Lienetz
and Kapit deposits. During 2000/2001 most of the mining was from Phase 3 of
the Minifie ore body and during 2002, 2003 and 2004 from Phase 4. Production
of ore from the high grade Phase 5 in the Lienetz ore body is scheduled to
start in 2005. 19




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Material moved during 2003, 2002 and 2001 is shown in the table below. 2003
    
    2002
    
    2001K tonnes
    
    g Au/t
    
    K tonnes
    
    g Au/t
    
    K tonnes
    
    g Au/tHigh-Grade Sulphide Ore
    
    
    5,692
    
    
    
    4.53
    
    
    
    4,985
    
    
    
    5.20
    
    
    
    3,225
    
    
    
    6.29Low-Grade Sulphide Ore
    
    
    5,287
    
    
    
    2.31
    
    
    
    4,305
    
    
    
    2.31
    
    
    
    4,626
    
    
    
    2.59Total Ore
    
    
    10,979
    
    
    
    3.46
    
    
    
    9,290
    
    
    
    3.86
    
    
    
    7,851
    
    
    
    4.11Total Waste
    
    
    23,945
    
    
    
    
    
    
    
    30,723
    
    
    
    
    
    
    
    24,082Total Material
    
    
    34,924
    
    
    
    
    
    
    
    40,013
    
    
    
    
    
    
    
    31,933
 Pit Design and Planning.The pit design was determined using Whittle Four D
pit optimization software. Optimal shells were derived for a range of gold
prices and grouped into pseudo pit phases. Detailed designs were developed for
all phases out to and including the ultimate pit shell. These detailed designs
were then scheduled using a Rio Tinto developed scheduling package with cut-off
grade optimization, and a bench scheduling package in Medsystem to undertake
detailed scheduling. This procedure was repeated using a range of optimized
shells as the final pit, in order to determine which shell realized the highest
net present value for the project. This shell was then used as the basis for
designing the ultimate pit. Pit optimization used processing and fixed costs projected at the time. A
processing recovery of approximately 90% was used. Pit face slope angles range from 15o to 26o in soil-strength material, 33o to
35o in weak rock, and 50o in hard rock. In areas that are predominantly waste,
mining is carried out on 12-metre benches. In all other areas, 6-metre benches
are used. The mining sequence was determined with a view to maximizing the net present
value of the deposit using computer techniques. This resulted in 12 mining
phases with a variable mill feed cut-off grade for direct process ore for each
year of the Mining Period. Production Scheduling.Because of the nature of the ore deposits, it is not
possible to mine only higher-grade material during the mining period. In order
to maximize net present value, the mining and production schedule is structured
to deliver the maximum amount of higher-grade ore to the process plant as soon
as possible, consistent with an orderly mining schedule. In addition to mining
higher ore grade blocks first, a variable mill feed cut-off grade was
established for each year. Ore with a grade equal to or greater than the
applicable annual mill feed cut-off grade is sent directly to the process
plant, while ore with a grade below the cut-off grade but (above the waste
cut-off grade) is stockpiled for later processing. The annual mill feed grade is expected to lie in the range 2.7 g Au/t to 6.1 g
Au/t during the mining period, with an overall grade of approximately 4.6 g
Au/t for the entire period. At the end of the mining period, the various
stockpiles are expected to contain approximately 88 million tonnes of material
averaging around 2.4 g Au/t Sulphide Content.While the average sulphide content of the reserves is 5.6%,
the sulfur content is variable. Therefore, significant effort is committed to
controlled blending of plant feed to maximize throughput. The ore blend and
sulfur target varies depending on ore reactivity, the number of operating
autoclaves (target sulfur for complete oxygen utilization is lower when three
autoclaves are on line), ore settling characteristics and gold grade. In
September 2001, two of three autoclave heat recovery units were commissioned,
with the third commissioned in March 2002. The heat recovery units succeeded
in making the autoclaves less sensitive to the sulfur content of the process
plant feed. 20




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Low Grade Ore Stockpiles.All ore grading below the applicable annual mill
feed cut-off grade (but above the waste cut-off grade) will be stockpiled for
processing after open pit mining ceases. In addition, the PNG Government has
required that ore down to 1.6 g/t be stockpiled for the first 6.5 years of
production. Waste Rock Disposal.Because of the lack of suitable land, the potential for
seismic activity, high rainfall and the potential for acidic run-off, the
company and the PNG Government concluded that land-based disposal of waste rock
was not a viable option and that the preferred option, in terms of cost and
environmental acceptability, was to use some of the waste rock to build the
base of the stockpile in Luise Harbor and to dispose of surplus or unsuitable
material offshore. The waste disposal facility comprises four bottom dump
self-propelled barges and two loading docks of three bays each in a single
wharf structure. A fifth waste barge is to be acquired in 2004. Dewatering and Geothermal Control.The Lihir mine pit poses unique challenges.
The gold resource is associated with a residual geothermal system and is
located adjacent to the sea. The pit must be dewatered to keep the water table
below the operating level of the mine, for which purpose there are 12 operating
dewatering wells. Dewatering operations have successfully maintained dry pit
operating conditions with the base of the Minifie pit now reaching 130m below
sea level. While the Luise Caldera, where mining operations take place, is no longer an
active volcanic centre, the residual geothermal system must be made safe, by
reducing temperatures and pressures in the vicinity of the pit, in order that
high temperature waters and steam generation do not pose a threat to the safety
of operations.
Since 1999, 10 deep wells (greater than 1000m depth) and 18 shallow wells
(400-600m) have been completed. Steam discharge has now been continuous since
2000, with wells in the west Minifie and north Lienetz areas operating during
this period. Wells in the Lienetz area were commissioned in early 2003 and are
increasing steam discharge levels ahead of the development of the Lienetz pit.
The final phase of installing steam discharge wells for Lienetz has continued
in the first half of 2004. Information gathered from recent programmes
indicates that less geothermal drilling will be needed for mining control than
was predicted in the Feasibility Study. Power generation using geothermal steam has been demonstrated to be a viable
option for Lihir. A six-megawatt pilot plant was commissioned in April 2003.
This plant is fed on steam from the shallow steam relief wells already
completed as part of the mining development. Construction of a further
thirty-megawatt plant is under way and expected to be commissioned in April
2005. Well testing, to determine steam production capacity from the larger
Ladolam steam resource, indicates an ultimate power generating potential in
excess of that currently operating and under construction. A study is being
undertaken to define the extent of this potential. Mine Drainage.The average annual rainfall at the Lihir Project site is
approximately 3,700 millimeters, with a maximum one-hour intensity of 65
millimeters. For this reason, considerable attention has been paid to the
design of appropriate facilities for mine drainage. This includes a system of
surface diversion ditches designed to intercept storm water flows before they
enter the open pit. A system of in-pit collection ditches and sumps has also
been incorporated into the design of each of the phases of pit development.
Despite these design provisions, however, mine production has to be suspended
during periods of intense rainfall. Rainfall in 2003 was well in excess of
5,000 millimeters. Mining Equipment.The major mining equipment selected for the Lihir Project
has been sized for the levels of production contemplated by the current life of
mine plan. Most of the mining fleet was purchased from the mining contractor
on April 17, 2000 on termination of contract mining and movement to
owner-mining. The transition from operator mining to owner mining was smooth
with the majority or the contractor equipment and staff transferring to Lihir
Management Company at this time. The primary excavation fleet consists of four
23 cubic metre capacity hydraulic shovels. Material haulage utilizes a
matching fleet of rear dump haul trucks, each with a capacity of 135 tonnes.
In the ensuing period the mining fleet has been complemented by the purchase of
three additional haul trucks in operation from 2002. In 2004, additional
equipment comprised of a shovel, trucks and ancillary equipment has been
acquired and is being introduced into operation between April and June 2004. 21




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Processing General.The companys processing plant is located in an area known as Putput,
at the mouth of Luise Harbour. Lihir ore is termed refractory, meaning that
conventional extraction of gold by cyanidation is not viable without
pre-treatment. The Lihir process plant incorporates a pressure oxidation
pre-treatment step using autoclaves to release the gold. This in turn is
followed by conventional cyanidation. The plants facilities first crush and grind the ore into a slurry suitable for
pressure oxidation. A small flotation plant is sometimes used to concentrate a
portion of the slurry as required. The ore is then subjected to pressure
oxidation, counter-current decantation (CCD), neutralization, carbon-in-leach
(CIL), and tailings disposal. Gold is recovered from the CIL process through
carbon stripping, electrowinning and smelting. The processing plant was initially designed to treat 375 tonnes of ore per hour
at a design sulfur grade of 7.2%. A design autoclave operating time of 89% of
total time was used resulting in a plant capacity of 2.9 million tonnes per
year. The processing plant was upgraded in 1999 to include a second oxygen
plant and a small flotation plant. Three autoclave heat recovery vessels,
used to pre-heat autoclave feed were installed in 2001 along with a 12th power
generator. In 2002 a pebble crushing circuit was installed in the grinding
area to increase grinding capacity, and three additional autoclave feed pumps
were installed in 2003. 3.9 million tonnes of ore was processed through the
plant in 2003 to produce 550,772 ounces of gold. Crushing.Run-of-mine stockpiling and primary crushing facilities,
incorporating a gyratory crusher, are located at the Ladolam Creek area,
approximately 500 metres east of the ore bodies. All other processing
facilities are located at Putput, approximately one kilometer southeast of the
Ladolam Creek area. Soft ore can be processed separately through a
toothed-roll crusher. Stockpiling and Blending.A series of conveyors transport the crushed ore to a
stockpile generally of approximately 36,000 tonnes capacity located at the
Putput processing plant. Ore is reclaimed from the stockpile via under pile
feeders and conveyed into the semi-autogenous grinding (SAG) mill. Ore that
does not flow freely through the under pile feeders is reclaimed by front end
loader and fed through a separate feeder. Grinding and Thickening.Water is combined with the ore feeding the SAG mill
to form a slurry. Steel balls and the ore itself grind the ore down to a fine
particle size. Coarse pebbles rejected from the SAG mill are conveyed and
crushed separately in the pebble crushing circuit before returning to the SAG
mill feed stream. SAG mill discharge slurry is pumped to cyclone classifiers
that separate coarse from fine particles. Coarse material is directed into a
ball mill for further fine grinding before reclassification, whilst fine
material continues on to a thickener. In the thickener, water is recovered and
flocculent is used to assist the settling of solids. Thickened slurry is pumped
to the pressure oxidation circuit. Pressure Oxidation.The Lihir pressure oxidation circuit utilizes Dynatec
(formerly Sherritt) patented technology and is typical of pressure oxidation
autoclave circuits used to treat refractory gold ores elsewhere in the world.
Feed slurry is first pre-heated to 80 degrees celsius in heat recovery vessels
before being pumped under high pressure into three horizontal, six compartment
autoclave vessels. Inside the autoclave, slurry is subjected to an operating
pressure of 2,400 kPa and a temperature of 200  210 degrees celsius. Pure
oxygen added into the autoclaves causes rapid oxidation of sulfide minerals,
and consequent release of gold particles, to occur. Autoclave discharge slurry
is depressurized into a flash vessel where temperature and pressure are reduced
to atmospheric conditions. Resultant steam produced in the flash vessels is
used to pre-heat autoclave feed in direct contact heat recovery vessels.
Carbon dioxide, nitrogen and residual oxygen is vented from the autoclaves into
the atmosphere. High pressure gaseous oxygen for the pressure oxidization process is provided
via two cryogenic oxygen plants located adjacent to the processing plant.
Liquid oxygen is also produced and stored for backup and emergency
requirements. 22




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CCD Washing and Neutralization.Oxidized slurry then passes through a
two-stage CCD thickener circuit where it is washed with process water and sea
water. Slurry acidity is then further neutralized by the addition of
milk-of-lime, which is prepared from imported quicklime, in a slaking circuit.
In this way, slurry pH level is increased to an appropriate level for cyanide
leaching. Dilution water is added to reduce slurry viscosity in preparation
for CIL processing. CIL Processing.Gold is recovered from the oxidized, slurry in a
Carbon-In-Leach (CIL) circuit. The circuit consists of eight large, agitated
tanks. In the second tank, sodium cyanide is added to the slurry to begin
leaching gold into solution. Coarse, granular carbon is added to subsequent
tanks to adsorb dissolved gold. Agitation ensures that the slurry, cyanide and
carbon are well mixed and suspended so that most gold containing particles are
leached and adsorbed onto carbon. Slurry flow progresses through the tanks
whilst carbon, retained by screens, is pumped in a counter-current direction
and progressively loads with adsorbed gold. Gold Recovery.Loaded carbon is recovered from the CIL circuit and stripped of
gold in a continuous Anglo-American Research Laboratories elution system. This
involves soaking gold-loaded carbon in a hot caustic / cyanide solution,
causing gold to desorb from carbon back into solution, and then rinsing the
carbon with hot dematerialized water. Stripped carbon is then regenerated by
heating in an atmosphere of steam, before being returned to the CIL circuit. Gold bearing solution from the elution process is circulated through
electrowinning cells where gold is recovered from solution through
electro-plating to produce a gold sludge. Finally, the sludge is dried and
smelted in a furnace to produce doré bars. The gold recovery facility has been
designed to treat up to 20 tonnes per day of loaded carbon. The overall ore treatment process is designed to recover between 88%-94% of
contained gold, depending on ore type. Overall plant recovery for 2003 was
88.6%. Tailings Disposal.Plant tailings are first treated to detoxify remaining free
cyanide through the mixing of a portion of the iron-bearing wash solution from
the CCD circuit with CIL circuit tailings. This results in the complexation of
free cyanide with iron. The balance of the CCD wash liquor is combined with
power plant and oxygen plant cooling water streams before combining with the
detoxified tailings stream. The combined streams are subsequently discharged into the ocean via a pipeline
at a depth of 128 meters, which is below the surface mixed layer of the ocean.
The surface mixed layer, which is the uppermost layer of the ocean that is
constantly mixed by wind and wave action, varies with location and time, with a
maximum depth of 98 meters being recorded to date at Lihir. Being denser than
the receiving seawater, tailings discharged below the surface mixed layer move
down the steep submarine slope and will not rise to the surface. See
Environmental Considerations below for a discussion of this method of
tailings disposal and its possible environmental impacts. Low Grade Ores.Lower grade ores from the mine have been stockpiled for future
processing. Weathering and natural oxidation of stockpiled ores has the
potential to inhibit autoclave throughput by reducing the grade of sulfide
sulfur in the ore. To mitigate this effect, a number of measures have been
taken:  §
    
    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 sulfur in ore feed.§
    
    The flotation plant provides an opportunity to increase the
sulfide grade of stockpile ore to some extent if required. 23




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Limestone Deposits.The original project design incorporated a lime plant
treating local limestone. While tests of the local limestone confirmed its
chemical suitability, it was also indicated that the limestone may prove too
friable for calcining in conventional shaft or rotary lime kilns. As a result
the processing plant utilises imported quicklime transported to site in 20
tonne containers. Infrastructure.Little or no infrastructure existed on Lihir Island prior to
the commencement of activity by the company and development of the Lihir
operation required a significant program of infrastructure construction.
Besides the processing plant and barge loading facilities for waste rock
disposal, infrastructure now includes a main administration office, an
analytical/environmental laboratory, a training building, a warehouse, plant
maintenance workshops, emergency response facilities and a power plant
consisting of twelve diesel generators, each of 6.3 megawatts. Infrastructure for the workforce includes housing and related community
facilities such as a school, medical center, supermarkets, an open market and a
police station. A wharf has been constructed at Putput for general cargo ships
and tankers. An airstrip and terminal facilities have been constructed on the
northern portion of the island. The existing road connecting the airstrip and
the project site has been improved and a ring road around the island completed. Fresh water is required in the processing plant and in the grinding circuit to
reduce the chloride content of the ore. Potable water is also required. The
nearest available source of water in sufficient quantity is the Londolovit
River, where a run off weir scheme has been constructed. Water is now also
being accessed from the pit area itself. Communications at the site, within the island and with the external world has
been provided through the installation of a satellite link providing public
access to the national telephone network. Marine and aeronautical radio
systems are also installed. Workforce At December 2003, the company employed 989 people. Of this number, 376 or 38%
were Lihirian, 528 or 53% other Papua New Guinean nationals and 85 or 9%
expatriates from various other countries. The company continued to upgrade
training facilities and systems in all areas of its operations. A new intake
of 10 female secretarial trainees commenced during the year as did 12 heavy
equipment operator trainees. Professional and supervisory development training
was conducted in-house with over 900 training completions for the year. Community Affairs The Lihir Group is made up of four islands with a total population (as at March
2004) of approximately 12,818 persons, approximately 9,637 of whom live on the
main island (Aniolam) of the Lihir Group. The Lihir Group is over 900 kilometers from Port Moresby and at least two
hours travel by motorized boat from New Ireland, Tanga or Tabar islands.
Because of this relative geographic isolation, the Lihir Group community is
fairly self-contained. Comprehensive land tenure and genealogy studies were
conducted prior to the mines development and records are updated annually.
The people of the Lihir Group share a common language and the same clan
structure, factors which assisted in the conduct of the compensation
negotiations. In 1995, a comprehensive set of benefits and compensation arrangements were
agreed between the company, the three levels of Government and the people of
Lihir, known as the Integrated Benefits Package (IBP). The IBP details the
commitments made by the various stakeholders in terms of infrastructure and
support, community development, compensation, and relocation of certain
families from within the Special Mining Lease. A significant part of the
companys community affairs effort is directed towards ensuring compliance not
only with these commitments but also with the spirit of the undertakings in the
light of changing circumstances. Additionally, the community affairs section
has an overall focus on maintaining and strengthening the best possible
relationship with the Lihirian community by developing an understanding of 24




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Lihirs operations in the community and engendering trust through an open,
honest and transparent consultation process. The IBP includes four main chapters including: 1) Destruction (relocation and
compensation); 2) Development (royalty payments, equity participation (through
MRL), a community infrastructure, facilities and services, business
development, human development, village development; 3) Security (trust funds,
long term development plans, long term investment plans, training and
localization); and 4) Rehabilitation (progressive rehabilitation and mine
closure provisions). The IPB was signed on April 26, 1995, by Lihir Management
Company (initially on behalf of the joint venture but with an acknowledgment
that it would subsequently be on behalf of Lihir Gold Limited), the three
levels of government and by various groups of landowners and residents on Lihir
Island. It satisfied the requirements of the PNG Mining Act for compensation
arrangements to be in place before mining commenced. The compensation provisions of the IBP (Chapter 1) provide for compensation to
be paid to the landowners for cleared, damaged or otherwise affected land, for
loss of economic plants, for loss of man-made structures, for loss of marine
resources and wildlife, for discoloration or other adverse effects on creek
water and seawater, for disturbance of burial grounds and sacred sites and for
other miscellaneous effects of the Lihir operation. Additional compensation
has been, and as required will continue to be, paid to landowners in the
Ladolam pit and Putput plant site areas for loss of possession of land as a
result of the Lihir operation. In addition, the compensation agreement
provides that the landowners will be paid royalties per cubic metre for sand,
gravel and coronous material excavated from their land. IBP Chapters 2 and 3 provide for the establishment of trusts for the long term
benefit of landowners and residents and their children, and contain
acknowledgments by the landowners and residents that these agreements properly
and adequately provide for their compensation, (statutory and otherwise) and
that they waive any rights to bring action or suit for further compensation in
respect of matters covered by the compensation and relocation agreements. The company continues to examine ways of promoting self-help and
self-determination rather than have the community develop into complete
dependence on the company. The company works closely with Lihirs local level
government, the Lihir Mining Area Landowners Association (LMALA) and, through
the IBP review, is currently developing a new five-year sustainable development
plan to promote community development through self-help. The Lihirian people
are a proud community and have historically been extremely self-sufficient due
to their geographical isolation. Lihirs community leaders are aware of the
impacts large development can have on traditional lifestyles and are working
with the company to ensure that the many benefits resulting from the mine lead
to a long term social enhancement. The company has made substantial annual financial contribution by way of
compensation, community development, royalties, wages and other payments to the
Lihirian community as shown in the table below. 2003
    
    2002
    
    2001
    
    2000
    
    1999Kina millions
    
    
    25.2
    
    
    
    26.5
    
    
    
    18.1
    
    
    
    12.0
    
    
    
    8.6US$ millions equivalent
    
    
    7.23
    
    
    
    6.6
    
    
    
    5.0
    
    
    
    4.0
    
    
    
    3.2
 The IBP is now nine years old and the original concept of the mine has
materialized into a fully functioning operation. In June 2001 the local
community, Lihir, the PNG national, provincial and local level governments
commenced a full review of the IBP agreements to assess how they might be
improved to serve the various parties better in the future. In 2003 an
independent chairman was appointed to oversee the final stages of the review
process which is expected to be completed by early 2005. During the period of
the review, the company, government and landowners continue to work under the
terms and conditions of the original agreement signed in 1995. 25




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Even though the company has put significant effort into addressing landowner
issues, the company cannot guarantee that disputes will not disrupt operations
in the future. See Risk Factors. Business Development The company provides direct support for business
development to the local community through its business development office, or
BDO. BDO assists the local business community to develop realistic,
sustainable commercial opportunities. BDO assistance to local businesses has
included the development of business plans, managerial advice, preparation and
lodgment of VAT, group tax and company returns, secretarial support and
business training. In some cases, small loans have also been provided. More
than 120 small businesses operate on Lihir, most of which have received some
form of assistance from BDO. BDO continues to provide advice and assistance to local businesses to ensure
compliance with the Companies Act and Business Group Registration Act. Many local businesses continue to benefit from the companys outsourcing
programme for non-core activities by providing goods and services to the Lihir
project. This is undertaken by means of a transparent and formalized tender
process. Local business development creates employment and generally
contributes to the local economy. BDO also has an established agriculture section that provides technical
assistance to local farmers in vegetable farming, chicken farming, and
piggeries. Education Assistance -In 2003, the company continued to assist Lihirian
students through a range of programmes. Funding was given to Lihir High School
to upgrade computer systems and hardware and school fee assistance was given
for Lihirian students at secondary schools outside of Lihir. Direct monetary
grants were made to 34 local schools. Full scholarships were also granted to
30 undergraduates to undertake degree and diploma courses at tertiary
educational institutions. Health and Safety The company is committed to promoting the health and safety of its employees
and the neighboring community through effective management practices. Health
and safety improvements are sustained by the setting and review of targets,
assessing and reporting of safety performance and adoption of best available
practices for the conditions in which the company operates. Two important measures of Lihirs safety management efforts are the lost time
injury frequency rate (LTIFR) and the lost time injury severity rate (LTISR).
A lost time injury results when an employee or contactor cannot perform 100%
of their normal duties for a full shift. Between 1998 and 2003 the company
LTIFR was 0.41, 0.34, 0.35, 0.46, 0.30 and 0.30 respectively, per 200,000 hours
worked. The LTISR has reduced from a peak of 5.27 in December 1999 to 1.30 in
December 2003. Since 2001, the quality of recording and investigation of
incidents has continually improved to a degree where management is confident
that issues are being identified and addressed. Lihir believes that this is a
positive indicator that the safety awareness programs are working and employees
and contractors understand the importance of reporting an incident and/or near
miss when they see it. An annual site safety plan, which addresses issues identified through audits,
risk assessments and benchmarking against best practice is developed. Progress
against the plan is reviewed quarterly by the management team and the
occupational health and safety committee established for this purpose. Other
initiatives have included the introduction of a comprehensive contractor
management system, continued improvement to site training programs and, more
recently, the commencement of an occupational health programme. Lihir is
committed to motivating employees and contractors in relation to occupational
health and safety awareness and to always striving for of No Injuries to
Anyone Everthrough a belief that all work related injuries and illnesses are
preventable". The companys aim is to consolidate and realize the gains from
earlier efforts and to continually promote a positive change to the behaviour
of its workforce and contractors. 26




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Community Health- An important benefit provided to the Lihirian community is
better health care. Currently the company provides medical services to
employees, contractors and their dependents as well as to the local people
through the Lihir medical center at Londolovit, which offers outpatient,
inpatient and preventative health care services. The medical center also
provides support through the provision of drugs and services to all the
government and mission run health facilities throughout the Lihir group of
islands. Through the medical centre, the company continues to target malaria and other
parasitic infections through the vector control programme, or VCP, which is
regularly audited by a consulting entomologist. The VCP has seen admission to
the medical center due to malaria decrease from 22% of the population in 1998
to around 10% since 2001. The VCP has been largely concentrated within
villages close to the mining development resulting in reductions in the
percentage of persons infected with malaria in those areas from as high as 50%
to less than 10%. Other key focus areas for the companys community health
programs include infant and maternal health, and infectious diseases such as TB
and HIV/AIDS. Combined with comprehensive public education programmes the
company will construct a new infectious diseases isolation ward at the
Londolovit medical centre in 2004. Management General Lihir Management Company, a subsidiary of Rio Tinto, manages the company and
the Lihir operation pursuant to the management agreement between the company
and Lihir Management Company, the terms of which are discussed in detail below.
The managing director of Lihir Management Company is also the managing
director of the company and reports directly to the companys board of
directors. As a consequence of the management agreement, Lihir has no
executive officers or senior management personnel who are not also executive
officers or senior management personnel of Lihir Management Company. Mining Contractor The feasibility report contemplated that the bulk of mining operations would be
carried out by contractors during the entire mining period but that this would
be reviewed prior to the end of the then current contracts. In October 1995
the company entered into a mining contract under which the mining contractor
(the Thiess-Roche Lihir Joint Venture) was responsible for stripping and
preparing the mine site, drilling, preparing blast holes, extracting, loading
and hauling ore and waste, establishing stockpiles, in-pit dewatering, slope
control and operating the waste rock barge fleet. In June 1999 the mining
contract was varied so that the mining contractor reduced the unit rates for
the works. This provided a yearly saving to the company of approximately 9%,
equivalent to approximately US$6 million per year. Following a review of the benefits of contract mining, as compared with Lihir
operating the mine itself, Lihir determined to exercise its rights of early
termination under the mining contract, and signed a heads of agreement with the
mining contractor on March 17, 2000, whereby the company cancelled the mining
contract effective April 17, 2000 and purchased the mining fleet and equipment.
The capital cost of the acquisition of the mining fleet and associated
equipment, spares and stock from the mining contractor was US$42.3 million.
Under the heads of agreement, the final contractual payments to the mining
contractor upon the termination of the mining contract were also agreed. These
payments included a lump sum amount of US$7.7 million, which encompassed both
the payment due under the termination formula contained in the mining contract,
and a sum to settle remaining contractual claims by the mining contractor.
This termination fee was expensed in 2000. Lihir Management Company is now responsible for managing the work previously
undertaken by the mining contractor. In addition, Lihir Management Company is
responsible for providing mine staff and engineering personnel, mine planning
and slope design, slope erosion protection, definition drilling, ore control
and sampling and groundwater and geothermal control. 27




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Blasting Contractor On March 14, 1996, the company entered into a Contract Explosives Services
Agreement with Orica Papua New Guinea Ltd to supply explosive services for the
Lihir operation through to June 30, 2002. The Agreement was immediately
assigned as a nominated subcontract to the then mining contractor. The
awarding of the contract followed testing by the successful contractor and the
contractor being able to demonstrate to the company that its specially
compounded emulsion explosives were suitable for the high rock temperatures and
reactive soils that characterize the Lihir mine. The blasting contractor was
required to procure, transport and store all explosive products; manufacture
and deliver explosives into blast holes; prime, tie-in and initiate the
blasting; and provide all facilities for manufacture and storage, including
warehouses, magazines, labour and supervision. The blasting contractor is
provided with fuel, power and potable water by Lihir. At times, blasting at Lihir is carried out under unusual conditions with high
blast hole temperatures. The sulfide-bearing rock is both wet and reactive
with nitrate based compounds. Special explosives are required to deal with
these conditions and the blasting contractor undertakes final preparations of
these explosives at the site. In June 1999 the Contract Explosives Services Agreement was amended providing a
substantial reduction in the explosive pricing due to modifications in the
product and the use of alternative raw material suppliers. The savings to
Lihir amount to US$1.5 million per year. In return, the term of this agreement
was extended to the earlier of March 31, 2009 or the completion of mining. The
amended agreement now contains a re-price review on a two yearly basis that
will take into account factors such as technical improvements, site factors,
and genuine competitive options available to Lihir. Following termination of the mining contract on April 17, 2000, the blasting
contractor was contracted directly to Lihir. In December 2002, Lihir renegotiated the purchase price of bulk explosives from
the blasting contractor. The net result was cost neutral with higher
operational flexibility and productivity. 
 C. Organization and Structure As of the date of this annual report, Rio Tinto held 14.46% of Lihirs ordinary
shares. As a result of a merger effected on February 2, 2000, Niugini Mining Limited is
a 100% owned subsidiary of Lihir. Niugini Mining is registered in Papua New
Guinea. Niugini Mining is the sole subsidiary of Lihir Gold. See Information
on the Company-History and Development of the Company-Merger with Niugini
Mining Limited. Niugini Mining Australia (Pty) Limited is a 100% owned subsidiary of Niugini
Mining Limited and is registered in Australia. Niugini Mining Australia (Pty)
Limited is the sole subsidiary of Niugini Mining Limited. Neither company has
continuing operations. However, contingent liabilities relate to both. See
Note 21 to the financial statements and Financial Information-Consolidated
statements and other financial information. 28




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D. Property, Plant and Equipment Lihir is the sole owner and licensed holder for gold mining, processing, and
associated infrastructure assets on Lihir Island, PNG. The facilities have a
replacement value of approximately $US1 billion. Mining Rights Lihir holds the Special Mining Lease which gives the exclusive right to mine
and produce gold from the Luise Caldera, including the site of the processing
plant on Putput Point. The Special Mining Lease is governed by the Mining
Development Contract. The Special Mining Lease can be terminated only if the
Mining Development Contract is properly terminated. For a discussion of
applicable PNG mining laws and the specific terms and conditions of the Special
Mining Lease, Exploration License and Mining Development Contract, see
Additional Information  Material Contracts  PNG Mining Laws and Related
Agreements with PNG Government. Under the PNG Mining Act 1992, a developer may apply for a lease for mining
purposes, or LMP, to cover ancillary areas required to support a mining
operation. A mining lease is required for any quarrying operations outside the
Special Mining Lease. Lihir has been granted two leases for mining purposes,
one which covers the accommodation and commercial center, the Londolovit
reservoir and the Lakunbut dam and the other which covers the airstrip. The
company has also been granted two mining leases for a hard rock quarry and
limestone quarry. These leases are joined by three mining easements that
provide corridors for road access and power line and water supply. The Special Mining Lease covers 1,739 hectares and includes the Luise Caldera,
Luise Harbor and part of Putput Point. As such, it covers the ore bodies,
processing plant, stockpiles and marine facilities. The LMP for the
accommodation and commercial center covers 674 hectares in the Londolovit area
and the LMP for the airstrip covers 34 hectares. The mining lease for the hard
rock quarry covers 47.7 hectares while the mining lease for the limestone
quarry covers 23.7 hectares. Lihir Island Lihir Island is the largest of the Lihir Group of four islands. It is located
925 kilometers directly northeast of the PNG capital of Port Moresby. The Lihir
Group forms part of the province of New Ireland. Lihir Island is a volcanic seamount that rises steeply from sea level to about
600 meters above sea level. It is approximately oval in shape, roughly 22
kilometers long from north to south and 14.5 kilometers from east to west at
its widest points. There is a caldera from what is believed to be a no longer
active volcano (the Luise Caldera), which adjoins a harbor (the Luise
Harbor) on the east coast of the island. All of the known ore deposits of the
Lihir operation are located in the Luise Caldera. An airport capable of
handling appropriately sized aircraft and a port capable of handling 8,000
tonne ships and 12,000 tonne tankers have been constructed as part of the Lihir
operation. Lihir Island experiences a high level of rainfall, averaging about 3,700
millimeters per year, and has an annual mean relative humidity of about 80%.
The temperature generally varies between 20oC and 30oC (68oF and 86oF). Lihir
Island is north of the area most affected by cyclones. Natural vegetation is
mostly rain forest. Prior to the development of the Lihir operation, Lihir Island was largely
undeveloped. Subsistence agriculture was the principal occupation of most
Lihirians, supplemented by some cash crops such as copra. 29




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Geology Lihir Island is made up of five Miocene-Pleistocene volcanic units, of which
three are recognizable volcanic craters (including the Luise Caldera) and two
are sequences of mafic volcanic rock that predate the three volcanoes. The
volcano that formed the Luise Caldera was the most recent major volcanic event
on the island. It was formed in the Pleistocene age, less than one million
years ago. Remnant geothermal activity is present in the Luise Caldera,
evidenced by hot springs and fumaroles. Studies of groundwater circulation
suggest there is no magma present below the Luise Caldera. The Luise Caldera is a well-defined, elliptically shaped caldera, which rises
steeply to several peaks over 600 meters above sea level. The caldera is open
to the northeast where it is breached by the sea to form Luise Harbor. Luise
Caldera measures approximately 5.5 kilometers by 3.5 kilometers. Currently
defined gold mineralization occurs within an area of about 2.0 by 1.5
kilometers near the center of the caldera. Exploration work since 1983 has defined several adjacent and partly overlapping
mineral deposits in the Luise Caldera, the principal ones being Lienetz,
Minifie, Coastal, Borefields and Kapit. Of these, the largest is Minifie,
which is about 1,000 by 600 meters with mineralization extending from the
surface (50 meters above sea level) to 250 meters below sea level. The Lienetz
deposit north of Minifie is about 800 by 400 meters, and extends from the
surface (140 meters above sea level) to 300 meters below sea level. The smaller
Coastal deposit adjoins Lienetz on the northeast, separating it from the sea.
The Borefields zone extends to the north-east along the Minifie structure and
is an extension of the Minifie mineralization. The Kapit deposit, extending
300 to 400 meters north of Lienetz, is about 450 by 300 meters with
mineralisation extending from near surface to 250m below sea level. Drilling in
2002 and 2003 extended the limits of Lienetz to the North West, confirmed
physical connection between Lienetz and Kapit and extended the current
knowledge of the Kapit deposit. By February 2004, the Kapit resource had been
sufficiently explored by drilling, geotechnical, geothermal and economic
studies to partially convert the resource to reserves. The bulk of the known gold mineralization is located in Minifie, Lienetz and
Kapit. All of the deposits are connected by areas of low-grade mineralization.
An analysis of the structural patterns has led to the hypothesis that the
Lienetz, Coastal and Kapit areas are part of a single mineralization system,
with a separate feeder system accounting for the Minifie and Borefields
mineralization. The Coastal and Borefields pits are not currently included in
the defined reserves. Based on exploration work to date, gold appears to be the only metal of
economic significance present within the Luise Caldera. Gold occurs primarily
as sub-micron size particles in sulfide minerals. Sulfide content is
relatively high, with the average sulfur grade of the reserves being 6.15%.
The main sulfide material is pyrite, with the marcasite form present as an
accessory mineral. Arsenopyrite is rare. Free gold is increasingly apparent.
Oxidation layers range in thickness from minimal in low lying areas such as
Minifie to a maximum of 70 meters over the higher parts of Lienetz and Coastal
and Kapit. The mineral deposits in the Luise Caldera are hosted by volcanics, intrusives
and breccias, and there has been extensive alteration of these rocks within the
caldera. Two major alteration episodes have been identified, an earlier and
deeper porphyry style event resulting in potassic alteration grading
laterally to propylitic alteration and a later and higher level epithermal
event producing argillic, advanced argillic and phyllic alteration. Because
the intensive alteration has destroyed much of the original host rock
lithology, the deposits have been classified into a series of ore types based
on alteration, hardness, degree of brecciation and similar factors. While this
is more a metallurgical classification than a geologic one, it has proved
useful in determining many of the mining and processing characteristics of the
orebody and host rocks. The ore types are roughly sub-horizontal and form a
fairly consistent vertical sequence. The general sequence is that of clay-rich
rock, grading into white mica-felspar rock, then felspar-biotite and, at depth,
into felspar-biotite-anhydrite. Within and on the boundaries of the ore types,
geological structure is also a major influence in the localization of higher
grades in the ore body. 30




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Reserves Estimates During 2003, an intensive resource definition and extension drilling program
was undertaken at Lihir, with substantial additional drilling and assaying data
becoming available since the completion of the previous resource estimate in
2002. The bulk of the Kapit ore body was converted to reserve as a result of
this drilling programme. This has resulted in increases in both resource and
reserves as at December 31, 2003, as published in February 2004. Development of the Kapit deposit will require the construction of a coffer dam
in the shallows of Luise Harbour. A substantial geothermal depressurization
programme will be required prior to mining Kapit. Options are being
investigated for early commencement of this programme. Economic and technical
studies have demonstrated the financial and technical viability of the coffer
dam and depressurization programs and the relocation of the current low-grade
stockpile lying over this ore. The Kapit orebody development lies within
Mining Lease SML6 held by the company. Discussions with the PNG Government
have confirmed that, subject to due processes, there currently are no
foreseeable regulatory impediments to the granting of necessary approvals and
permits for the development of the Kapit orebody. The ore reserves in the table below are based on the new resource model at a
US$340 per ounce gold price assumption (1.7 g Au/t cutoff) adjusted to take
account of mining depletion and reconciliation changes to December 31, 2003. Average
    
    ContainedReserve
    
    Tonnes
    
    grade
    
    OuncesCategory
    
    (In millions)
    
    (g Au/t)
    
    (millions)Un-mined Ore
    
    Proven
    
    
    3.2
    
    
    
    4.01
    
    
    
    0.4Probable
    
    
    127.1
    
    
    
    4.18
    
    
    
    17.1Stockpiled Ore
    
    Proven
    
    
    33.2
    
    
    
    2.75
    
    
    
    2.9Total Reserves
    
    
    
    
    
    
    163.5
    
    
    
    3.88
    
    
    
    20.4
 Reserves have been prepared in accordance with Industry Guide 7 under the
United States Securities Act of 1933 and the following definitions: The term reserves means that part of a mineral deposit that can be
economically and legally extracted or produced at the time of the reserves
determination. The term economically, as used in the definition of reserves, implies that
profitable extraction or production under defined investment assumptions has
been established or analytically demonstrated. The assumptions made must be
reasonable, including assumptions concerning the prices and costs that will
prevail during the life of the project. The term legally, as used in the definition of reserves, does not imply that
all permits needed for mining and processing have been obtained or that other
legal issues have been completely resolved. However, for reserves to exist,
there should not be any significant uncertainty concerning issuance of these
permits or resolution of legal issues. The term proven reserves means reserves for which (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed sampling; and (b) the
sites for inspection, sampling and measurement are spaced so closely and the
geologic character is so well defined that size, shape, depth and mineral
content of reserves are well established. The term probable reserves means reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven reserves,
but the sites for inspection, sampling and measurement 31




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are farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation. Reserve tonnages were depleted during 2003 by mining activity. Reserves quoted
are those remaining below the mining surface at December 31, 2003, within a
revised pit design. Stockpiled ore comprises mined ore above waste cut-off grade on the stockpiles,
as of December 31, 2003. The reserves reflect an assumed gold price of US$340 per ounce. The number of
ounces of contained gold does not indicate the number of ounces that ultimately
will be recovered. The number of ounces ultimately recovered and available for
sale will depend upon, among other things, mining efficiency and processing
efficiency. While Lihir believes that US$340 is an appropriate gold price to
use to estimate its reserves, the company has estimated that, if the assumed
long-term gold price was reduced to US$300 per ounce, its proved and probable
gold reserves excluding stockpiles would be reduced to 14.5 million of ounces
of un-mined ore. Conversely, a metal price of US$400 per ounce would increase
the un-mined component of the reserve to 23.7m ounces of contained gold. Exploration The Kapit exploration-drilling programme continued during 2003, with results
confirming and extending the magnitude of the ore body. In total, 52 diamond
drill holes for 21,809 metres were completed. Further drilling was undertaken
in the area between Kapit and Lienetz, following the discovery of
mineralisation linking the two ore bodies. The 17 holes for 5,542 metres
drilled in the Kapit link zone reinforced the continuity of the ore system in
this area. While the grades are relatively low in the shallower areas of the
southern end, (thereby limiting the viability of mining the Lienetz and Kapit
ore bodies with one pit), mineralisation strengthens towards the Kapit zone
with grade improvement towards four grams of gold per tonne. By December 31, 2003, the limits of the ore body to the west and south had been
defined, while the mineralisation remains open to the north and to the east
under Luise Harbour. Exploration teams were also active with programmes to define the western limits
of Lienetz, Kapit and Minifie. Drilling results, while encountering minor
vein-style mineralisation, have confirmed economic closure of the Lienetz and
Kapit ore bodies to the west. In addition to the major exploration drilling campaign, geotechnical and
geothermal studies were undertaken to determine whether mining of the Kapit
zone would be feasible. New pit designs, which include the Kapit deposit
incorporated in reserves in February 2004, have been developed. The
significant reserve increase draws on resource additions reported in February
2003, as well as the results of the ongoing drill programme during the past
year. Exploration is continuing on Lihir Island with the focus being within the Luise
Caldera. Some preliminary stage exploration is also being undertaken nearby at
Ilkot Creek. Exploration programs are planned to fully explore the potential
of the remainder of the Island. Subject to negotiations for land access, it is
anticipated that the whole island will have been mapped and surface sampled
within the next three years. The Kapit deposit has been clearly defined to the west and south and, while
substantially defined, remains open to the north and along the eastern flank
adjacent to Luise Harbour. Further drilling on the northern flank is scheduled
for 2004, to convert inferred resource currently on the margins of the mine
design. The drilling programme for 2004, reduced from that undertaken in 2003, will
look to continue appropriate infill and geotechnical work in the Lienetz and
Kapit areas with an increasing emphasis on improved ore definition for mine
scheduling purposes. 32




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Environmental Considerations Overview Lihir considers that excellence in managing its environmental responsibilities
is not only inherently worthwhile but also essential to its long-term success. The company operates in accordance with an environmental plan approved by the
PNG Government and works closely with that government in implementing all
statutory monitoring and reporting as specified in its environmental monitoring
and management program, or EMMP. It also operates in accordance with all water
use permits issued for the site. The EMMP details the regular monitoring which
is undertaken at over 50 locations around the Lihir island group for over 50
environmental parameters. All results from environmental monitoring are
reported to the government and landowners on a regular basis. The EMMP will be reviewed by the Company and the Government during 2004 to
ensure the ongoing efficacy of the environmental management programs. The
company has also been consulted by the PNG Government in its development of the
new Environment Act for Papua New Guinea. The Environment Act was passed by
Parliament in December 2000 and combines the previous environmental legislation
into one Act. It came into operation on January 1, 2004. The company is
actively consulting and cooperating fully with the government in the transition
of permits issued under the previous legislation to the requirements of the new
Environment Act. During the period of transition, any permits issued under the
previous legislation are deemed valid under the new Act. Lihir has independent environmental consultants report on its environmental
compliance. In addition, the Government carries out their own independent
monitoring for elements contained in the EMMP to confirm the companys results
and the company complies with stringent corporate reporting requirements by Rio
Tinto. The Statement of Compliance issued by the PNG Government Department of
Environment and Conservation (DEC) in 2003 states that DECs assessment of the
environmental monitoring reports have shown that Lihir is in compliance with
the environmental conditions set in the approvals and permits. DEC commends
the initiative taken by Lihir in planning to evaluate its environmental
performance in line with the new Environment Act 2000 and subsidiary
regulations, which will come in to force mid-2003. The Mine and this
Department will be involved in this process. We are happy to say we are
confident of the Companys environmental performance. In addition to the statutory environmental compliance monitoring and reporting
through the EMMP, the company undertakes studies to improve understanding of
the environmental consequences of the operation. The company is involved in
research projects with CSIRO Division of Marine Science, James Cook University,
Australian Institute of Marine Science, Deakin University and Klohn Crippen
Consultants Ltd. While the companys monitoring and research projects are
continuing, results from investigations to date suggest that the level of
impacts originating from the companys activities are less than originally
predicted. The company has been recommended for full certification of its Environmental
Management System (EMS) against the ISO14001 standard in May 2004, making Lihir
the first mine in PNG to do so. Environmental Plan Extensive environmental baseline studies of the Lihir Islands were carried out
with the involvement of the Lihirian community, during exploration. These
baseline studies were followed by an environmental impact assessment of the
Lihir operation, which highlighted key environmental issues considered during
project planning in an attempt to minimize project-related environmental
impacts. The environmental impact assessment determined that the sensitive
environmental variables most likely to be impacted by the project included: the
loss of nesting habitat for megapodes (a local fowl valued for its eggs), sago
and other economic tree removal, diversion and alteration of stream habitat,
and the effects of sedimentation on the shallow and deep water marine
environment around Luise Harbor. Each of these impacts are summarized below;
however, 33




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in summary, ongoing environmental monitoring performed by the company (and
independently by the PNG Government and independent consultants) reveals that
impacts to date are less than that anticipated in the projects environmental
plan (EP) and factored into the approval by the PNG Government for the project
to proceed. Following its environmental impact assessment, the EP was prepared by
specialized external consultants (NSR Environmental Consultants Pty Ltd) on
behalf of the joint venture and submitted to the PNG Government in accordance
with Section 4(6) of the PNG Environmental Planning Act. The EP was
subsequently approved and describes the proposed development, existing
environment, anticipated impacts and proposed safeguards, and the EMMP for the
construction and operational phases of the mines development. In the Mining Development Contract, Lihir has agreed to comply in all material
respects with its EP. The EP may be varied either by the company, with PNG
Government approval, or by the PNG Minister for Environment and Conservation if
there is a material danger to public health and safety, if the conduct of
normal operations in accordance with the EP poses an environmental impact,
either not contemplated or different than contemplated in the EP, or if
substantially better environmental control technology becomes available. Land and Habitat Impacts The major land and habitat impacts associated with the Lihir operation, are the
alteration of land use in and around the mine and plant site areas from natural
environment to mining lands, and the loss of habitat types important to local
inhabitants. A compensation package was negotiated and accepted by the
company, the PNG Government, and landowners that addresses these environmental
impacts, including the loss of megapode nesting habitat and economically
valuable vegetation, diversion and alteration of stream habitat, and impacts by
sedimentation on the water quality of the shallow and deep water marine
environment around Luise Harbour, among other land use issues. Geothermal areas of the Luise Caldera are important nesting grounds for a
sub-species of megapode. This sub-species is not unique to the Lihir Group of
islands and is genetically and morphologically similar to the populations found
on other nearby islands. Historically, it was important to Lihir Island
primarily because the local inhabitants used its eggs as a food source. Though
significant areas of nesting habitat in the caldera area have been lost,
detailed surveys in 1997-2001 found that nesting burrow numbers have
significantly increased in undisturbed areas and also that new nesting areas
have been colonized. This is attributed to a reduction in the predation
pressure on the megapodes by the local community, in response to increased
standard of living with less reliance on traditional food resources afforded by
the mine development. Similarly, repeat post-baseline surveys of sago resources along the east and
north-east coast of Lihir Island, show that while some sago areas have been
lost to road and infrastructure construction, the overall numbers of sago have
increased. As with megapodes, this is believed to be the result of a reduction
in the requirement for traditional food and building resources since the
establishment of the mine. Waste Rock and Marine Impacts Given the potential for acid generation from certain waste rock types,
permanent submarine disposal was agreed (by all stakeholders) as the preferred
method for long-term prevention of sulfide oxidation and subsequent acid
generation from geological waste. In addition, the lack of available land for
terrestrial disposal also supports the marine placement of waste rock and
tailing. The major impacts of the deep-water waste rock and tailing disposal
are increased turbidity in the water column within and beyond Luise Harbor,
(which declines along the north and south coast), and smothering of deep
seafloor dwelling organisms. The company regularly monitors the impact of its marine disposal operations and
has always remained in compliance with the PNG Government water quality
criteria for the protection of marine ecosystems. In addition, a comprehensive
3-year research program on the impact of marine geological waste disposal on 34




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fisheries resources around Lihir conducted by CSIRO Division of Marine Science,
(completed in 2003), revealed no significant impacts on the diversity,
abundance or bio-concentration of metals in fish as a result of the mines
presence. The companys own monitoring results of marine sea grass and
shellfish are consistent with the CSIRO findings. Following the completion of
the first 3-year study by CSIRO on fishery resources, research is now being
directed towards assessing the impacts on deep seafloor organisms and the
impact of marine waste disposal on ocean plankton. The major impacts associated with ocean disposal of mine waste continue to be
aesthetic, involving surface sediment plumes resulting from barge disposal of
waste rock and storm water run-off from roads and mining areas. In 2002 the
company voluntarily commenced a program to further improve its management of
water, sediment and acid leachate from stockpile drainage entering the ocean.
This 3-year program, expected to cost approximately US$5 million, is being
implemented by Klohn Crippen Consultants Ltd on behalf of the company with the
aim of, among other objectives, reducing the visual impacts of sediment in the
ocean surrounding the mine. Stockpile Drainage The EP suggested that drainage from the low grade ore stockpiles may cause
acidic runoff, and elevated levels of dissolved metals, including iron, copper,
arsenic, zinc, aluminum, manganese, cadmium, lead and, possibly, mercury and
chromium. The company has installed stockpile covers where appropriate to
reduce the generation of stockpile leachate. The concentration of these metals
in the marine environment at Lihirs compliance monitoring locations, remain
within the limits imposed by the PNG government, for the protection of marine
ecosystems, and there is no evidence, as supported by the CSIRO Division of
Marine Science study, that discharge of stockpile leachate has had a
deleterious impact on fisheries communities adjacent to the mine. The discharge of acidic run-off water from other areas, is mitigated prior to
entering the ocean, by dilution with large amounts of water from the pit
dewatering bore field, which has a high alkalinity and therefore buffers of
acid leachate run-off. The company is currently evaluating further treatment
options to assist in leachate mitigation. As part of the mine water, sediment
and acid rock drainage management plan being conducted by Klohn Crippen
referred to above, the company are currently undertaking engineering works to
further improve the management of acid water from the stockpiles. Tailings Disposal The reliance of the Lihirian communities on coastal lands means that a
land-based tailings storage facility would have had to be situated in the
interior mountainous area of the island. Given the seismic conditions, the
rugged topography, high rainfall and potential for acid generation, the cost
and risks to the environment and people of constructing a stable land storage
facility there for tailings were considered prohibitive. In addition, due to
the net rainfall surplus, storage of tailings on Lihir Island was not likely to
be possible, without long term treatment of the effluent run-off water from the
land storage facility, the residues from which could also require land-based
storage. For these reasons, the company and the PNG Government concluded that
submarine disposal of tailings was appropriate for the Lihir operation. Tailings are discharged under water at a depth of 128 meters through a 1.2
metre diameter steel-cased high density polyethylene (HDPE) pipeline. The
discharge depth was chosen following extensive field-work on the structure and
currents of the ocean in the vicinity of the outfall, leading to the
development of a predictive model of tailing behavior once discharged. The
discharge point at 128 m is below the mix layer depth, the euphotic
(biologically active) zone and where the density of the receiving ocean water
precludes the tailings floating back into the surface water. The tailing is a
combined stream of approximately 5% solids and a mixture of fresh and salt
process water and saltwater used in the cooling of the power and oxygen plants.
The water quality around the area of the outfall is monitored on a regular
basis, to ensure that concentrations of metals and cyanide species are not
above PNG water quality criteria for protection of marine ecosystems.
Monitoring data to date show that, at all times, water quality at marine
compliance locations have been better than the prescribed standards. 35




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In addition, the company (in consultation with the PNG Government, CSIRO Centre
for Advanced Analytical Chemistry, NSR Environmental Consultants, Ocean
Sciences Institute and Underwater Video Systems) has carried out extensive
validation studies of the behavior of the tailing once it leaves the end of the
pipe and is discharged to the ocean. These studies have shown that the
tailings travel down the steep submarine slope, after discharge from the end of
the pipe, as a consolidated turbidity current, and settle out on the ocean
floor. Only small amounts of the main turbidity flow break off to form
sub-surface plumes below 150 m and no re-suspension to waters above 128 m was
observed. Submarine disposal of tailings is only appropriate under certain geographical
and physical conditions, including suitable ocean currents, absence of
upwelling, steep slopes and deep surrounding ocean, all of which occur at
Lihir. According to information published by the U.S. Bureau of Mines in
October 1993, there is no knowledge potentially economic mineralization, with
suitable adjacent deep oceanic conditions, within the contiguous mainland
states of the United States, which would make submarine disposal of mine
tailing a viable consideration. The international concern regarding marine
tailings disposal is based on the perception that it could lead to major metal
contamination. Bottom-dwelling marine organisms colonizing stabilized waste
rock or tailings deposits may be exposed to elevated metals concentrations in
the sediments. Tissue metal enrichment may then occur and may be transferred
to predatory fish. As discussed previously, a comprehensive 3-year study
undertaken by CSIRO Division of Marine Science, concluded that there is no
evidence of metal enrichment in fish species around Lihir as a result of the
mine. Further research on other marine organisms including deep seafloor
dwelling organisms and plankton species is currently underway. At least 90% of the residual cyanide contained in CIL tailings is detoxified by
reaction with iron prior to disposal. Cyanide detoxification is achieved by
controlled mixing of iron-rich CCD liquor with CIL effluent to complex the free
cyanide. A mixing tank allows sufficient retention time for the reactions to
proceed and the tailings disposal is managed to ensure PNG water quality
standards are met. Rehabilitation and Decommissioning The approval of the environmental plan required the company to undertake
rehabilitation on a progressive basis. As with all environmental monitoring
reporting requirements, rehabilitation activities are reported to the PNG
Government on a regular basis. The company has prepared a conceptual mine closure plan, or CMCP, which details
the companys options with respect to mine closure, as well as assigning costs
associated with those various closure options. These costs will be accrued
(charged to operating costs) during the operation of the project, to ensure
that adequate financial resources are available for closure and decommissioning
at the cessation of mining and processing. The various closure options
identified in the CMCP will be reviewed during 2004 and 2005, to address such
issues as the final void of the pit, and the effect of mining the Kapit ore
body, which was converted to reserve in February 2004. The major areas to be
dealt with by rehabilitation efforts at closure, are the open pit area, and
low-grade ore platforms, which may be acid-generating. Closure costs were
estimated at approximately US$27 million based on the 1988 CMCP. These costs
are then adjusted for some additional work on the capping of 6 geothermal wells
and inflated to current dollar prices to give estimated costs of US$42 million.
This amount, in turn is discounted at the companys cost of capital to give
rise to a liability of US$7.0 million, as is currently reflected in the
companys balance sheet. As currently constituted, the company believes that
the sum of US$7.0 million, invested today at a rate of return equivalent to
Lihirs cost of capital, would ensure the company had sufficient funds to meet
the rehabilitation needs associated with the CMCP. Seismic Considerations Lihir Island is located in a region of moderate seismic activity. However,
because intense seismic activity occurs in regions approximately 90 and 200
kilometers to the south, a seismic hazard study was undertaken by Dames & Moore
commencing in 1987. This study was updated in February 1992, and a further
review undertaken in 2000. To evaluate the seismic environment of Lihir Island, an examination was
undertaken of the regional earthquake setting of PNG and the Solomon Islands.
A mathematical model was developed to estimate the 36




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probability and characteristics of earthquakes at Lihir Island. This model has
subsequently been modified and updated to incorporate the more than 1,640
earthquakes of magnitude 5 or greater which have occurred within 200 km of the
site since the original 1987 study was completed. The results of the seismic hazard study were used to develop earthquake design
criteria for structural design, and earth pressures for retaining wall design,
liquefaction assessments, dynamic slope stability, and assessment of tsunami
threat and extreme ocean water levels. These earthquake design criteria were
adopted for design purposes throughout the Lihir operation. The reviewed study
(2000) substantially confirmed the suitability of the original criteria, and
has been adopted as the basis of all ongoing structural design at Lihir. No seismic events causing significant damage or extended disruption to
operations have been experienced to date. Insurance Lihir has a comprehensive insurance programme providing coverage for property
damage & business interruption (property loss or damage, business interruption
and construction risks), combined liability (public, products and errors &
omissions), directors & officers liability, marine liability, aviation
liability, crime (fidelity guarantee, theft by employees) and money (theft by
people other than employees). Deductibles apply. Recent years have seen an increase in premiums as a result of insurance market
conditions worldwide. An exemption from the normal onshore placement rules in
PNG was approved by the PNG Insurance Commissioner in July 2000. Workers compensation and medical insurance for employees are separately
provided for under PNG policies. While the company has obtained the required political risk insurance in favor
of its lenders, covering the full extent of borrowings under the syndicated
facility agreement, the company does not receive any benefit from this
insurance. Under the policy, any payment will become subrogated to the rights
of the banks against the company in respect of that payment. No political risk
insurance has been, or is currently proposed to be, arranged for the benefit of
the company. See Additional Information - Material Contracts - Financing
Agreements. Security The company has supported the establishment by the community on Lihir of a law
and good order committee. This committee has liaised closely with the Royal
PNG Constabulary (Police) and other relevant agencies. Several initiatives on
community policing, such as education campaigns on illicit drugs, alcohol abuse
and domestic violence continue to be pursued. There have also been training
courses conducted to improve the performance of Village Courts. Village Courts
are an important level of the judicial system in the local community. At a
District Court level, a resident magistrate continues to be stationed on Lihir,
and court facilities have been established allowing the hearing of criminal and
civil matters without long delays. Project security encompasses the plant, mine site, commercial area, housing
estate, camps, hospital, airport and associated infrastructure. These services
are provided by a local security company with security personnel managed and
supported by Lihir Management Company personnel. A police station and cell block were completed and handed over to the Royal PNG
Constabulary in late 1997. The company also provides government housing and
other support to the Lihir police contingent. External police support can be
mobilized from Kavieng or Rabaul if required. A reserve police force
consisting of volunteers has also been established on Lihir Island, under the
control of the local Royal PNG Constabulary able to provide further assistance
if required. Training for reserve police has been provided by support
personnel based in Rabaul who are funded by AusAid. 37




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##### Table of Contents



Item 5. Operating and Financial Review and Prospects 
 A. Operating Results Introduction This section provides an analysis of Lihirs business and compares its 2003
financial results with those of the previous two years. It should be read in
conjunction with the audited consolidated financial statements and related
notes at Item 18 of this report. The basis of preparation of the financial statements is set out in Note 1 of
the financial statements. These accounting policies vary in certain important
respects from the accounting principles generally accepted in the United States
(US GAAP). The material differences affecting the profit and loss account and
shareholders equity between generally accepted accounting principles followed
by Lihir and those generally accepted in the US are summarized in Note 30 of
the financial statements. Critical Accounting Policies The preparation of Lihirs financial statements in accordance with generally
accepted accounting principles, is based on management estimates and
assumptions, which may have a material impact on the carrying values of assets,
liabilities and provisions recorded and their effect on the income statement.
Some of the more significant issues requiring the use of management estimates
and assumptions include estimates of proven and probable ore reserves, rate of
gold recovery, future gold price assumptions and environmental, reclamation and
closure costs. Such estimates and assumptions will have an effect on:  
    
    carrying value of Lihirs non-current assets (IAS 36 Impairment of
Assets and IAS 4 Depreciation Accounting) Mine properties Mine properties represent the accumulation of all development expenditures
incurred by or on behalf of the company in relation to areas of interest in
which mining of a mineral resource has commenced. When future economic benefits are established by further development
expenditure in respect of a mine property after the commencement of production,
such expenditure is carried forward as part of the cost of that mine property.
Otherwise such expenditure is classified as part of the cost of production. Amortization of costs is provided for using the units-of-production method,
separate calculations being made for each mineral resource. The
units-of-production basis results in an amortization charge proportional to the
depletion of estimated recoverable gold ounces contained in proved and probable
ore reserves. Where a change in estimated recoverable gold ounces contained in proved and
probable ore reserves is made, depreciation and amortization of mine properties
is accounted for prospectively in the period of change and future periods. Mine buildings, plant and equipment The cost of each item of buildings, machinery and equipment is depreciated over
its expected useful life. For the majority of assets this is accomplished
using the units-of-production method based on estimated recoverable gold ounces
contained in proved and probable ore reserves, although some assets are
depreciated using a percentage based on time. Each items economic life has due
regard to both physical life limitations 38




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##### Table of Contents



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 all items. The total net carrying values of mine buildings, plant and equipment at each
mine property are reviewed regularly and, to the extent to which these values
exceed their recoverable amounts, that excess is fully provided for in the
financial year in which it is determined. Remaining mine life In estimating the remaining life of the mine for the purpose of amortization
and depreciation calculations, due regard is given, not only to the amount of
remaining recoverable gold ounces contained in proved and probable ore
reserves, but also to limitations which could arise from the potential for
changes in technology, demand, product substitution and other issues which are
inherently difficult to estimate over a lengthy time frame. Impairment of assets Impairments of assets are recognised whenever the carrying amount of an asset
exceeds its recoverable value. The recoverable amount is measured as the
higher of net selling price and value in use. Value in use for individual
assets is calculated by discounting future cash flows using a risk adjusted
pre-tax discount rate. Under IAS 36 Impairments of Assets, impairments of
assets are recognized whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is measured as the higher of net
selling price and value in use. Value in use is calculated by discounting
future cash flows of the companys cash generating unit using a risk adjusted
pre-tax discount rate. The cash-generating unit comprises mine properties and
deferred mining costs. In the previous 5 years the following assumptions have been used in
determining value in use of the companys cash generating unit, giving rise
to the following impairment (charges) / reversals. 2003
    
    2002
    
    2001
    
    2000
    
    1999Long term gold price - US$ / oz
    
    
    340
    
    
    
    305
    
    
    
    280
    
    
    
    300
    
    
    
    325Discount Rate
    
    
    7
    %
    
    
    7
    %
    
    
    6
    %
    
    
    6
    %
    
    
    7
    %Impairment (charge) / reversal- IAS GAAP US$ millions
    
    
    31.1
    
    
    
    37.9
    
    
    
    0
    
    
    
    (120.6
    )
    
    
    (236.8
    )- US GAAP US$ millions
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (339.2
    )
    
    
    0
 There can be no assurance that the assumed per ounce gold price will be
realized in future spot sales or that other factors underlying the estimate of
recoverable amount will not change. Changes in the time value of money and in
the assessment of risks specific to the Lihir project may require changes to
the discount rate assumption. Adverse changes in these assumptions could
materially reduce Lihirs estimate of its recoverable amount, thereby
negatively affecting its reported financial position and results of operations,
and its future cash flows.  
    
    non-current liabilities (IAS 37 Provisions, Contingent Liabilities and
Contingent Assets) Restoration, rehabilitation and environmental expenditure In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent
Assets, a provision is raised for anticipated expenditure to be made on
restoration and rehabilitation to be undertaken after mine closure. These
costs include the costs of dismantling and demolition of infrastructure or
decommissioning, the removal 39




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##### Table of Contents



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
expected future costs to be required to settle present obligations, discounted
using a pre-tax discount rate, reflecting current market assessments of the
time value of money and those risks specific to the liability, of 6.5% (2002
2.5%). Although estimates of future costs are reassessed annually, given the
prolonged period to mine closure, it is possible that estimates of ultimate
restoration, rehabilitation and environmental liabilities could change as a
result of changes in regulations, the extent of environmental remediation
required and the means of reclamation or cost estimates. The expected future
cost of this is US$42 million with most expenditure scheduled for expenditure
after mine closure in 2023 and plant closure in approximately 2037. A corresponding asset, which represents future economic benefits, is raised and
subsequently amortized using the units of production method. The Companys restoration, rehabilitation and environmental expenditure policy
identifies the environmental, social and engineering issues to be considered
and the procedures to be followed when providing for costs associated with the
site closure. Site rehabilitation and closure involves the dismantling and
demolition of infrastructure not intended for subsequent community use, the
removal of residual materials and the remediation of disturbed areas. Community
requirements and long-term land use objectives are also taken into account.  
    
    inventory valuation (IAS 2 Inventories) Inventories Inventories of ore and metal are physically measured or estimated and valued at
the lower of cost and net realizable value. Cost comprises direct material, direct labour and transportation expenditure in
getting such inventories to their existing location and condition, together
with an appropriate portion of fixed and variable overhead expenditure and
depreciation and amortization, based on weighted average costs incurred during
the period in which such inventories are produced. Net realizable value is the
amount estimated to be obtained from sale of the item of inventory in the
normal course of business, less any anticipated costs to be incurred prior to
its sale. Inventories of consumable supplies and spare parts expected to be used in
production are valued at the lower of weighted average cost, which includes the
cost of purchase as well as transportation and statutory charges, and net
realizable value.  
    
    deferred tax position (IAS 12 Income Taxes) Income tax Tax effect accounting procedures are followed using the liability method for
all temporary differences arising between the tax bases of assets and
liabilities and their carrying values for financial reporting purposes. Income
tax on temporary differences is set aside to the deferred tax liability and
deferred tax asset accounts at current enacted tax rates. Deferred tax assets
relating to deductible temporary differences and tax losses are only carried
forward as an asset, to the extent that it is probable that future taxable
profit will be available against which the deductible temporary differences and
tax losses can be utilised. 40




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##### Table of Contents




    
    Derivative financial instruments (IAS 39 Financial Instruments:
Recognition and Measurement) Accounting for derivative financial instruments and hedging activities Derivative financial instruments are initially recognised in the balance sheet
at cost and are subsequently re-measured at their fair values. On the date a
derivative contract is entered into for the sale of gold, the Group designates
the contract as a hedge against specific future production. The method of
recognizing the resulting gain or loss is dependent on the nature of the item
being hedged. Changes in the fair value of derivatives that are designated against future
gold production and are therefore deemed effective, qualify as cash flow hedges
and are recognised in equity. Amounts deferred in equity are transferred to
the income statement and classified as revenue in the same periods in which the
designated gold sales are recognized in the income statement. Certain derivative instruments do not qualify for hedge accounting under the
specific rules in IAS 39. Changes in the fair value of any derivative
instruments that do not qualify for hedge accounting under IAS 39 are
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. However, if the committed or forecasted production is no longer
expected to occur, the cumulative gain or loss reported in equity is
immediately transferred to the income statement. At inception of the transaction, the company documents the relationship between
hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. This process includes
linking all derivatives designated as hedges to specific forecast gold sales.
The company also documents its assessment, both at hedge inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows of
hedged items. In assessing the fair value of non-traded derivatives and other financial
instruments, the company obtains a valuation from an independent external
party. Although management reviews key estimates and assumptions on an ongoing basis,
no assurance can be given that the indicated amount of gold will be recovered
or at the rates estimated. Gold reserve estimates are expressions of judgment
based on knowledge, experience and industry practice, and may require revision
based on actual production experience. Estimates that are valid estimates when
made may change significantly when new information becomes available. Such
estimates are necessarily imprecise and depend to some extent on statistical
inferences, which may prove unreliable. The following sections provide an overview of Lihirs results, financial
results of operations, impairment provisions, foreign currency fluctuations and
the impact of recently issued accounting standards. For discussion on Lihirs
reserves see Information on the Company  Property, Plant and Equipment 
Reserves Estimates. 41




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##### Table of Contents



Overview The following table presents Lihirs results in a format that includes certain
un-audited non-GAAP measures, such as cash costs. The table is also
presented to show separately non-cash costs, other operating costs not included
in the determination of gross cash costs and impairment adjustments. The
measures used and the presentation are intended to provide investors with
information about the cash generating capacity and performance of Lihirs
mining operations. In particular, cash costs is a measure that is used in the
gold mining industry and was developed in conjunction with gold mining
companies associated with the Gold Institute in an effort to provide a level of
comparability. However, Lihirs measures may not be comparable to similarly
titled measures of other companies. Management uses this measure for the same
purpose when monitoring and evaluating the performance of the Company. This
information differs from measures of performance determined in accordance with
GAAP and should not be considered in isolation or as a substitute for measures
of performance determined in accordance with GAAP. Lihir made a profit from ordinary activities after tax of US$34.8 million
(2002: US$53.2 million; 2001: US$59.2 million). US$ millions2003
    
    2002
    
    2001Gold sales
    
    
    211.0
    
    
    
    199.2
    
    
    
    200.3Revaluation of financial instruments
    
    
    12.1
    
    
    
    2.2
    
    
    
    5.0Deferred hedging income / (costs)
    
    
    (8.6
    )
    
    
    11.8
    
    
    
    27.9Total income
    
    
    214.5
    
    
    
    213.2
    
    
    
    233.2Gross cash costs
    
    
    175.8
    
    
    
    148.4
    
    
    
    140.3Deferred
waste and inventory movements - cash
    
    
    (9.5
    )
    
    
    (11.1
    )
    
    
    3.6Total cash costs
    
    
    166.3
    
    
    
    137.3
    
    
    
    143.9Depreciation and amortization
    
    
    28.6
    
    
    
    27.1
    
    
    
    31.9Deferred waste and inventory movements  non cash
    
    
    (9.0
    )
    
    
    
    
    
    
    Other corporate costs
    
    
    11.9
    
    
    
    4.7
    
    
    
    2.6Exploration
    
    
    10.5
    
    
    
    9.7
    
    
    
    7.6Net interest
    
    
    2.5
    
    
    
    2.7
    
    
    
    4.4Asset impairments/(impairment reversal)
    
    
    (31.1
    )
    
    
    (37.9
    )
    
    
    Total expenses
    
    
    179.7
    
    
    
    143.6
    
    
    
    190.4Net earnings before taxation
    
    
    34.8
    
    
    
    69.6
    
    
    
    42.8Taxation benefit/(expense)
    
    
    
    
    
    
    (16.4
    )
    
    
    16.4Net earnings
    
    
    34.8
    
    
    
    53.2
    
    
    
    59.2
 42




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##### Table of Contents



Financial Results of Operations Sales Lihirs revenues are determined primarily by the amount of gold it produces and
the prices it is able to realize upon sales of gold. The companys realized
gold prices are determined primarily by the market price for gold and the terms
of any hedging transactions into which it enters. 2003
    
    2002
    
    2001Gold sales
    
    Ounces 000
    
    
    579
    
    
    
    593
    
    
    
    648Gold sales at spot
    
    
    
    
    
    
    364
    
    
    
    310
    
    
    
    271Hedging gains / (losses)  cash
    
    
    
    
    
    
    (4
    )
    
    
    22
    
    
    
    41Gold lease rate fees
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    0Deferred hedging gains / (losses)  non cash
    
    
    
    
    
    
    (14
    )
    
    
    20
    
    
    
    43Average gold price realized *
    
    US$/ounce
    
    
    350
    
    
    
    356
    
    
    
    355
 * Excludes the revaluation of financial instruments Gold Prices- There are many producers of gold worldwide and gold bullion can
be readily sold in numerous markets throughout the world. It is not difficult
to ascertain a market price for gold at any particular time. The companys
revenues are significantly influenced by the world market price for gold. Historically, gold prices have fluctuated widely. In 2003, the companys
realized price per ounce was US$350 per ounce (2002: US$356; 2001: US$355).
Gold prices are affected by numerous industry and macro-economic factors beyond
the companys control, including sales by central banks, the worldwide forces
of supply and demand, inflation, currency and interest rates, political and
economic conditions. Gold prices are also affected by worldwide gold production
levels. See Key Information - Risk Factors. The gold price declined after 1997 and until 2002, reportedly for reasons
including declining inflation in many countries worldwide. In 2003 the gold
price rose above $400 (London P.M. Fix) per ounce, reaching US$416 at year
end. This has been attributed to various factors, including rising tensions in
the Middle East, global economic uncertainty and a falling US$. Since reaching
a high of US$427/oz in April 2004, the gold price has declined to levels below
US$400/oz. Hedging-The company seeks to mitigate gold price risk, in part, through
hedging strategies. The policy of the company is to seek where appropriate to
protect operating, sustaining capital and debt servicing costs through hedging
activities. This may include periodic purchase of put options, spot deferred
sales, and forward sales covering a portion of future gold production at a
fixed price. The company regularly evaluates the portion of its production that
is hedged. The company does not engage in speculative activity and does not
trade its hedged positions. The average realized price in 2003, represents a discount of 4%, to the average
spot price for the year (2002: premium of 15%; 2001 premium of 31%). This
discount effectively reduced pre-tax profit by US$8 million for the year (2002:
increase of US$27 million; 2001: increase of US$54 million). 2003
    
    2002
    
    2001Average gold price realized
    
    US$/ounce
    
    
    350
    
    
    
    356
    
    
    
    355Average spot price
    
    US$/ounce
    
    
    364
    
    
    
    310
    
    
    
    271Premium/(discount) to spot price
    
    %
    
    
    (4
    )
    
    
    15
    
    
    
    31
 43




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##### Table of Contents



Following the adoption of IAS39 in 2001, gains and losses arising from the
early closure of hedge transactions prior to 2001 were transferred to equity,
to be recycled into income when the underlying transactions, against which the
hedges were initially designated, took place. The net amount of gains/losses, arising from the early closure and
re-designation of hedge transactions, retained in equity at December 31, 2003
was a loss of US$ US$2.9 million (2002: loss of US$16.4 million; 2001 gain of
US$15.3 million), following the recycling of losses totaling US$ 8.6 million
(2002: gain of US$ 11.8 million; 2001: gain of US$ 27.9 million). Based on a hedge book valuation of minus US$ 199.4 million as at December 31
2003, a further US$203.6 million of losses remain in equity to be recycled into
income when the underlying transactions, against which the hedges are
designated, take place. The profile of hedging gains/(losses), as at December
31, 2003, are detailed in the schedule below: Deferred
    
    Residual Other
    
    Total OCIhedging Costs
    
    Comprehensive
    
    recycled to/ (Gains)
    
    Income
    
    incomeYear
    
    US$ millions
    
    US$ millions
    
    US$ millions2004
    
    
    6.1
    
    
    
    21.9
    
    
    
    28.02005
    
    
    1.1
    
    
    
    32.8
    
    
    
    33.92006
    
    
    3.9
    
    
    
    33.1
    
    
    
    37.02007
    
    
    (0.3
    )
    
    
    47.6
    
    
    
    47.22008
    
    
    (6.0
    )
    
    
    42.8
    
    
    
    36.82009
    
    
    (1.6
    )
    
    
    24.2
    
    
    
    22.62010
    
    
    (0.3
    )
    
    
    1.2
    
    
    
    0.9Total
    
    
    2.9
    
    
    
    203.6
    
    
    
    206.5
 In order to prevent a fall in gold prices from affecting the companys ability
to make loan payments, the syndicated facility agreement (See Additional
Information  Material Contracts  Financing Agreements) requires that Lihir
hedge a portion of its anticipated gold production. The syndicated financing
facility agreement signed in November 2000 stipulated minimum levels of hedging
in each of the years 2001, 2002, 2003, 2004 and 2005, of 505,500, 480,025,
380,000 260,000 and 140,000 ounces, respectively. As part of the hedge book
restructure in 2002, approval was sought and obtained from the facility agent
(ABN AMRO) to vary the minimum hedging requirements, so as to provide
shareholders with greater exposure to the spot price of gold in the near term.
The revised hedge book profile is reflected in the tabulation at Note 24 to the
financial statements. The maximum level of hedging stipulated in the
syndicated facility agreement is 80% of proven and probable reserves. See Item
11  Quantitative and Qualitative Disclosure about Market Risk and Note 24 to
the Financial Statements for more details. The intended effect of any future hedging transactions will be to lock in a
minimum sales price at the time of the transactions, thereby reducing the
impact on the company of a future fall in gold prices. However, no assurances
can be given as to whether, when or at what prices or cost the company will be
able to enter into hedging transactions. It should also be noted that the
effect of some hedging transactions will be to eliminate or limit to some
extent revenues the company would otherwise receive as a result of rises in the
price of gold. A forward sale, for example, would mean Lihir would not realize
any additional revenues above the gold price specified in the contract. Other
hedging techniques can be used to enable Lihir to share in some portion of
rises in the gold price. The companys profitability could be adversely
affected if for any reason its production of gold is unexpectedly interrupted
and as a result it is unable to produce sufficient gold to cover any forward
sales commitments it may have made. As at December 31, 2003, the valuation of the companys hedge book was negative
or out of the money US$199.4 million (May 31, 2004: US$150.0 million out of
the money), representing a significant opportunity loss to the current spot
price of gold. While the company endeavors to manage its hedge book in a way
which 44




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##### Table of Contents



minimizes adverse sales variances, large out of the money positions make it
more difficult to retain flexibility with hedging counter parties, and there is
a risk therefore that the company will be forced to deliver into contracts as
they fall due, rather than deferring them to when the hedged price is greater
than the spot price or closer to it. In establishing the forward price of hedging contracts, the company has, on
certain occasions, elected to retain an exposure to gold lease rates. This
strategy has added value to the hedge book in recent years by not only
providing for higher forward prices, but also creating value on the lease rate
swaps as the lease rate curve has fallen to historically low levels. In 2003,
the total movement in market value of the lease rate swaps, as independently
valued was US$ 14.7 million (2002: US$ 4.6 million; 2001: US$4.8 million). The
company has recognized this movement in market value in the income statement on
the basis that it does not satisfy the criteria for hedge accounting under the
relevant international accounting standards (IAS 39 or FAS 133).
Notwithstanding the companys active management of this lease rate exposure, a
structural reverse in this curve could have a substantial impact on the mark to
market of lease rate swaps and therefore adversely affect the companys
earnings. Production and Operating Costs The following table shows gold production, average annual cash production and
cash operating costs from 2001 to 2003. 2003
    
    2002
    
    2001Ore
Processed (Tonnes 000)
    
    
    3,926
    
    
    
    3,828
    
    
    
    3,619Gold Produced (Ounces)
    
    
    550,772
    
    
    
    607,088
    
    
    
    647,942Operating Expenses (US$000s)Mining expenses
    
    
    68,017
    
    
    
    60,316
    
    
    
    55,498Exploration expenses
    
    
    10,506
    
    
    
    9,711
    
    
    
    7,587Processing costs
    
    
    35,326
    
    
    
    28,533
    
    
    
    29,925Power generation costs
    
    
    26,473
    
    
    
    23,899
    
    
    
    24,229General and administrative costs
    
    
    45,444
    
    
    
    36,356
    
    
    
    26,186Refining, royalty and management fees
    
    
    8,322
    
    
    
    7,933
    
    
    
    7,961Deferred mining costs
    
    
    (7,163
    )
    
    
    (3,675
    )
    
    
    (2,846
    )Costs deferred and transferred to inventories
    
    
    (24,378
    )
    
    
    (15,881
    )
    
    
    (234
    )162,547
    
    
    
    147,192
    
    
    
    148,306Refining
    
    
    670
    
    
    
    556
    
    
    
    604Royalties
    
    
    4,204
    
    
    
    3,975
    
    
    
    4,016Management Fee
    
    
    3,448
    
    
    
    3,402
    
    
    
    3,341Refining, royalty and management fees
    
    
    8,322
    
    
    
    7,933
    
    
    
    7,961
 2003
    
    2002
    
    2001Production Costs(US$  per tonne of ore processed)Mining
    
    
    17.3
    
    
    
    15.8
    
    
    
    15.3Exploration
    
    
    2.7
    
    
    
    2.5
    
    
    
    2.1Processing
    
    
    9.0
    
    
    
    7.5
    
    
    
    8.3Power generation
    
    
    6.7
    
    
    
    6.3
    
    
    
    6.7General and Administrative
    
    
    11.6
    
    
    
    9.5
    
    
    
    7.3Total
    
    
    47.3
    
    
    
    41.6
    
    
    
    39.7
 45




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##### Table of Contents



Lihir processed a record 3,926 kt of sulphide ore during 2003. The ongoing
record throughput can be attributed to a strong focus on identifying and
investing in debottlenecking opportunities. This year benefits were reaped
from the pebble crushing circuits first full year of operation and the
commissioning of three additional autoclave feed pumps in July. The US$5
million GEHO feed pump project has met expectations in terms of throughput
capacity and autoclave availability. Plant availability was severely affected by two separate unexpected equipment
failures; the CCD thickener in February 2003 and SAG mill motor winding failure
in May 2003. Repairs resulted in major interruptions to plant operations
totalling 20 days. Risk mitigation projects for these process units are
planned and are being implemented in the first half of 2004. In addition, a
maintenance improvement programme has been initiated to build enhanced
reliability into the processing facilities on a sustained basis. However, production was limited to 550,772 ounces of gold in bullion due to
lower gold grades. Gold recovery also declined to 88.6% on average for the
year, affected by increased throughput rates and the presence of fine free
gold. In addition to the installation of a carbon regeneration kiln, aimed at
increasing carbon loading capacity and recovery, trials investigating options
to better capture fine free gold and further increase gold recovery are planned
for 2004. A six-megawatt geothermal power generator was successfully commissioned in
April and is the first of its kind in Papua New Guinea. In addition to the
significant environmental benefit, the unit realised a cost benefit in reduced
heavy fuel oil consumption. Based on this success, and the definition of the
required geo-thermal resource, the Board of Directors approved the installation
of a 30-megawatt geothermal power plant. A site has been selected and
geotechnical investigations completed, with the plant expected to be
commissioned in the second quarter of 2005. Once completed it will further
reduce greenhouse gas emissions and provide additional savings in heavy fuel
oil use. A study is under way to find further suitable sources of steam to
expand this to at least 50 megawatts. A study into the options for expansion of the plant commenced in 2003 to define
opportunities for increasing the value of the project. Options for expansion
have been refined and further work in 2004 will be focussed on progressing
options incorporating a flotation processing plant. This work is expected to
be completed by the end of 2004. In 2003 mining was predominantly from Phase 4 of the Minifie ore body.
Production of ore from the high grade Phase 5 in the Lienetz ore body is
scheduled to start in late 2004. Material moved during the year is shown in the table below. 2003
    
    2002
    
    2001K tonnes
    
    g Au/t
    
    K tonnes
    
    g Au/t
    
    K tonnes
    
    g Au/tHigh-Grade Sulphide Ore
    
    
    5,692
    
    
    
    4.53
    
    
    
    4,985
    
    
    
    5.20
    
    
    
    3,225
    
    
    
    6.29Low-Grade Sulphide Ore
    
    
    5,287
    
    
    
    2.31
    
    
    
    4,305
    
    
    
    2.31
    
    
    
    4,626
    
    
    
    2.59Total Ore
    
    
    10,979
    
    
    
    3.46
    
    
    
    9,290
    
    
    
    3.86
    
    
    
    7,851
    
    
    
    4.11Total Waste
    
    
    23,945
    
    
    
    
    
    
    
    30,723
    
    
    
    
    
    
    
    24,082Total Material
    
    
    34,924
    
    
    
    
    
    
    
    40,013
    
    
    
    
    
    
    
    31,933
 Mining ExpensesMining expenses were US$ 68 million in 2003 (2002: US$60
million; 2001: US$55 million). Costs for 2003 were higher than 2002 as a
result of increased maintenance on the mining fleet, higher fuel prices and
unfavourable exchange rate movements. The major elements of total mining costs
during the open pit mining phase are hauling, loading, blasting and dewatering.
These elements combined account for an average of approximately 60% of total
direct mining costs. During 2003, mining expenses were allocated between the direct process ore and
stockpile ore on the basis of the amount of contained gold with only the costs
attributable to direct process ore expensed. Mining costs 46




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##### Table of Contents



attributable to the stockpiled ore will be expensed when the ore is processed
and sold during the stockpile processing period after open pit mining ceases.
In accordance with international accounting standard IAS 2, inventory is
valued at the lower of cost and net realizable value. As at December 31, 2003
non-current stockpiles were fully provided against, based on their net
realizable values. Because of the lower grades that will be processed during
the stockpile processing period, unit cash operating costs will likely be
significantly higher during this period compared to the mining period. Direct expenditure on mining is brought to account for each phase of the mines
development based on the estimated ratio of waste to ore for that phase.
During the mining period, the actual ratio of waste to ore removed for each
phase varies from year to year. In periods where more than the average amount
of waste is removed the surplus is transferred to the deferred mining cost
account. 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 each mining phase, and not over the entire life of the
mine. The increase in deferred waste during 2003 reflects the company
commencing the pre-stripping of overburden in the Lienetz ore body. Mining of
high grade ore will not commence until late 2004. Processing Costs-Processing costs were US$35 million in 2003 (2002: US$29
million; 2001: US$30 million) resulting from higher throughput, increased
maintenance expenditure and unfavourable exchange rate movements. Power Generation Costs -Power generation costs were US$26 million in 2003
(2002: US$ 24 million; 2001: US$ 24 million) resulting from the higher cost of
heavy fuel oil. General and Administrative ExpensesGeneral and administrative costs were
$US$ 45 million in 2003 (2002: US$ 36 million; 2001: US$ 26 million) following
a one-off grant to the Lihirian community of $3.5 million (associated with the
restructure of MRLs equity holding in the company held on trust for the
community  See Additional Information  Share Capital  Major Shareholders 
PNG Government Participation) increased insurance, travel and personnel costs,
coupled with unfavorable exchange rate movements. Royalty, Refining and Management Fees-These totaled US$8.3 million in
2003, (2002: US$7.9 million; 2001: US$8.0 million). Mining royalties payable to the PNG Government are 2% of either the FOB value
of the minerals, if they are exported without smelting or refining in PNG, or
of the net smelter returns from the minerals, if they are smelted or refined
in PNG. Net smelter returns is defined to mean the value of the smelted or
refined product (e.g.,dore gold) less the costs, charges and expenses
incurred in connection with the smelting or refining process. Previously the Lihir Management Companys monthly fee for managing the Lihir
operation was the greater of US$250,000 or 1.5% of the average monthly
operating costs in the previous three-month period, subject to an inflation
adjustment. See Additional Information  Material Contracts  Lihir
Management for a description of the management agreement between Lihir and
Lihir Management Company. Following a dilution of Rio Tintos equity interest
in the Company to below 15%, the management fee was renegotiated and reduced to
a maximum of US$1.5 million per annum (US$125,000 per month), commencing from
January 1, 2004. Gold refining is carried out by AGR Matthey, a partnership between the Western
Australian Mint, Australian Gold Alliance Pty Ltd and Johnson Matthey (Aust.)
Ltd, under a refining agreement, expiring on February 28, 2006. The refining
fee is comprised of four components:  
    
    Refining charge - A$0.40 per gross doré ounce.  
    
    Transport from the Lihir mine to Port Moresby including transit
insurance  a sliding scale according to quantity, ranging from A$0.20
to A$0.48 per gross troy ounce.  
    
    Transport from Port Moresby to Perth including transit insurance  a
sliding scale according to quantity and ranging from A$0.425 to A$0.60
per gross troy ounce. 47




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##### Table of Contents




    
    Location London swap charges  US$0.25 to US$1.06 per fine gold ounce
outturn, based on a matrix tabulated on gold price and lease rate. Unit Costs and Total Cash Costs These are set down in the table below
prepared in accordance with the Gold Institute Standard. The following table
presents Lihirs results in a format that includes certain un-audited non-GAAP
measures, such as cash costs. The table is also presented to show
separately non-cash costs, other operating costs not included in the
determination of gross cash costs and impairment adjustments. The measures
used and the presentation are intended to provide investors with information
about the cash generating capacity and performance of Lihirs mining
operations. In particular, cash costs is a measure that is used in the gold
mining industry and was developed in conjunction with gold mining companies
associated with the Gold Institute in an effort to provide a level of
comparability. However, Lihirs measures may not be comparable to similarly
titled measures of other companies. Management uses this measure for the same
purpose when monitoring and evaluating the performance of the Company. This
information differs from measures of performance determined in accordance with
GAAP and should not be considered in isolation or as a substitute for measures
of performance determined in accordance with GAAP. US$/ounce2003
    
    2002
    
    2001Gross operating costs
    
    
    355
    
    
    
    259
    
    
    
    213- Exploration
    
    
    (18
    )
    
    
    (16
    )
    
    
    (12
    )- Other corporate costs
    
    
    (7
    )
    
    
    (6
    )
    
    
    8Direct mining expenses *
    
    
    310
    
    
    
    237
    
    
    
    209- Deferred mining costs
    
    
    (1
    )
    
    
    (6
    )
    
    
    (4
    )- Refining costs *
    
    
    1
    
    
    
    1
    
    
    
    1- Inventory adjustment
    
    
    (17
    )
    
    
    (12
    )
    
    
    9Cash operating costs
    
    
    293
    
    
    
    219
    
    
    
    215- Royalties *
    
    
    8
    
    
    
    8
    
    
    
    6Total cash cost
    
    
    301
    
    
    
    227
    
    
    
    221- Depreciation
    
    
    52
    
    
    
    44
    
    
    
    49- Restoration and mine closure
    
    
    
    
    
    
    1
    
    
    
    1- Non-cash deferred mining costs
    
    
    (11
    )
    
    
    
    
    
    
    - Non-cash inventory adjustment
    
    
    (5
    )
    
    
    
    
    
    
    Total production costs
    
    
    337
    
    
    
    272
    
    
    
    271
 * Components of Gross Cash Costs Cash costs per ounce were substantially higher in 2003 resulting from lower
production, coupled with higher costs including increased maintenance costs,
higher fuel prices, adverse exchange rate movements and higher general and
administration expenses. Other Charges Depreciation and Amortization The depreciation charge for 2003 amounted to
US$28.6 million (2002: US$27.1 million; 2001: US$31.9 million). The increase
in 2003 was primarily driven by the impairment reversal in 2002, offset by
lower production and an increase in reserves. Capitalized development costs for mine properties are amortized using the
units-of-production method. The units-of-production method results in an
amortization charge proportional to the depletion of estimated proven and
probable ore reserves. The cost of buildings, machinery and equipment is written off over the expected
economic life of the item, adopting a method that reflects the consumption of
economic benefits. This may be based on the units-of-production method or a
fixed percentage over time. The vast majority of the companys assets are depreciated on a
units-of-production basis. 48




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##### Table of Contents



Interest Expense Net finance costs amounted to US$2.5 million in 2003 (2002:
US$2.7 million; 2001: US$ 4.4 million). The reduction in interest expense for
2002 and 2003 reflects lower US interest rates, a prepayment on the syndicated
financing facility, scheduled principal payments under the European Investment
Bank (EIB) facility (See Additional Information  Material Contracts 
Financing Agreements) and, in 2003, earnings on a large cash balance at
year-end representing funds raised from the equity issue conducted by the
company in November 2003. Lihirs interest expense consisted of interest payable in respect of borrowings
under the syndicated facility agreement and the EIB facility. In addition,
premiums paid by the company in respect of certain political risk insurance
policies entered into for the benefit of the banks under the syndicated
facility agreement are included in interest expense. The aggregate political
risk insurance premiums are expected to average approximately 1.0% per annum on
the outstanding principal amount borrowed under the syndicated facility
agreement. The interest rate under the EIB subordinated debt facility (fully
prepaid on April 30, 2004) was fixed at 8.42%. Interest expense reflects the amount drawn down under the syndicated facility
agreement at any point in time and the prevailing rate of interest. The
interest rate under the syndicated facility agreement is a floating rate of
LIBOR plus 1.9% per annum. Tax Expense -Since 2001, the company is currently subject to a 30% tax in
respect of income derived from the Lihir operation (35% for 2000, 1999 and
1998). This is the general rate of taxation for resident PNG corporations .
In the case of a Special Mining Lease, like Lihir, mining income derived from
the lease is assessed as if it were the only income of the holder of the lease
and deductions are generally only available for expenditures attributable to
the project to which the lease relates. The company has been given approval to
prepare its tax returns in US dollars. In previous years the company was eligible to accelerate its tax depreciation
and amortisation. These accelerated depreciation and amortization deductions
eliminated the companys taxable income during the early years of gold
production from the Lihir operation. Tax effect accounting procedures are
followed using the liability method for all temporary differences arising
between the tax bases of assets and liabilities and their carrying values for
financial reporting purposes. Income tax on temporary differences is set aside
to deferred tax liability and deferred tax asset accounts at current rates of
tax. Deferred tax assets relating to deductible temporary differences and tax
losses are only carried forward as an asset to the extent that it is probable
that future taxable profit will be available against which the deductible
temporary differences and tax losses can be utilised. At the end of 2003 Lihir
elected not to recognise US$169 million of deferred tax assets (2002: US$138
million; 2001 : US$117 million) on the grounds that, at present gold prices,
the period over which the benefit is likely to be realized extends too far into
the future for realization to be regarded as probable. A 4% mining levy imposed in the 1998 PNG Government budget was amended during
1999 following considerable lobbying by industry groups. The mining levy was
replaced by a more revenue neutral structure, designed to ensure that the
government did not lose revenue as a result of the introduction of a Value
Added Tax (VAT) system in 1999. Essentially the mining levy seeks to impose an
additional charge on purchases by the company to compensate for the revenue
forgone by the Government on reducing various import duties on the introduction
of the VAT system. The terms of this arrangement were negotiated between the
government and industry groups. In the 2001 annual budget the PNG Government
announced that the mining levy would be phased out over 4 years from 1 January
2002. This decision was repealed in the 2003 budget and the levy was left at
75% of the original rate introduced. However, after lobbying by industry groups
a decision was made by the PNG Government to re-introduce the phase out of the
mining levy from 2004. The levy is now to be phased out more gradually over a
five year period with 5% removed in 2004, 10% in 2005, 15% in 2006, 20% in 2007
and the remaining 25% in 2008. Since 2001, the dividend withholding tax has been 10%. 49




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##### Table of Contents



At December 31, 2003 the company had a net deferred tax position of US$ nil
(2002: US$ nil and 2001: US$ nil), a current period tax expense of US$ nil (2002:
tax expense of US$ 16.4 million; 2001: tax benefit of US$ 16.4 million)
included in the income statement and a tax benefit of US$ nil (2002: tax benefit
of US$ 16.4 million; 2001: a tax charge of US$16.4 million) included in equity.
At that date the company also had unrecognized tax losses of US$145.1 million
(2002: US$ 111.3 million and 2001: US$ 89.4 million) and net deductible
temporary differences of US$418.7 million (2002: US$349.8 million and 2001:
US$300.4 million). The tax losses can be carried forward for a period not
exceeding 20 years. Deferred tax assets have not been recognised beyond deferred tax liabilities
because the group does not consider the realization of the tax benefits through
future taxable profits as probable (implying a high level of likelihood). The
recognition of deferred tax assets to the extent of deferred tax liabilities is
required under IAS 12, as they relate to income taxes levied by the same
taxation authority and the taxable temporary differences are expected to
reverse in the same period as the deductible temporary differences. Impairment Provisions Continued weakness in prevailing prices and the outlook for the gold market
prompted a downward revision in Lihirs long-term gold price assumption as at
December 31, 1999 from US$350/oz to US$325/oz. Lihir restated its 1999
financial accounts to record a US$237 million impairment provision in
compliance with International Accounting Standard IAS 36. Lihir responded to the deteriorating outlook for gold by further reducing its
long-term gold price assumption from US$325 to US$300/oz as at December 31,
2000. The resulting impairment provision was US$121 million, which was
reflected in Lihirs 2000 accounts. Together with the US$237 million provision
taken in its re-stated 1999 accounts, Lihir has made a cumulative non-cash
impairment charge of US$358 million. In 2003, having applied the same principles as the previous years and
revisiting critical assumptions, including life of mine and remaining reserves,
an impairment reversal of 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 $US340 (2002: US$305) and a pre-tax real discount rate of
7.0% (2002: 7%). Foreign Currency Fluctuations The companys functional currency is the US dollar and accordingly its
Financial Statements are prepared in accordance with international accounting
standards in that currency. Virtually all of the companys revenues and a
significant portion of its operating expenses are denominated in US dollars. A
large portion of the companys total expenditure, principally relating to
expatriate salaries and benefits, consultants, grinding materials, and
explosives are denominated in Australian dollars and certain of its expenses,
including labour and consumables, are denominated in Kina. Accordingly, a
depreciation of the US dollar against the Australian dollar or Kina adversely
affects the companys financial results. In addition, the company is subject
to certain PNG requirements regarding the maintenance of cash reserves in PNG
in a Kina-denominated account. See Additional Information  Exchange
Controls. US GAAP US GAAP differs in certain
significant respects from IFRS, as they relate to Lihir Gold
Limited. The most significant difference relates to the accounting
for the impairment of mine properties and other assets, including the
subsequent reversal of impairment provisions under IFRS. Total US
GAAP adjustments to net income for the years ended December 31,
2003, 2002 and 2001 were (US$34.4 million), (US$14.6 million)
and (US$16.8 million), respectively. Net income under US GAAP for
the years ended December 31, 2003, 2002 and 2001 was
US$0.4 million, US$38.6 million and US$42.3 million, respectively. Total US
GAAP adjustments to shareholders equity as of December 31,
2003, 2002 and 2001 were (US$65.5 million),
(US$31.1 million) and (US$nil), respectively. Shareholders
equity under US GAAP as of December 31, 2003, 2002 and 2001 was
US$395.9 million, US$395.3 million and
US$496.2 million, respectively. See Note 30 to the
consolidated financial statements (Item 18) for further details
of the reconciliation between IFRS GAAP and US GAAP. Shareholders equity and
earnings were each restated in the amount of US$ 7.2 million under US GAAP as at and for the
year ended December 31, 2002. This restatement occurred due to certain
stripping, drilling, blasting and related depreciation costs previously being
expensed in error to the income account rather than being included in deferred
mining costs pursuant to the Companys accounting policy. Under IFRS, the
correction of this error does not have an impact on net income or shareholders
equity as at and for the year ended December 31, 2002. This is because any
additional mining costs capitalized in 2002 would have resulted in a
corresponding reduction in the impairment charge reversal recognized in that
year. See Note 30 (vii) of the financial statements at Item 18 for further
details. 50




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##### Table of Contents



Recently Issued US Financial Accounting Standards In 2003 the FASB issued a number of new Statements and Interpretations. Lihir
has evaluated the potential impact of each of the new pronouncements and
believes that adoption of these pronouncements has not had any material impact
on its financial results or financial position in 2003 and based on the
Companys present assessment, is not expected to have a material impact in
2004. The following particular Statements and Interpretations were considered. 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. Lihir is currently evaluating the potential impact of
adopting FIN 46R. 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 in 2003. In June 2001, FASB issued FAS No. 143, Accounting for Asset Retirement
Obligations. With the adoption of this Statement, retirement obligations will
be recognized when they are incurred and displayed as liabilities and the
initial measurement will be at fair value. In addition, the asset retirement
cost will be capitalized as part of the assets carrying value and subsequently
allocated to expense over the assets useful life. This Statement was adopted
by the company on January 1, 2003. The implementation of this standard will be
similar to the current treatment of restoration provisions in terms of IAS 37
Provisions. 51




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##### Table of Contents



Recently Issued IFRS Standards As foreshadowed in 2002, there were numerous changes in International Financial
Reporting Standards (IFRS) during 2003 as part of the International Accounting
Standards Board (IASB) improvements project. The aims of the improvements
project was to raise the quality and consistency of financial reporting by
drawing on best practice from around the world and removing options in
international standards. The Improvements project is a first step by the IASB
to promote convergence on high quality solutions in its objective to establish
a globally accepted set of accounting standards. None of these standards had
a material affect on Lihirs December 31, 2003 financial statements. In 2004, the IASB continues to work on a number of improvement projects to
existing IFRS as well as a short-term convergence project between IFRS and US
GAAP. As Lihirs financial statements are prepared in accordance with IFRS,
its financial statements in future periods may be affected by these impending
changes. In 2004, the IASB issued the following standards which will apply to Lihir from
periods beginning 1 January 2005: IFRS 2 Share Based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Lihir has evaluated the potential impact of these Standards and consider that
there is not likely to be any material impact on its financial results and
financial position upon adoption. 52




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##### Table of Contents



B. Liquidity and Capital Resources The company continues to receive positive cash flows from Operations. See Part
1 (A) Selected Financial Data. During 2003, Lihir undertook capital raising to
finance further capital expenditure, especially the construction of geothermal
power stations to replace the existing heavy fuel oil power stations. Capital Raising The companys market capitalization as at December 31, 2003 was approximately
US$1.86 billion, following a capital raising conducted in November 2003 by
means of placement of 140,000,000 shares with institutions at AU$1.55 per
share. US$151 million was raised. On December 31, 2003, the companys cash
and cash equivalent holdings were $152.6 million, while its total indebtedness
from borrowings and finance facilities was US$33.5 million. At December 31,
2003, the amount available to be drawn down under the companys syndicated
loan facility was US$40 million. Under the terms of the facility, this
available amount is reduced by US$10 million on June 30, 2004. The final
repayment date for the facility is June 30, 2005. The syndicated facility is
arranged and underwritten by ABN-AMRO Australia Limited. Commonwealth Bank of
Australia, Deutsche Bank AG, Macquarie Bank Limited and SG Australia Limited
are participating with ABN-AMRO as financiers. Following the capital raising in November, US$20 million was repaid from the
syndicated loan facility, leaving a balance of US$19.5 million. In addition,
notice was also given of the companys intention to use some of the funds
raised to repay its indebtedness to Mineral Resources Development Company
Limited, on-lent from the European Investment Bank. On April 30, 2004, the
company made payment of the sum of US$14.6 million, representing all
outstanding principal and interest, to retire this facility. In addition, in November the company announced and thereafter implemented a
share purchase plan for existing shareholders in Australia, New Zealand and
Papua New Guinea to be able to purchase up to AU$5,000 worth of the companys
shares. The offer made under this plan closed in January 2004 with a further
1,890,495 shares issued at AU$1.55 per share. After reducing the companys debt position under its finance facilities, the
proceeds raised from the share issues are being employed in a number of
projects aimed at improving the productivity and reliability of the companys
operations and reducing costs. One major project is the construction of a
30-megawatt geothermal energy generation unit, which is due to be commissioned
in the second quarter of 2005. It is anticipated that this will save the
company approximately US$10 million per year in fuel costs based on current
fuel prices. Given the savings to be made, work is currently being undertaken
to better define the total productive steam reserve available, with a view to
installing an additional 20-megawatts of geothermal energy capability at least.
The funds will also be used to accelerate the development of the Kapit ore
body, which was incorporated into reserves in February 2004. Other initiatives
include bringing forward the acquisition of mining equipment to increase
material movements and the implementation of a range of measures designed to
improve plant throughput and gold recoveries. 53




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##### Table of Contents



Net Debt/Cash Position The companys net debt/cash position as at 31 December for the past three years
is as follows: Net debt as at December 31US$ thousands2003
    
    2002
    
    2001EIB facility
    
    
    (14,039
    )
    
    
    (17,549
    )
    
    
    (21,324
    )Loan agreement
    
    
    
    
    
    
    
    
    
    
    Syndicated facility agreement
    
    
    (19,509
    )
    
    
    (23,009
    )
    
    
    (23,009
    )Bank overdraft
    
    
    
    
    
    
    (1,297
    )
    
    
    Less cash on hand
    
    
    152,630
    
    
    
    33,817
    
    
    
    37,915Net (debt)/cash
    
    
    119,082
    
    
    
    (8,038
    )
    
    
    (6,418
    )Equity
    
    
    (461,390
    )
    
    
    (426,410
    )
    
    
    (496,248
    )Net debt to debt plus equity
    
    
    N/A
    
    
    
    2
    %
    
    
    1
    %
 Gearing was effectively reduced to nil as at December 31, 2003. While Lihir currently believes that it has or will have access to resources
sufficient to finance its operations, the adequacy of the companys financial
resources will depend upon its ability to generate sufficient revenues from
gold production and to keep its costs and other expenditures within its current
estimates. Lihir believes that working capital is sufficient for its present
requirements. Under the syndicated facility agreement, if at calculation dates of December
31 and June 30 each year, the debt service cover ratio for the next 12 months
is greater than 1.25 and the life of mine debt service cover ratio is greater
than 2.5, Lihir has the right to withdraw cash in excess of a US$15 million
minimum liquidity balance from the secured accounts. Accordingly, based on the cover ratio tests performed for December 31, 2003,
Lihir may at any time prior to the next calculation date (June 30, 2004)
withdraw from the secured accounts an amount equal to the cash on hand of
US$152.6 million plus undrawn borrowings of US$10.5 million on the syndicated
facility agreement, less the US$15 million reserve, for its own purposes
(including a payment into a nominated distribution account which falls outside
the secured assets). The resulting amount of US$148.1 million constitutes a known cash reserve with
which Lihir can accommodate fluctuations in cash flows and can finance future
capital expenditure requirements. At December 31, 2003 Lihirs capital expenditure commitments totaled US$20.7
million (2002: US$10.5 million; 2001 US$6.9 million). The companys total
capital expenditure requirements for 2004 is expected to be approximately
US$114 million, including the committed amount referred to. This expenditure
relates to the 30 megawatt geothermal power generation plant (US$40 million),
exploration and development of additional geothermal power (US$10 million), the
purchase of mining equipment brought forward from 2005 and 2006 (US$16
million), development of the Kapit ore body (US$5 million), mainly by means of
depressurization, improvements to the recovery circuit (US$13 million), an
additional waste barge (US$5 million), additional ore feed washing capacity
(US$5 million) and studies exploring the ability to materially expand the
plants processing capacity (US$4 million). Additional, sustaining capital
expenditure of US$16 million is also included. 54




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##### Table of Contents



Additional points to note with regards to liquidity are that the company does
not engage in off-balance sheet financing structures. Furthermore the company
is not aware of any information issued by ratings agencies that would influence
the companys ability to raise funds as, and when, required. For a more complete description of the syndicated facility agreement, the EIB
Facility and certain related agreements, see Additional Information  Material
Contracts  Financing Agreements. Tabular Disclosure of Contractual Obligations The profile of Lihirs obligations to external parties as at 31 December 2003
is shown below: US$ thousands Less than 1
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    year
    
    1 to 3 years
    
    3 to 5 years
    
    yearsLong term debt
    
    
    33,548
    
    
    
    3,510
    
    
    
    26,529
    
    
    
    3,509
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    1,631
    
    
    
    502
    
    
    
    1,002
    
    
    
    127Management fee obligation
    
    
    29,625
    
    
    
    1,500
    
    
    
    3,000
    
    
    
    3,000
    
    
    
    22,125Total
    
    
    64,804
    
    
    
    5,512
    
    
    
    30,531
    
    
    
    6,636
    
    
    
    22,125
 Off-balance Sheet Arrangements The Group does not use off-balance sheet special purpose entities as a source
of liquidity or for other financing purposes. 
 C. Research and Development, Patents and Licenses, etc Lihir does not have a significant research and development programme. 
 D. Trend Information Lihir officially commenced production in October 1997 and had produced over 3.5
million ounces of gold by December 31, 2003. There has been an ongoing programme to increase both the reliability of the
plant and its throughput capacity. This has seen milled throughput steadily
rise from 2.35 million tonnes in 1998 to 3.93 million tonnes in 2003. Further
incremental improvements are being pursued. Gold production depends on both plant performance and grade. During the 2003
and 2004 years, the grade of feed to the mill reduces from prior years as
mining moves from the Minifie deposit and stripping is undertaken from Lienetz.
Grades are expected to increase in 2005 as mining moves into the Lienetz ore
body and this, together with improved plant performance, is expected to deliver
higher gold production. In April 2003, the company commissioned 6 megawatts electrical generating
capacity utilizing geothermal steam as its energy source. A further 30
megawatts electrical generating capacity using geothermal steam is under
construction and scheduled for commissioning in 2005. This form of energy
generation provides both cost and environmental benefits. Efforts to find
further suitable geothermal steam sources to increase the generation from this
energy source are under way. 55




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##### Table of Contents



Studies are being undertaken to identify economic opportunities to increase
production capacity but to date they have not identified a sufficiently
attractive option. Studies will continue. Attention is being given to reducing costs in all areas of the business.
However, increased production will have a more significant effect in lowering
unit costs. Lihir Gold has undertaken an ongoing exploration program, mainly in the Luise
caldera, aimed at defining resource and reserve levels. This has resulted in
increases in both resource and reserves to the levels as disclosed in the
Reserves Estimates section. With the Kapit resource largely defined and a
Kapit reserve established, the levels of exploration activity and expenditure
in 2004 and thereafter will be substantially reduced from those in 2002 and
2003. While further resource and reserve amounts are anticipated, they are
likely to be at lower levels than in recent years. 
 E. Events Subsequent to Signing of the Financial Statements The companys EIB loan facility was prepaid in full on April 30, 2004, with a
payment made of US$14.6 million effectively retiring this debt and the
facility. (See Additional Information  Material Contracts-Financing
Agreements). The companys processing operations were reduced to operating at approximately
twenty percent (20%) of gold production capacity during a 20-day period in
March 2004, as a result of a failure of the main oxygen plant. Operations have
been restored to normal operating levels. 
 Item 6. Directors, Senior Management and Employees 
 A. Directors and Senior Management Directors The current directors of the company as at the date of this annual report are
as follows. Ross Garnaut AO, BA, PhD:Chairman since 1995. Professor of Economics in the
Research School of Pacific and Asian studies at the Australian National
University; Chairman of Lonely Planet Publications Pty Ltd; Chairman of PNG
Sustainable Development Co Ltd; and director of OK Tedi Mining Ltd; Former
Chairman of the Bank of Western Australia Ltd and of the Primary Industry Bank
of Australia Ltd. Neil Swan BE (Hons):Appointed Managing Director of Lihir Gold Ltd and Lihir
Management Company in October 2002. Former Chief Operating Officer of Lihir
Gold Ltd, General Manager at Rio Tinto Iron Ore; General Manager Operations at
Hamersley Iron; and General Manager Business Improvement at CRA Limited. Geoff Loudon , MSc.:Appointed director in 1995. Chairman L & M Mining
Limited (NZ and Bolivia) and director of Sterilox Technologies Inc (USA).
Former Chief Executive and later Chairman of Niugini Mining Limited which
discovered the Lihir deposit in joint venture with Kennecott. John OReilly MSc., DIC, ARSM, FIMM.:Re-appointed a director in March 2003,
having previously been an alternate director for Jonathan Leslie. Head of
Technology for the Rio Tinto Group. Formerly Chief Executive Officer and
director of Lihir Gold Limited and Managing Director of Lihir Management
Company Limited. 56




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##### Table of Contents



Peter Cassidy Ph D. BSc. :Appointed director from January 22, 2003.
Director of Oxiana Limited, Sino Gold Limited, Zinifex Limited and Energy
Developments Limited. Former director of Aurion Gold and former Chief Executive
Officer of Goldfields Limited. Management Lihir Management Company manages the Lihir operation for the company pursuant
to the management agreement with the company. See Information on the Company 
Business Overview - Management and Additional Information  Material
Contracts  Lihir Management. The managing director of Lihir Management
Company is the chief executive officer of the company and reports directly to
the companys board of directors. As a result of these arrangements, Lihir
does not have separate management personnel. Several of the senior management are transferred on a temporary basis from Rio
Tinto or its subsidiaries for a specified period of time. The table below
lists the management of Lihir Management Company and the year they joined the
organization. Name
    
    Position with Lihir Management Company
    
    Year JoinedNeil Swan
    
    Managing Director & Chief Executive Officer
    
    
    2001Jan Andersen
    
    General Manager Operations
    
    
    2003Geoffrey Day
    
    General Manager External Affairs &
Sustainable Development
    
    
    1998Paul Fulton
    
    General Manager Financial & Commercial &
Chief Financial Officer
    
    
    2004Joseph Daimol
    
    Manager Commercial
    
    
    1995Timothy Dobson
    
    Manager Process Operations
    
    
    2002Borone Isana
    
    Manager Government Liaison
    
    
    2003Mark Laurie
    
    Manager Corporate, Investor Relations &
Company Secretary
    
    
    2003Garrick Mendham
    
    Manager Mine Technical
    
    
    2003Stuart Sankey
    
    Manager Technical Services
    
    
    2000John Wallace
    
    Manager Human Resources
    
    
    2001Philip Welten
    
    Manager Mine Operations
    
    
    2001
 Neil Swan:See Directors above. Jan Andersen:Formerly General Manager Operations at PT Kelian Equatorial
Mining in Indonesia after having held a number of roles there previously.
Other roles with Rio Tinto at Hamersley Iron, CRA Limiteds Advanced Technical
Development division and Bougainville Copper Limited. Geoffrey Day:Former director of Limnos Environmental Consultants, senior
environmental chemist at Ok Tedi Mining Limited and environmental chemist at
NSR Environmental Consultants Pty Ltd. Paul Fulton:Former Chief Financial Officer for Rio Tinto Indonesia and Chief
Financial Officer for Kaltim Prima Coal. Over 30 years commercial and
financial experience in the mining industry in Australia, Papua New Guinea and
Indonesia. Joseph Daimol:Initially joined the company as Business Development Manager.
Former accountant at Andersons Foodland Limited and financial controller at
Arawa Enterprises Limited. Timothy Dobson:Former Process Manager at OMG Cawse Nickel Operations, senior
metallurgist at Placer Dome Asia Pacific and Placer Dome South America. Borone Isana:Joined the company in 2003 as Manager Government Liaison. Had
previously held several senior-level positions within the PNG Government. 57




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##### Table of Contents



Mark Laurie:Former Vice President Investor Relations and Company
Secretary at F.H. Faulding & Co. Limited, General Counsel at F.H Faulding & Co.
Limited, Commercial Manager at Tenix Defence Pty Ltd (Electronic Systems
Division) and senior associate lawyer at Johnson Winter & Slattery. Garrick Mendham:Former Manager  Mine Planning at Rio Tinto Kaltim Prima
Coal and a principal consultant with Rio Tinto Technical Services. Stuart Sankey:Former Engineering Manager at Queensland Magnesia,
Construction Manager at MIMS Lead IsaSmelt and Resident Engineer at Khartoum
North Thermal Power Station. John Wallace:Former senior consultant at John Davidson and Associates, HR
Manager at Thiess Roche Lihir Joint Venture and Manager Community and Employee
Relations at Gold Ridge Mining. Philip Welten:Former Project Manager at Roche Mining, Operations Manager
Pannawonica at Robe River Iron Associates and Mine Manager at WMC. No family relationships exist between members of the board and senior
management. Under the terms of the management agreement between the company and Lihir
Management Company, the latter is responsible for the employment of all
personnel, including senior management. (See Exhibit 4(c)). In addition, the
Managing Director, General Manager Operations and General Manager Commercial
have been recruited from Rio Tinto or its subsidiaries on a temporary
secondment basis as part of the provision of management services by Lihir
Management Company, which is wholly owned by Rio Tinto. Rio Tinto has nominated John OReilly to the companys board in accordance with
an understanding between it, as a major shareholder, and the company. There were no other arrangements or understandings with major shareholders,
customers, suppliers or others, pursuant to which any person referred to above
was selected as a director or member of senior management. 58




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##### Table of Contents



B. Compensation Directors Remuneration Directors remuneration, including the value of benefits received during the year was: US$0002003
    
    2002
    
    2001Garnaut, Ross
    
    
    114
    
    
    
    83
    
    
    
    66Siaguru, Anthony (deceased April 16, 2004)
    
    
    65
    
    
    
    17
    
    
    
    17Cassidy, Peter
    
    
    40
    
    
    
    
    
    
    
    Loudon, Geoff
    
    
    43
    
    
    
    19
    
    
    
    23OReilly, John (re-appointed March 1, 2003)
    
    
    
    
    
    
    
    
    
    
    Swan, Neil
    
    
    402
    
    
    
    298
    
    
    
    Leslie, Jonathan (retired March 1, 2003)
    
    
    
    
    
    
    
    
    
    
    Soipang, Mark (retired March 7, 2003)
    
    
    
    
    
    
    
    
    
    
    2Roberts, Alan (retired March 31, 2003)
    
    
    195
    
    
    
    330
    
    
    
    300
 Directors fees are denominated in Australian dollars and were therefore
affected by the appreciation of that currency against the US dollar in 2003. In addition, during the year the Company paid a premium of US$66,000 (2002:
US$55,000; 2001: US$46,000) for Directors and Officers Liability Insurance. The schedule below lists the remuneration by band of employees of Lihir
Management Company whose remuneration and benefits exceeded PNG K100,000
(approximately US$30,000). These bands include the remuneration of the senior
management individuals listed in the previous section: Remuneration and benefit band
    
    Number of EmployeesUS$
    
    2003
    
    2002
    
    2001US$30,001  
- $  40,000
    
    
    9
    
    
    
    9
    
    
    
    20US$40,001  
- $  50,000
    
    
    
    
    
    
    7
    
    
    
    1US$50,001  
- $  60,001
    
    
    4
    
    
    
    11
    
    
    
    6US$60,001  
- $  70,001
    
    
    1
    
    
    
    3
    
    
    
    12US$70,001  
- $  80,000
    
    
    2
    
    
    
    1
    
    
    
    25US$80,001  
- $  90,000
    
    
    7
    
    
    
    16
    
    
    
    5US$90,001
  - $100,000
    
    
    5
    
    
    
    29
    
    
    
    8US$100,001 - $110,000
    
    
    10
    
    
    
    4
    
    
    
    2US$110,001 - $120,000
    
    
    12
    
    
    
    4
    
    
    
    1US$120,001 - $130,000
    
    
    9
    
    
    
    2
    
    
    
    US$130,001 - $140,000
    
    
    4
    
    
    
    
    
    
    
    US$140,001 - $150,000
    
    
    1
    
    
    
    
    
    
    
    1US$150,001 - $160,000
    
    
    2
    
    
    
    
    
    
    
    US$160,001 - $170,000
    
    
    
    
    
    
    1
    
    
    
    US$180,001 - $190,000
    
    
    3
    
    
    
    
    
    
    
    US$190,001 - $200,000
    
    
    1
    
    
    
    
    
    
    
    US$200,001 - $210,000
    
    
    1
    
    
    
    
    
    
    
    US$260,001 - $270,000
    
    
    1
    
    
    
    
    
    
    
    
 59




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No profit sharing or stock option scheme is operated by Lihir at present. 
 C. Board Practices Board of Directors Under the PNG Companies Act 1997 (the Companies Act), the business affairs of
any company incorporated in Papua New Guinea (including Lihir) are managed by,
or under the direction or supervision of, the board of directors of the
company. The board of this company has all the powers necessary for managing,
and for directing and supervising the management of, the business and affairs
of the company. This is nonetheless subject to limitations contained in the
Companies Act itself and any modifications, exceptions or limitations contained
in the companys constitution. Under the Companies Act, a company is not permitted to enter into a major
transaction unless it is approved by a special resolution (requiring a 75%
majority) of shareholders. A major transaction is defined to mean any
transaction involving:  
    
    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. There are other formal steps such as changing the companys constitution,
changing the companys name, approving the amalgamation of the company with
another company or putting the company into liquidation, which also require a
special resolution of shareholders. The Companies Act also provides that a meeting of shareholders may pass a
resolution relating to the management of a company, but, unless the
constitution of the company provides that the resolution is binding, a
resolution so passed is not binding on the board of directors. There is no
provision in the companys constitution which would make such a resolution
binding. The companys constitution provides generally that the business and affairs of
the company shall be managed by, or under the direction or supervision of, the
board, to the exclusion of any meeting of shareholders. The board of directors may appoint a managing director and delegate certain of
its powers to him. Under the Companies Act, directors are permitted, in the
absence of the Board resolving otherwise, to disclose information obtained as a
director to persons they represent. The companys constitution provides for a maximum number of 12 directors.
Under the Companies Act, at least one of the companys directors must reside
within PNG. The directors are not required to own any shares of the company.
Lihir Golds constitution requires that one-third of the directors (excluding
the managing director) must retire from the office at each annual general
meeting. Each director (other than the managing director) must, in any event,
retire from the office at the third annual general meeting after they were last
elected. In either case, the retiring directors may offer themselves for
re-election. Since January 1, 2003 the following have ceased to hold office as directors: Jonathan Leslie - March 1, 2003.
Marc Soipang - March 7, 2003
Anthony Siaguru  April 16, 2004 60




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Since January 1, 2003 the following directors have been appointed: Peter Cassidy - January 28, 2003
John OReilly - March 1, 2003. Details of the directors at the date of this report are as follows: Year AppointedName
    
    Position
    
    As Director
    
    Term EndsRoss Garnaut
    
    Chairman of Board
    
    
    1995
    
    
    
    2007Chairman of Audit CommitteeChairman of Environmental andLihir Impact CommitteeChairman of Remuneration andNomination CommitteeNeil Swan
    
    Managing Director
    
    
    2002Geoffrey Loudon
    
    Director Member of Audit Committee
    
    
    1995John OReilly
    
    Director
    
    
    2003Member of Environmental andLihir Impact CommitteeMember of Remuneration andNomination Committee1995Peter Cassidy
    
    Director
    
    
    2003
 At the Annual General Meeting held on April 27, 2004, Geoff Loudon retired by
rotation and offered himself for re-election. He was re-elected by ordinary
resolution at the general meeting. The proposed resolution that Sir Anthony
Siaguru retired by rotation and offered himself for re-election was withdrawn
due to his death on 16 April 2004. Directors Service Contracts Providing for Benefits on Termination of Contract The services of Ross Garnaut are covered by a letter agreement dated 26 April
2004. Lihirs directors have no entitlements to benefits on termination as members of
the board. Corporate Governance Practices The board of directors of the company is responsible to shareholders for the
overall management of the companys affairs and for setting the strategic
business direction of the company. The company has contracted with Lihir
Management Company, a subsidiary of Rio Tinto, to manage the corporate affairs
of the company and all aspects of the Lihir operation, including any future
expansion or exploration on Lihir Island. The management agreement is subject
to the overriding authority of the companys board of directors. Lihir
Management Company operates under a budget approved by the board and is subject
to various monetary limitations and other restrictions on its authority, which
are set out in the management agreement. Certain powers and functions remain
solely with the companys board of directors and are specifically excluded from
the scope of duties of Lihir Management Company, including:  
    
    determination of the companys treasury policies, including foreign
currency and interest rate exposure;  
    
    determination of the companys risk management policies including
insurance, gold price hedging and borrowing limits; 61




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##### Table of Contents




    
    determination of the companys accounting policies; and  
    
    engagement of auditors to review and report to the Board on the
companys internal controls and compliance with statutory and
regulatory requirements. Board Committees The companys board of directors has a commitment to maintain appropriate
corporate governance and to that end had three standing committees, listed
below, in place during 2003 and continuing until the date of this annual
report. The operation of these committees forms the basis of the Boards risk
identification and management strategy. Audit Committee The company has an audit committee consisting of a majority of independent
directors, which at the date of this annual report had the following members: Ross Garnaut - Chairman of committee
Geoffrey Loudon
Anthony Siaguru was a member of the committee until his death on 16 April 2004. The Audit Committee has the following responsibilities:  
    
    Monitor and maintain direct relationships with both internal and external auditors of the company.  
    
    Approve the audit plan of the internal and external auditors.  
    
    Determine and supervise implementation of the companys financial risk management policy,
including matters such as insurance and hedging.  
    
    Promote the companys relationship with regulatory bodies of a financial kind, e.g. the Bank of
Papua New Guinea and the various Papua New Guinea taxation authorities.  
    
    Review all related party transactions on an ongoing basis, in particular, review of the operation
of the management agreement between the company and Lihir Management Company. The Audit Committee has no executive directors as committee members. However,
the Managing Director of Lihir Management Company attends meetings of the
committee as a participating adviser by invitation of the committee. The internal auditors report directly to the Audit Committee and the Board.
The scope of the internal audit function is determined by the Audit Committee. Environmental and Lihir Impact Committee The company has an Environmental and Lihir Impact Committee that monitors the
environmental, social and community issues and impacts of the companys
operations on Lihir Island. The members of the Environmental and Lihir Impact
Committee at the date of this annual report are: Ross Garnaut - Chairman of the committee
John OReilly
Anthony Siaguru was a member of the committee until his death on April 16, 2004. 62




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##### Table of Contents



Remuneration and Nomination Committee The Remuneration and Nomination Committee of the Board has the following
members at the date of this annual report: Ross Garnaut - Chairman of the Committee
John OReilly
Anthony Siaguru was a member of the committee until his death on April 16, 2004. The terms of reference of the Committee are to:  
    
    Review remuneration of non-executive directors.  
    
    Review policies for the reimbursement of expenses of directors.  
    
    Establish criteria in relation to membership of the Board and its committees.  
    
    Review the membership of the Board and its committees.  
    
    Nominate representatives of the Board and its committees.  
    
    Formulate policies relating to the appointment and retirement of non-executive directors. The committee reports and recommends to the board on the above issues, with
final determination made by the Board. Appointment of new Directors Nominations of new directors, recommended by the Board Remuneration and
Nomination Committee, are considered by the full Board. The Committee uses
external consultants to access a wide base of potential directors, considering
their range of skills and experience required in light of:  
    
    the current composition of the Board;  
    
    the need for independence;  
    
    the strategic direction and progress of the company; and  
    
    the nature of Lihir Golds business The Board assesses nominated directors against a range of criteria including
background, experience, professional skills, personal qualities and their
capacity to commit themselves to the Boards activities. A director appointed
by the Board during any year will stand for election by shareholders at the
companys next annual general meeting. 63




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##### Table of Contents



D. Employees The number of employees and contractors at the end of each year is summarized
below: 2003
    
    2002
    
    2001Management
    
    
    12
    
    
    
    4
    
    
    
    4Commercial, human resources, corporate and
towns, site services, business development,
community and environment
    
    
    279
    
    
    
    249
    
    
    
    199Mining operations and mine technical
    
    
    362
    
    
    
    384
    
    
    
    385Plant operations and maintenance
    
    
    336
    
    
    
    341
    
    
    
    374Total Lihir employees
    
    
    989
    
    
    
    978
    
    
    
    962Total contractors (full-time equivalent)
    
    
    1,371
    
    
    
    1,100
    
    
    
    990Total
    
    
    2,360
    
    
    
    2,078
    
    
    
    1,952
 All but one of the employees as at the end of 2003 were based in Papua New
Guinea, either on Lihir Island, in Kavieng, New Ireland Province or in Port
Moresby. Management numbers did not increase during 2003. The change in the
above numbers from 2002 to 2003 provides a more accurate representation of the
management team. See Additional Information  Directors and Senior
Management. All employees are employed under individual employment contracts rather than
labour awards, and all negotiations of conditions are held directly with the
employees concerned. There are no unions or employee associations active
amongst Lihirs workforce. Management continues to engage in a consultative
process with representatives of the workforce, which takes the form of monthly
meetings focused on employee issues. These meetings allow employees to raise
for discussion any issues that may be of concern, and for management to provide
any relevant information. The outcomes of these meetings are communicated back
through the workforce through elected representatives. Daily meetings between
supervisors and their crews also serve as a useful forum for the exchange of
information. Employees are able to seek advice on employment matters and
company policies through the companys human resources and employee relations
personnel. During the year, the company established a whistleblower policy and an
independently operated facility enabling employees to raise issues for the
attention of the Companys most senior managers in case other communications
channels fail. 
 E. Share Ownership Pursuant to the Companies Act, the directors have disclosed the following
interests in shares in the company and provided general disclosure of
companies, businesses and persons in which they are to be regarded as
interested: Companies, business and persons in
    
    Interest held bywhich the Director is to be regarded
    
    director in shares ofDirector
    
    Nature of Interest
    
    as interested
    
    Lihir Gold LimitedRoss Garnaut
    
    Chairman
    
    Asia Pacific Economics Group Pty Ltd
    
    
    53,225(Chairman)
    
    Chairman
    
    PNG Sustainable Development Co. LtdChairman
    
    Lonely Planet Publications Pty LtdChairman
    
    Maccullochella Pty LtdDirector
    
    Ok Tedi Mining LtdDirector
    
    Sequoia Capital Management Ltd
 64




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##### Table of Contents



Companies, business and persons in
    
    Interest held bywhich the Director is to be regarded
    
    director in shares ofDirector
    
    Nature of Interest
    
    as interested
    
    Lihir Gold LimitedPeter Cassidy
    
    Director
    
    Oxiana Limited
    
    
    13,225Director
    
    Sino Gold LimitedDirector
    
    Zinifex LimitedDirector
    
    Energy Developments LimitedGeoffrey Loudon
    
    Chairman
    
    L and M Mining Limited
    
    
    143,840Director
    
    Sterilox Technologies IncDirector
    
    The Peruvian Copper Syndicate LtdNeil Swan
    
    Director
    
    Lihir Management Company LimitedJohn OReilly
    
    Director
    
    Lihir Management Company LimitedDirector
    
    Rio Tinto Consultants LtdDirector

Employee and
Officer
    
    Rio Tinto Technical Services
Limited

Rio Tinto Plc and Rio Tinto LimitedDirector
    
    Lion Selection Group LimitedDirector
    
    Zar Kuh Mining Company (Iran)
 Ross Garnaut acquired 3,225 shares in the company on January 23, 2004, pursuant
to the share purchase plan extended to existing shareholders in Australia,
Papua New Guinea and New Zealand announced by the company on November 12, 2003.
Peter Cassidy acquired 10,000 shares in the company on-market on May 27,
2003, and a further 3,225 shares on January 23, 2004 pursuant to the share
purchase plan. The total notified amount of voting securities owned by directors and officers
of the company as a group at the date of this annual report was 210,290
ordinary shares, representing 0.016% of issued ordinary shares. No options over shares in the company are held by directors and officers of the
company. No arrangements are in place for providing the employees of Lihir
Management Company with shares or options over shares of Lihir. 
 Item 7. Major Shareholders and Related Party Transactions 
 A. Major Shareholders The distribution of Lihirs shareholdings in its ordinary shares as at May 27,
2004 was: Range of Shares Held
    
    Number of Shareholders
    
    No of Shares Held1-1,000
    
    
    6,928
    
    
    
    4,4803401,001-5,000
    
    
    12,029
    
    
    
    34,941,0465,001-10,000
    
    
    4,486
    
    
    
    36,973,14110,001 - 100,000
    
    
    4,561
    
    
    
    125,363,141100,001  over
    
    
    225
    
    
    
    1,082,466,958Total
    
    
    28,311
    
    
    
    1,284,224,710
 65




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##### Table of Contents



The twenty largest registered shareholders at May 27, 2004 were: Adjustedpercentageexcludingshares held byRank
    
    Name
    
    Shares
    
    Percentage(1)
    
    NML(2)1
    
    Rio Tinto Metals Ltd
    
    185,758,126
    
    12.85
    
    
    14.462
    
    Merrill Lynch Investment
    
    136,000,000
    
    9.41
    
    
    10.593
    
    Mineral Resources Lihir Ltd
    
    77,169,431
    
    5.34
    
    
    6.014
    
    Colonial First State Investment Mgrs (Group)
    
    52,606,868
    
    3.64
    
    
    4.105
    
    Platinum Asset Mgt
    
    36,001,021
    
    2.49
    
    
    2.806
    
    Citigroup Global Markets
    
    29,764,778
    
    2.06
    
    
    2.327
    
    JP Morgan Fleming Asset Mgt (Group)
    
    27,797,304
    
    1.92
    
    
    2.168
    
    Sun Valley Gold
    
    18,945,050
    
    1.31
    
    
    1.489
    
    Fidelity (Group)
    
    15,388,520
    
    1.06
    
    
    1.2010
    
    Portfolio Partners
    
    15,369,074
    
    1.06
    
    
    1.2011
    
    Federated Investors
    
    14,553,900
    
    1.01
    
    
    1.1312
    
    Bank of Bermuda (Group)
    
    12,878,354
    
    0.89
    
    
    1.0013
    
    BT Funds Mgt
    
    12,785,167
    
    0.88
    
    
    1.0014
    
    American Century Investment Mgt
    
    12,164,473
    
    0.84
    
    
    0.9515
    
    Duquesne Capital Mgt
    
    11,700,924
    
    0.81
    
    
    0.9116
    
    Credit Agricole (Group)
    
    11,580,740
    
    0.80
    
    
    0.9017
    
    Investors Mutual
    
    11,173,976
    
    0.77
    
    
    0.8718
    
    Value Partners
    
    11,034,740
    
    0.76
    
    
    0.8619
    
    Van Eck Associates Corp
    
    10,826,788
    
    0.75
    
    
    0.8420
    
    Boyer Allan Investment Mgt
    
    10,000,000
    
    0.69
    
    
    0.78713,499,234
    
    49.35
    
    
    55.56
 Note 1. The percentages in this column reflect a denominator of 1,445,752,115
representing Lihirs total issued shares including the 161,527,405 Class B
shares owned by Niugini Mining Limited. Note 2. The percentages in this column reflect a denominator of 1,284,224,710
representing Lihirs total issued shares excluding the 161,527,405 Class B
shares owned by Niugini Mining Limited. Note 3. Niugini Mining Limited holds Class B shares which carry no voting rights nor
entitlement to dividends, see Information on the Company  History and
Development of the Company  Merger with Niugini Mining Limited. The following table sets out persons notified to the company pursuant to the
PNG Securities Act 1997 as substantial shareholders of the company. Under the
Securities Act, a person is a substantial shareholder if they have a relevant
interest in 5% or more of a class of voting share in Lihir Gold Limited.
Changes of greater than 1% in the relevant interest of a substantial
shareholder must also be notified. The definition of relevant interest looks
not merely to beneficial ownership of a share but extends to and includes: 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; and possession of the
above powers by virtue of any trust, arrangement, agreement or understanding. 66




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RelevantName of Substantial Shareholder
    
    interest
    
    Percentage (1)Rio Tinto plcRio Tinto International Holdings LimitedRio Tinto Overseas Holdings LimitedRio Tinto Lihir Holdings Limited
    
    
    185,758,126
    
    
    
    14.46Rio Tinto Metals LimitedRio Tinto European Holdings LimitedEach of Rio Tinto plcs subsidiariesother than Rio Tinto InternationalHoldings Limited, Rio Tinto OverseasHoldings Limited, Rio TintoLihir Holdings Limited, Rio Tinto MetalsLimited and Rio TintoEuropean Holdings Limited.Merrill Lynch Investment Managers (Group)
    
    
    136,000,000
    
    
    
    10.59Mineral Resources Lihir Limited
    
    
    77,169,431
    
    
    
    6.01Colonial First State Investment Managers,
    
    
    52,606,868
    
    
    
    4.10First State Investments
 Note 1. The percentages in this column reflect a denominator of 1,284,224,710
representing Lihirs total issued shares excluding the 161,527,405 Class B
shares owned by Niugini Mining Limited The shares held by Lihirs major shareholders command no different voting
rights to any other shares, other than the Class B shares owned by Niugini
Mining Limited which have no voting rights. American Depositary Shares and US Resident Shareholders A portion of Lihirs ADSs are traded on the NASDAQ National Market. In the
United States, each ADS evidenced by an American Depositary Receipt represents
20 fully paid ordinary shares of the company. The listed ADRs are issued
pursuant to a Deposit Agreement in 1995 between the company and the Listed
Depositary - The Bank of New York. On May 31, 2004, 1,349,582 ADSs (2003: 1,615,040) representing 26,991,640
(2003 : 32,300,800) ordinary shares were held by 19 (2003: 18) registered
holders under the NASDAQ - listed ADR programme. The company also has a
restricted ADR programme following the a placement of shares in October 1999
under which there are 365,000 ADS at 31 May, 2004 (2003: 400,000) representing
7,300,000 ordinary shares held by 12 (2003:13) registered holders. The
restricted ADR are issued pursuant to a Deposit Agreement entered into in
October 1999 between the company and the Restricted Depositary  The Bank of
New York. Also on May 31, 2004, there were 57 holders of ordinary shares (2003: 61) with
declared addresses in the United States holding 628,630 (2003: 763,875)
ordinary shares. In addition, there are a more significant number of United
States shareholders who hold beneficial ownership through nominee companies
located outside the United States. PNG Government Participation The PNG Government has a policy of obtaining an option to acquire, at cost,
equity participation of up to 30% in all mining projects located in PNG. The
PNG Government acquired a 30% interest in the joint venture on March 17, 1995
through Mineral Resources Development Corporation (MRDC). MRDC is a PNG
company wholly owned by the PNG Government. MRDC exchanged its interest in the
joint venture for an indirect 67




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##### Table of Contents



interest in 30% of the ordinary shares of the company outstanding immediately
prior to the consummation of the global offering. Following the offering, MRDC held a total of 154,338,862 ordinary shares 
transferring half of these shares (77,169,431) to Mineral Resources Lihir
Limited (MRL), a subsidiary company of MRDC, established as a trustee on behalf
of the people of Lihir under the Lihirian Equity Trust. (MRDL subsequently
sold its remaining interest on the open market (no longer holds shares in the
company). MRL financed its acquisition of shares in the company using funds
borrowed by MRDC from European Investment Bank (EIB), which were on-lent by
MRDC to MRL. In a series of meetings conducted since 2002 and which are
ongoing, the PNG Government (through MRDC), MRL, representatives from the
Lihirian community and the company have discussed means of ensuring that MRL
and MRDC are able to meet ongoing commitments to the EIB. It is envisaged that
this will involve MRL selling down a proportion of its shareholding in the
company and investing that portion of the proceeds remaining after meeting
current commitments to the EIB as is calculated and agreed to be necessary to
meet ongoing commitments. To the extent that the amount required to meet
current and future commitments to the EIB requires MRL to reduce its
shareholding in the company below 5.2% of the companys total equity, the
company has stated its intention to issue, for nil consideration, such number
of shares to MRL as is necessary to maintain its interest at 5.2%. MRL must remain as trustee of the Lihirian Equity Trust until such time that
the total cost to and indebtedness incurred by MRL for the purchase of the
Lihirian ordinary shares, together with interest and costs (the Lihirian Share
Purchase Debt), is fully repaid and discharged. After that time, the Lihirian
Equity Trust requires that the Lihirian ordinary shares or any dividends from
such shares must not be sold, charged, mortgaged or encumbered in any way
whatsoever and are maintained for the purposes set out in the Lihirian Equity
Trust. Under the State Equity Acquisition Agreement dated March 17, 1995 the PNG
Government expressly waived any rights it might otherwise have to acquire an
equity interest in any additional mineral discoveries made by the company on
Lihir Island pursuant to the Exploration License (or any extension or renewal
thereof), in recognition of the fact that it has already been given the
opportunity to participate in such discoveries through its indirect equity
interest in the company. In connection with an equity offering to institutions
on October 7, 1999, Lihir granted an option to MRL (as trustee on behalf of the
Lihirian people) to purchase up to 12,531,170 ordinary shares in the company.
MRL did not exercise the option prior to its expiry date on January 31, 2000.
The option has therefore lapsed. In connection with a further equity offering
to institutions in November 2003, the company offered MRL (again as trustee for
the Lihirian people) the opportunity to subscribe for up to 10,200,000 ordinary
shares. MRL did not subscribe for the shares within the period specified and
this offer has also expired. Share Options No options remained outstanding as at 31 December 2003 or at the date of this
annual report. There are no arrangements known to the company, the operation of which may at a
subsequent date result in a change in control of the company. 
 B. Related Party Transactions Whilst recognizing that senior management of Lihir are Rio Tinto employees
seconded to Lihir, the companys board of directors has ultimate control and
responsibility for all the Lihirs operations. The board has 2 directors who
are employees of Rio Tinto: John OReilly and Neil Swan. Interests of Directors in certain transactions John OReilly and Neil Swan are directors of Lihir Management Company, which
has a management agreement with the company whereby Lihir Management Company is
required to manage the corporate affairs 68




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##### Table of Contents



of the company and all aspects of the Lihir operation. Lihir Management
Company receives a management fee under the terms of the management agreement. John OReilly is also an employee and officer of Rio Tinto Plc and Rio Tinto
Limited and a director of Rio Tinto Consultants Limited and Rio Tinto Technical
Services Limited. These companies and their affiliates provide technical
services, advice and expertise to the company from time to time. These
services, advice and expertise are provided variously pursuant to the
management agreement between the company and Lihir Management Company, and
pursuant to the Technical Support Agreement. The company has contracted for the services of Dr Ross Garnaut as Chairman of
the company until April 30, 2007. The contract is with Dr Garnauts family
company, Maccullochella Pty Limited, which employs him but Dr Garnaut has also
agreed to be bound by its terms. Sir Anthony Siaguru, who was Deputy Chairman of the company until April 16,
2004, was employed in a consulting capacity by Blake Dawson Waldron, which firm
(amongst others) provides legal services to the company. The interests of the directors listed above were disclosed to the company prior
to the company entering into the relevant contracts or engaging the directors
as the case may be. Other than in relation to the management agreement with
Lihir Management Company, the directors concerned did not take part in
discussions on or voting in relation to the companys decision to enter into
the contracts and directors are satisfied the contracts are on arms length
terms. 
 C. Interests of Experts and Counsel Not applicable. 
 Item 8. Financial Information 
 A. Consolidated statements and other financial information These have been incorporated in the financial statements section of this report
at Item 18. Export activities Under the refining arrangements with AGR Matthey, gold is refined in Western
Australia. On the completion of the refining process gold is credited to the
companys bullion account for ultimate sale. Legal or arbitration proceedings In December 2000, the
Companys wholly owned subsidiary - Niugini Mining
(Australia) Pty Limited (NMA) terminated a sales agreement for seven mining
leases located in North Queensland. The purchaser (Arkaroola Resources Limited)
commenced an action against NMA in the Supreme Court of Queensland, seeking to
have the termination revoked and unspecified damages, including a refund of the
purchase price which had already been transferred to NMA under the sales
agreement. The action was struck out by the court in October 2001 because Arkaroola failed
to prosecute its action against NMA. Arkaroola is free to lodge a new action
and threatened to do so in mid-2002, however, at the time of publication, has
not done so. 69




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On July 1, 2003, liquidators for Arkaroola contacted NMA requesting an account
of the funds transferred from Arkaroola to NMA pursuant to the sales agreement
prior to termination. On September 2 , 2003, NMA responded to Arkaroolas
liquidator indicating it intended to retain the funds in question as
Arkaroolas actions cost NMA substantially, and any claim made by Arkaroola for
the purchase price is outweighed by those costs. NMA has not subsequently
heard from Arkaroolas liquidators. In March 2003, NMA sold its North Queensland assets, including the seven mining
leases, to Kagara Pty Limited, which is aware of the previous litigation. The
final interest transferred in this transaction was registered in Kagaras name
in March 2004. In June 2001, NMA became a party to a native title claim over some of its
mining tenements in North Queensland. Following the transfer of the final
interest to Kagara, NMA withdrew as a party to the native title claim on April
7, 2004. Two claims were instituted against Niugini Mining Limited in 1997 seeking
unspecified damages relating to the decommissioning of a mine in Mt Victor,
Papua New Guinea. These claims have not been actively prosecuted and efforts
are being undertaken to have them dismissed. The company believes from legal
advice obtained that these claims do not have reasonable prospects of success
and in the event the claims are not dismissed, the company intends to defend
them vigorously. Dividend distributions Lihir declared its maiden dividend of two Australian cents (AU$0.02) per
ordinary share in April 2003 and paid it in July 2003. The Board will continue
to consider payment of dividends on an annual basis, having regard primarily to
the companys earnings, cash flows and investment requirements. 
 B. Significant Changes No significant change in the state of the business has occurred since the date
of the annual financial statements as at December 31, 2003. 
 Item 9. Share Price and Capitalization The companys securities consist of ordinary shares and of Class B shares. No
options remain outstanding. The shares have no par value. All issued shares
are fully paid. Class B shares, which are held by Niugini Mining Limited, do
not carry voting rights or rights to receive dividends. Since the global offering in October 1995, the ordinary shares have traded on
the Australian Stock Exchange Limited (ASX), and on SEAQ International, the
London Stock Exchanges system for trading international equity securities that
are not listed on that exchange. The ADSs have traded on the NASDAQ National
Market. The ASX is the national stock exchange in Australia. The company is
also listed on the Port Moresby Stock Exchange (Market Code LHG). The following tables set forth, for the periods indicated, the highest and
lowest market quotations for ordinary shares reported on the Daily Official
List of the ASX and the highest and lowest prices for ADSs quoted on NASDAQ.
Each ADS represents 20 fully paid ordinary shares in Lihir. 70




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By Fiscal Year
    
    Ordinary Shares
    
    American Depositary SharesHighA$
    
    LowA$
    
    HighUS$
    
    LowUS$1996
    
    
    2.59
    
    
    
    1.46
    
    
    
    40.75
    
    
    
    21.881997
    
    
    2.44
    
    
    
    1.40
    
    
    
    38.25
    
    
    
    191998
    
    
    2.76
    
    
    
    1.46
    
    
    
    36.38
    
    
    
    18.751999
    
    
    1.95
    
    
    
    0.90
    
    
    
    23.50
    
    
    
    9.502000
    
    
    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
    
    
    
    13.99
 By Quarter
    
    
    
    Ordinary Shares
    
    American Depositary SharesQuarter Ending
    
    HighA$
    
    LowA$
    
    HighUS$
    
    LowUS$2000
    
    March 31
    
    
    1.12
    
    
    
    0.63
    
    
    
    13.75
    
    
    
    7.63June 30
    
    
    0.71
    
    
    
    0.52
    
    
    
    7.75
    
    
    
    6.13September 30
    
    
    0.78
    
    
    
    0.58
    
    
    
    9
    
    
    
    6.25December 31
    
    
    0.69
    
    
    
    0.53
    
    
    
    7.44
    
    
    
    5.502001
    
    March 31
    
    
    0.72
    
    
    
    0.54
    
    
    
    7.25
    
    
    
    5.79June 30
    
    
    1.02
    
    
    
    0.59
    
    
    
    10.88
    
    
    
    5.44September 30
    
    
    1.16
    
    
    
    0.79
    
    
    
    11.50
    
    
    
    8.63December 31
    
    
    1.28
    
    
    
    1.00
    
    
    
    12.94
    
    
    
    8.882002
    
    March 31
    
    
    1.62
    
    
    
    1.18
    
    
    
    16.50
    
    
    
    12.13June 30
    
    
    1.65
    
    
    
    1.15
    
    
    
    19.13
    
    
    
    12.50September 30
    
    
    1.38
    
    
    
    1.02
    
    
    
    15.75
    
    
    
    11.50December 31
    
    
    1.49
    
    
    
    1.06
    
    
    
    16.56
    
    
    
    122003
    
    March 31
    
    
    1.60
    
    
    
    1.30
    
    
    
    19.50
    
    
    
    15.11June 30
    
    
    1.54
    
    
    
    1.25
    
    
    
    19.90
    
    
    
    14.85September 30
    
    
    1.78
    
    
    
    1.30
    
    
    
    24.60
    
    
    
    16.94December 31
    
    
    1.83
    
    
    
    1.34
    
    
    
    25.25
    
    
    
    20.022004
    
    March 31
    
    
    1.59
    
    
    
    1.01
    
    
    
    24.85
    
    
    
    15.25
 By Month
    
    Ordinary Shares
    
    American Depositary SharesHighA$
    
    LowA$
    
    HighUS$
    
    LowUS$November 2003
    
    
    1.75
    
    
    
    1.49
    
    
    
    24.99
    
    
    
    23.17December 2003
    
    
    1.64
    
    
    
    1.34
    
    
    
    24.19
    
    
    
    20.02January 2004
    
    
    1.59
    
    
    
    1.27
    
    
    
    24.48
    
    
    
    20.15February 2004
    
    
    1.31
    
    
    
    1.09
    
    
    
    21.00
    
    
    
    17.22March 2004
    
    
    1.19
    
    
    
    1.01
    
    
    
    18.00
    
    
    
    15.50April 2004
    
    
    1.25
    
    
    
    0.98
    
    
    
    19.45
    
    
    
    14.13May 2004
    
    
    1.02
    
    
    
    0.88
    
    
    
    14.97
    
    
    
    12.25
 The last reported sale price of the ordinary shares on the ASX on May 31, 2004
was A$0.96. The last reported sale price of the ADSs on NASDAQ on April 30,
2004 was US$17.92 At April 30, 2004, the total market capitalization of the company (excluding
the shares held by Niugini Mining Limited) was A$1,233 million. 71




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Item 10. Additional Information 
 A. Share Capital Not applicable. 
 B. PNG Companies and Securities Law On March 27, 1997 the Papua New Guinea Parliament passed the Companies Act 1997
(the Companies Act) which, subject to six-month transitional provisions,
replaced the Companies Act (Chapter 146) that had applied in Papua New Guinea
since 1964. The Companies Act commenced operation on March 2, 1998. At the
Annual General Meeting of the company held on April 28, 1998, shareholders
approved registration of the company under the Companies Act and the company
was registered with effect from May 15, 1998. The Companies Act is based on the
New Zealand Companies Act 1993 and introduced significant changes to
shareholders rights and duties and to the duties, liabilities and obligations
of directors. The PNG Securities Act 1997 also commenced operation on March 2, 1998. The
Securities Act governs the offering of securities to the public in PNG and
deals with the requirements for a prospectus prepared in connection with the
offering of securities. The Securities Act also contains a range of laws
regulating the operation of the securities market in PNG including; stock
market manipulation laws; false trading and market rigging transactions; false
or misleading statements in relation to securities; fraudulently inducing
persons to deal in securities; and disseminating information about illegal
transactions. The Securities Act contains a prohibition against insider
trading. The Securities Act also contains provisions dealing with the
disclosure of substantial shareholdings which require the giving of notice
where a shareholder has a relevant interest in at least five percent of the
shares of a listed company. A substantial shareholder is also required to give
notice of changes in his or her relevant interest of one per cent or more in
the relevant class of shares. There are also provisions to allow a company to
require the disclosure of the beneficial owners of shares in the company. The
substantial shareholder provisions and the provisions dealing with the
disclosure of beneficial interests have been in effect in relation to the
company since September 28, 1998. A PNG takeovers code, approved under the provisions of the Securities Act, has
also applied to the company since September 28, 1998. The fundamental rule
under the Takeovers Code prevents any person from having a relevant interest of
more than 20% of the voting rights in a target company, except in a manner
permitted by the Code. There are no controls below the threshold of 20%. The
definition of relevant interest under to the Takeovers Code and for the
purposes of the substantial shareholder provisions of the Securities Act 1997
looks not merely to beneficial ownership of a share but extends to and
includes:  
    
    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. In addition, where a person (A) holds at least 20% of the voting rights in a
company (B), and B in turn has a relevant interest in a PNG company, A is
regarded as having the same relevant interest as B. 
 C. Constitution The companys current constitution was adopted by shareholders at the companys
annual general meeting held on April 28, 1998. A copy is lodged with the
Registrar of Companies in Port Moresby, Papua New Guinea and a copy is attached
as Exhibit 1 to this annual report. The new constitution was modelled on the
companys previous memorandum of association and articles of association
subject to changes which: 72




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(i) reflected changes made under the new Companies Act 1997 (e.g. the abolition
of par value of shares, the increased power for directors to make distributions
of money or property to members and the removal of the requirement that a
company have specific objects and powers); or (ii) took advantage of specific provisions of the new Act which allow the
company to take a course of action (e.g. to buy back the companys shares, to
indemnify directors or to pay for D&O liability insurance) if expressly
permitted to do so by its constitution. The following is a summary of the main points of the companys constitution.
References to clauses refer to clauses in the 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.  
    
    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. 73




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
    
    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.  
    
    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.  
    
    Clause 5.6 provides that where a call in relation to a share is due and payable and not paid the shareholder has no right
to vote.  
    
    Under clause 15.3, one third of the directors (excluding the managing director) retire by rotation each year and are
eligible for re-election.  
    
    Clause 27.3 provides that after distribution of assets to repay paid up capital any surplus assets will be distributed to
the shareholders in proportion to the amount paid up by the shareholder on each share, save to the extent that the terms of
issue of a share provide otherwise. The company does not have any partly paid shares on issue.  
    
    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 company does not have any partly paid shares on
issue. 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. 74




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
    
    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 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 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.  
    
    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. 
 D. Material Contracts Lihir Management General.At December 31, 2003, Lihir Management Company employed 989 full-time
employees for the Lihir operation. Lihir Management Company has entered into
the Technical Support Agreement with Rio 75




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Tinto pursuant to which it is able to periodically supplement its expertise, by
drawing on experienced engineering, construction and operations personnel from
other Rio Tinto owned or controlled businesses from around the world. See
Technical Support Agreement below. The Lihir Management Company team includes commercial, engineering,
construction and operations personnel. The senior members of the management
team have extensive experience in mining operations. Management Agreement.While the companys board of directors has ultimate
control and responsibility for all of the companys operations, and the
exercise of all the companys powers and rights, pursuant to the management
agreement the board of directors, has delegated to Lihir Management Company the
authority and responsibility to manage the corporate affairs of the company,
the construction and operation of the Lihir operation, any exploration
activities undertaken by the company in the Lihir Group of islands, and any
other operations and activities of the company. Subject to the restrictions
described below, Lihir Management Company is permitted to enter into contracts
on behalf of the company and to pay, out of the companys funds, all costs and
expenses incurred by it in connection with its role as manager of the Lihir
operation, including, without limitation, the salaries and other compensation
payable to Lihir Management Company personnel, and the monthly management fee
referred to below. In addition, Lihir Management Company is permitted to
contract for the performance of its duties under the management agreement,
provided, however, that any contracts with a related corporation of the
manager, must be on ordinary commercial terms and at a cost no greater than
that of obtaining the services from a contractor independent of the related
corporations. Lihir Management Companys discretion to manage the Lihir operation is limited
in certain respects. Lihir Management Company cannot, without the approval of
the companys board, incur any individual capital expenditure in excess of
US$3,000,000 except in accordance with a budget approved by Lihirs board of
directors, or incur any expenditure either in excess of 110% of an approved
budget (except in emergency circumstances) or in excess of US$10,000,000 other
than in accordance with an approved budget. In addition, Lihir Management
Company may not at any time, without the approval of the companys board:  
    
    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. All dollar amounts referred to in this paragraph are increased as of January 1
of each year (beginning January 1, 1997) by the application of the implicit
price deflator of the U.S. Gross National Product. 76




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The board of directors has delegated all of its responsibilities with respect
to the company other than the responsibility to:  
    
    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. Until the end of 2003, Lihir Management Company has been paid a monthly
management fee equal to the greater of US$250,000 (adjusted annually by the
implicit price deflator for the US Gross National Product), or 1.5% of the
average monthly operating costs of the Lihir operation during the preceding
three months. From the commencement of 2004, this fee has been reduced and is
now capped at US$1.5 million per annum. In addition, Lihir Management Company
is entitled to receive 1% of all costs incurred on any expansion involving
capital expenditures greater than US$50 million. For purposes of the foregoing,
all capital and operating costs are calculated excluding the management fee
paid or payable to Lihir Management. The companys obligation to pay the
management fee will be suspended, 12 months after mining operations have been
suspended as a result of certain specified events of force majeure, and one
month after mining operations are suspended for any other reason. The appointment of Lihir Management Company as the manager of the Lihir
operation shall continue during the term of the mining development contract
unless the management agreement is earlier terminated. The company can
terminate the management agreement for specified reasons, including certain
events of insolvency of Lihir Management, any breach by Lihir Management
Company of the terms of the management agreement, or if Rio Tinto (directly or
indirectly) ceases to hold at least 15% of the issued shares of the company, or
Lihir Management Company ceases to be a wholly owned subsidiary of Rio Tinto
or, upon six months notice, after the management agreement has been in effect
for 20 years. In addition, the parties may of course agree to terminate the
management agreement, or Lihir Management Company may terminate the management
agreement, upon six months notice after the later of 10 years after the date of
the agreement, and the repayment of all loans to the company, the terms of
which require management of the Lihir operation by a related corporation of Rio
Tinto. As a result of Rio Tinto not participating in the share issue
undertaken by the company in November 2003 and January 2004, Rio Tintos
interest in the company was reduced below 15% to 14.46%. The company agreed
not to exercise its right to terminate the management agreement on the basis of
this dilution of Rio Tintos interest. The management agreement provides that none of Lihir Management Company, Rio
Tinto, subsidiaries of Rio Tinto, or any of their respective directors,
officers, employees, agents and representatives shall be liable to the company
for, and all such entities and persons are indemnified and held harmless by the
company against, any costs, losses, claims, damages or liabilities
(collectively, Losses) incurred, suffered or done in the course of the
discharge of or arising in any way from, or in connection with the failure by
the manager to discharge its duties under the management agreement, unless they
result from the managers willful omission or willful misconduct (each as
defined therein). No such liability can result from a breach of the management
agreement, if the breach would not have occurred if Lihir Management Company
had not acted upon or omitted to act, following the instructions of or in
accordance with any decision or determination by the companys board of
directors. The company is indemnified by Lihir Management Company for losses
that are the result of the managers willful omission or willful misconduct. 77




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Lihirs lenders have required as a condition of financing, that the Lihir
operation continue to be managed by Rio Tinto or one of its wholly owned and
controlled affiliates. This is a condition to borrowings under the current
syndicated facility agreement, and any failure by Rio Tinto to wholly own or
control Lihir Management Company will also constitute a review event. Guarantee of Financial Obligations under Management Contract.Lihir Management
Company is a wholly owned subsidiary of Rio Tinto Western Holdings Limited,
which is wholly owned by Rio Tinto plc. Rio Tinto Western Holdings Limited
issued a guarantee dated May 22, 1995, in favor of Lihir, of the financial
obligations of Lihir Management Company under the management agreement. The
guarantee may not be terminated by the guarantor while Lihir Management Company
has any financial liability to the company under the management agreement. The
guarantee does not apply to financial obligations arising from acts or
omissions of Lihir Management Company after Lihir Management Company has ceased
to be a subsidiary of the guarantor, provided the guarantor has procured an
acceptable replacement guarantee from another guarantor acceptable to the
company. The guarantee is not a guarantee of Lihir Managements performance
under the management agreement. Technical Support Agreement.Under the technical support agreement, Rio Tinto
has agreed to provide to Lihir Management Company from its own resources, or
the resources of other members of the Rio Tinto Group, upon Lihir Managements
request, all advice and personnel as may be required to enable Lihir Management
Company to discharge its duties as manager under the management agreement. In the technical support agreement, Rio Tinto has agreed to provide a variety
of personnel to assist Lihir Management. At a flat rate (subject to increases
for inflation) of US$600 per person per day, (plus travel and accommodation
costs), Rio Tinto will provide contract services for such matters as ore
reserves, mine engineering, geothermal issues, metallurgy, general engineering,
infrastructure and financial analysis. In addition to these contract services,
Rio Tinto may be called upon to provide support for Lihir Managements
treasury, accounting, legal, mine planning, environment, financing, risk
management and other such matters. For these services Rio Tinto is reimbursed
for out-of-pocket travel and accommodation expenses. Rio Tinto also, from time
to time, transfers for a specified period personnel to Lihir Management
Company, to serve as senior management and to perform certain administrative
functions, and is entitled to receive from Lihir Management Company an amount
equal to the salary and statutory social security charges in respect of such
personnel. The technical support agreement will remain in force until the
termination of the management agreement or until Lihir Management Company
ceases to be a subsidiary of Rio Tinto. PNG Mining Laws The principal PNG mining laws are the PNG Mining Act, the Mining (Safety) Act
and the Regulations under these acts. The PNG Mining Act, provides that all
minerals existing on, in or below the surface of any land in PNG, including any
materials contained in any water lying on any land in PNG, are the property of
the PNG Government. The PNG Mining Act also provides for a system of licenses
and leases, pursuant to which persons are permitted to explore for minerals,
develop mines and extract mining products. The Mining (Safety) Act provides for
the regulation and inspection of mines and associated works. In 1990 and 1991, actions were brought in the PNG National Court challenging
the constitutional validity of the prior Mining Act on the grounds that the PNG
Governments ownership of minerals under privately owned land resulted in an
unjust deprivation of property. The actions were dismissed on procedural
grounds and thus the merits of the challenge were never decided. When the PNG
Mining Act was enacted in June 1992, provisions were included in an attempt to
clarify the constitutional status of any compulsory acquisition of property, or
deprivation of the use or possession of property, which may be effected by or
under the new PNG Mining Act. The company has received advice from its PNG counsel, Blake Dawson Waldron, to
the effect that even if the Special Mining Lease or Exploration License were
determined to result in an unjust deprivation of property, the landowners
recourse would be an action for compensation against the PNG Government, and
that the 78




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validity or legality of the grant of the Special Mining Lease or Exploration
License could not be successfully challenged for this reason. The principal mining rights for large-scale operations under the PNG Mining
Act, are exploration licenses and special mining leases. An exploration
license confers the exclusive right to carry out exploration for minerals for a
two-year period over a defined area. The holder of an exploration license is
required to conduct certain minimum agreed exploration activities during the
term of the license. Assuming it complies with the terms of the exploration
license and submits an acceptable program for the next period, the holder can
generally expect the license to be renewed for additional two-year periods.
However, the holder has no legal right to require such an extension. A mining
lease with respect to property covered by an exploration license can only be
granted to the holder of the license, although the PNG Government is under no
obligation to issue a mining lease, and could simply allow the exploration
license to lapse, in which case a mining lease for the property could be
granted to another person.
A special mining lease gives tenure to carry out construction and operations.
It can be granted for a term not exceeding 40 years, and may be extended for
periods of up to 20 years each. Special mining leases can only be granted
after a mining development contract has been negotiated and entered into, with
the PNG Government and the PNG Minister for Mining has approved the proposal
for development. In addition, before the land is occupied for mining purposes,
agreement must be reached with the landowners on appropriate compensation. The
holder of the special mining lease, is then entitled to the exclusive occupancy
for mining and mining purposes of the land, over which it is granted, and owns
all minerals lawfully mined from that land. Ownership of minerals thus passes
from the PNG Government, to the holder of the special mining lease, at the
point when the minerals, or the mineral bearing ores, are extracted from the
ground. The holder of a special mining lease is obliged to pay a royalty to the PNG
Government equal to 2.00% of either the FOB value of the minerals, if they are
exported without smelting or refining in PNG, or the net smelter returns from
the minerals, if they are smelted or refined within PNG. The company understands that the PNG government has commenced a review of its
mining laws. As yet, no proposal or documents have been published but reforms
are considered likely in due course. Related Agreements with PNG Government Exploration License.The Exploration License, (EL485) which gives it the
exclusive right to explore for gold and other minerals over the rest of Lihir
Island, including Luise Harbour, has been renewed on six occasions since its
original issue in 1983, the most recent extension being made from March 31,
2002 and expiring on March 31, 2004. This license is in the process of
renewal. An application for renewal was lodged in March 2004 and renewal fees
paid. Relevant public hearings are scheduled for July 2004. The renewal
process is procedural and no issues are anticipated in relation to granting of
a further two year renewal. The Special Mining Lease has been carved out of
the area previously covered by the Exploration License. For a discussion of
exploration licenses generally, see PNG Mining Laws above. Special Mining Lease.The company holds the Special Mining Lease which gives it
the exclusive right to mine and produce gold and other minerals from the area
of the Luise Caldera immediately adjacent to Luise Harbor, including the site
of the processing plant on Putput Point. It also holds subsidiary mining rights
elsewhere on Lihir Island. The Special Mining Lease is governed by the Mining Development Contract. The
Special Mining Lease can be terminated only if the Mining Development Contract
is properly terminated. The Special Mining Lease was originally issued to the joint venture on March
17, 1995. It has a term of 40 years, and, under the Mining Act, may be renewed
for subsequent periods of 20 years each at the discretion of the PNG Government Mining Development Contract.The company and the PNG Government entered into
the Mining Development Contract relating to the Lihir operation on March 17,
1995. 79




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In the Mining Development Contract, the company agreed to use its best efforts,
to build and operate the Lihir operation as specified in the Approved Proposal
for Development. The company is permitted to modify the Approved Proposal for
Development without seeking the PNG Governments permission, as long as the
modification substantially complies with the Approved Proposal for Development
submitted by the company. In addition, the PNG Government will be deemed to
have approved all modifications, which do not substantially comply with the
Approved Proposal for Development, if they do not object to such a modification
within fifteen days of receiving notice of such a change. The PNG Government
has agreed it will not unreasonably withhold its approval of any modification,
and all disagreements are subject to international arbitration. The company has
the right to suspend its operations at any time, if, after notice to and
consultation with the PNG Government, the companys revenues from the Lihir
operation for the three months immediately preceding the date of the notice,
are less than the sum of the royalties and operating costs. However, the
company must immediately (and periodically thereafter until the resumption of
operations) report such suspension to the PNG Government and must maintain the
Lihir operations assets in good order. After three years of suspended
operations, the PNG Government can compel the company to resume the Lihir
operation, unless an independent expert determines that the Lihir operation is
still not economically viable. The PNG Government may raise the issue again 12
months after any such determination by an independent expert. Under the terms of the Mining Development Contract, between three to five years
after the commencement of commercial production, the company must commission
and complete, within 12 months, a study into the feasibility of an expansion of
the Lihir operation at a capital cost of at least US$100 million (as adjusted
by an inflation factor), and the company must discuss the results of this study
with the PNG Government. If the company chooses not to proceed with the
expansion, the PNG Government may at some later date, on 12 months notice,
require a second expansion feasibility study to be conducted by the company.
The company has the right to decide whether or not to pursue any such
expansion. However, if it decides not to pursue such an expansion, the company
has undertaken to stockpile all ore not immediately processed that has a grade
in excess of 1.6 g Au/t. This commitment is for a minimum of two further
years. The PNG Government has indicated that after this two year stockpile of
low grade ore has been created, it will permit the disposal of all material
below an economic break-even cut-off grade. The Mining Development Contract governs the ability of the company to finance
the Lihir operation, to retain sales revenues in foreign currency and to make
payments and distributions in foreign currency. See PNG Foreign Investment
Laws and Exchange Controls. The PNG Government has agreed to permit the company to import into PNG all
materials necessary to construct and operate the Lihir operation and that any
taxes or duties will be applied to these materials on a non-discriminatory
basis. In addition, it has agreed to expeditiously approve the work permits and
visas of any expatriate worker needed to work at the Lihir operation. The PNG Government has also agreed to permit the company to export and market
its mine products as it chooses, free of any export duty. Such marketing must
be made on an arms length basis and must comply with PNG Government notices
prohibiting sales to buyers in certain jurisdictions on the grounds that such
sales may cause PNG to breach international law or may be prejudicial to the
national security or international relations of PNG. The Mining Development Contract contains several provisions requiring the
company to hire local workers and use local companies. The company must
provide for the training of Papua New Guineans and the replacement of
expatriate employees with Papua New Guineans. In procuring material, equipment
and services for the operations, the company must give certain preferences to
Papua New Guinean contractors and suppliers. The company must include Papua
New Guinea contractors and suppliers in all requests for bids where the
contractor or supplier has the proven ability to perform similar work within
the required time period. If the company receives a bid from one of these
Papua New Guinean contractors or suppliers, it must accept the bid if it meets
the specifications, is competitive in cost with international sources and meets
the quality, delivery and service requirements of the Lihir operation. In
addition, the company must encourage the development of local business, which
might be derived from the project, by implementing an approved 80




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business development plan. Finally, the company may be required to have up to
one-third of its mine products refined at a refinery located in PNG, provided
that the refineries have the capacity and offer competitive terms and
conditions. This has not yet occurred. The Mining Development Contract also contains provisions permitting the PNG
Government to purchase any of the installations or infrastructure that are to
be built by the company in connection with the Lihir operation, excluding any
facilities directly used in the mining and processing of the ore, any roads
within the mining site and any administrative buildings or housing. The PNG
Government may elect to either finance the construction of these facilities or
purchase these facilities after their construction by the company. If the PNG
Government decides to finance the building of these facilities, Lihir
Management Company will be responsible for hiring the contractors and
supervising the work to its standards but the PNG Government will pay for and
own the facilities and it may impose a fee on the company for the use of the
facilities, the amount of which is subject to arbitration before a designated
expert if no value can be agreed. If the PNG Government decides to purchase
these facilities after their construction by the company, the sales price will
be equal to residual value after depreciation. If this occurs, the PNG
Government will pay the purchase price in an annual installment equal to the
amount of depreciation the company could have claimed if it still owned the
property. The PNG Government has agreed that this annual payment will be
treated as a capital receipt for PNG income tax purposes. After any such
purchase, the company will be obligated to make an identical payment to the PNG
Government as a usage fee for the property, which the PNG Government has agreed
will be treated as a deductible outgoing for PNG income tax purposes. The Mining Development Contract may only be terminated by the PNG Government if
the Special Mining Lease expires and is not renewed, or the company surrenders
the Special Mining Lease (other than for the renewal or extension thereof or
for the issuance of a new Special Mining Lease), or the company abandons the
Lihir operation, or if the company materially defaults in the performance of
its significant obligations under the Mining Development Contract. These
companys obligations include:  
    
    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). The PNG Government must begin any termination of the Mining Development
Contract by giving the company a default notice. If the default described in
the notice is not cured within 180 days, the PNG Government has the right to
deliver a termination notice, which will terminate the agreement and the
Special Mining Lease 30 days later. If the company contests the grounds for
the issue of a default notice, or there is a dispute as to whether a default
has been cured, the matter is to be submitted to arbitration under the United
Nations Commission on International Trade Law Rules. The PNG Government may not deliver a termination notice to
the company while the grounds for the issue of a default notice are in the
arbitration process, and any previously delivered termination notice shall be
suspended once an arbitration proceeding commences. If prior to the date set
for termination, a receiver, manager or other administrator is appointed to act
on behalf of any bank in connection with permitted debt finance, termination
cannot occur for at least two years, as long as the administrator complies with
the Lihir operation agreements and prevents deterioration in the Lihir
operation facilities. Except for those required to be referred to a special expert, all disputes
under the Mining Development Contract must be arbitrated under the Arbitration
Rules of the United Nations Commission on International 81




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Trade Law. The PNG Government has waived its immunity with respect to enforcement of arbitration
awards. The Mining Development Contract is governed by PNG law. Operations Agreements Pressure Oxidation Technology License. On August 5, 1995, Lihir Management
Company, acting for and on the companys behalf, entered into an agreement with
Sherritt Inc under which Sherritt disclosed know-how relating to its
proprietary and patented pressure oxidation technology and whereby, subject to
certain payments, it granted an irrevocable, perpetual non-exclusive license to
use the pressure oxidation technology in the companys processing plant, as
patented or contained within Sherritts know-how. In or before November 2000,
Sherritt assigned its rights to the intellectual property, the subject of the
license, and the license itself, to Dynatec Corporation. 82




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Financing Agreements The company funded a portion of the construction of the Lihir operation
pursuant to a loan agreement, dated August 18, 1995, between the company and
the 26 banks named therein. The banks agreed to a loan of up to US$300
million, which was drawn down in installments to finance the costs of
developing the Lihir operation, initial working capital and operating costs and
certain other expenses, including interest on the loan, certain insurance
premia and certain financing costs. This loan agreement and supporting bank financing agreements were terminated by
agreement on November 22, 2000, and replaced by a syndicated facility
agreement. The syndicated loan is in the form of a US$50 million revolving
credit facility, arranged and underwritten by ABN-AMRO Australia Limited,
Commonwealth Bank of Australia, Deutsche Bank AG, Macquarie Bank Limited and SG
Australia Limited are participating with ABN-AMRO Australia Limited in this
facility. During the period Lihir had only one other financing arrangement, which was
originally a US$26.5 million facility from the European Investment Bank, dated
February 15, 1996. This EIB financing is also summarized below. The facility
was prepaid in its entirety on April 30, 2004 and the company is no longer
indebted under it. The following summaries do not purport to be complete and are qualified in
their entirety by reference to all of the provisions of the respective
agreement documents, including the definitions used in those agreements. The following is a summary of certain provisions of the transaction documents
for the syndicated facility agreement. Syndicated Facility Agreement -  overview The US $50 million syndicated loan facility attracts an overall interest rate
of 2.9% over LIBOR. The facility expires in June 2005 and its limit reduces in
increments as follows: June 30, 2003
    
    US$10 millionJune 30, 2004
    
    US$10 millionJune 30, 2005
    
    US$30 million
 Syndicated Facility Agreement -  Documentation, Terms and Conditions  Purpose: The available finance was first
to be used to repay all sums owing under
the then existing senior debt facility.
The US$50 million revolving credit has
since then been available for general
corporate purposes, including the
repayment of indebtedness and payment of
dividends or return of capital to
shareholders.  Pricing: Interest margin
    
    
    1.90
    %Political risk insurance margin
    
    
    1.00
    %
 In certain limited circumstances changes in law and official regulations
could increase the interest margin.  Prepayment: The facility can be repaid on any interest payment date
without penalty or at any other time on payment of interest period
break costs, subject to two days notice. The undrawn commitment may
be cancelled without penalty on ten days notice.  Security: The lenders and hedge providers have the benefit of a fixed
and floating charge over the assets of Lihir. The amount of secured
gold hedging can be increased to 80% of proven and probable reserves
and additional hedge providers can be introduced without the consent
of the secured parties. 83




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 Conditions Precedent: The lenders needed to be satisfied with the
results of normal technical and legal due diligence. Political risk
insurance satisfactory to the facility agent needed to be available
for drawings under the facility.  Representations and Warranties: Lihir was required to make customary
representations and warranties, including confirmation of compliance
in all material respects with the 1998 World Bank Environmental,
Health and Safety Guidelines, on the day of signing the US$50 million
syndicated facility agreement. Certain of these representations and
warranties need to be repeated every six months.  Undertakings: Undertakings given by Lihir included:  
    
    compliance with the 1998 World Bank Environmental, Health
and Safety Guidelines;
    
    restrictions on Lihirs ability to incur additional
financial indebtedness and to create additional security interests
over its assets;
    
    maintaining gold price hedging between a minimum agreed
profile and 80% of proven and probable reserves; and
    
    providing to the facility agent and independent engineer
each year the mine plan and cash flow projections used to calculate
debt service cover ratios for financial covenants.  Distributions to subordinated lenders and shareholders: If, at
December 31 and June 30 each year, the debt service cover ratio for
the following 12 months is greater than 1.25, and the life of mine
debt service cover ratio is greater than 2.5, Lihir would have the
right to withdraw cash in excess of a US$15 million minimum liquidity
balance from the secured accounts.  Events of Default: In addition to the normal default provisions
relating to non payment, financial distress, misrepresentation, cross
default and breach of undertakings, the agreement includes default
provisions covering material adverse change, expropriation, war and
political violence and exchange control. The US$50 million facility agreement also includes financial covenants that
would trigger default, if at December 31 and June 30 of each year, the debt
service cover ratio for the next twelve months, is less than 1.0 or the
life of mine debt cover ratio is less than 1.5. If an event of default is continuing the lenders, acting on majority
consent, may cancel the revolving credit commitment and accelerate
repayment of the loan.  Review Events: If, without consent of the agent (acting on the
instructions of all the lenders),Rio Tinto sells in whole or in part its current shareholding in Lihir or
the manager of the project ceases to be a wholly owned subsidiary of Rio
Tinto, the Agent may give notice to Lihir, within 21 days of becoming aware
or being notified of such an event:  
    
    requiring the US$ 50 million revolving credit be immediately
restructured in a manner acceptable to the Agent; or
    
    requiring the US$ 50 million revolving credit be repaid and
canceled within 180 days from such notification. EIB Financing -  Own Resources Finance Contract Pursuant to finance documents entered into among EIB, MRDC and the company on
February 15, 1996, EIB agreed to lend funds in an amount of 25 million European
currency units to MRDC, such funds to be on-lent to Lihir for the financing of
the Lihir operation pursuant to an on-lending agreement between Lihir and MRDC.
Under these finance documents, the credit was required to be linked to past or
planned expenditures in connection with the metallurgical plant or the oxygen
plant, described in the technical description attached thereto. Lihir drew the
entire funds during the 1997 year, which were used to fund the purchase of the
oxygen 84




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plant and processing equipment. Although the funds are lent to MRDC,
the credit was disbursed directly to Lihir in US Dollars in the amount of
approximately US$26.5 million. Interest on funds lent to MRDC under the EIB finance documents, accrues at a
rate equal to the average of the rates applicable to comparable loans made by
the EIB, on the date of the relevant disbursement notice of 3%. The interest
rate accruing on amounts on-lent by MRDC to Lihir, under the on-lending
agreement, accrues at an annual rate equal to 8.42%, which is the sum of the
interest rate payable by MRDC to EIB, the annual rate subsidy of 3.42%, and a
margin of 2%. The portion of interest payable, under the on-lending agreement
which corresponds to the interest rate subsidy, will be paid by or on behalf of
MRDC to the New Ireland Trust Fund, in order to fund the development or
maintenance of physical or social infrastructure projects for the benefit of
the population of New Ireland province. The finance documents contain, among others, undertakings from the company,
with respect to use of proceeds, completion of the Lihir operation, financing
of cost overruns without recourse to the EIB, insurance, maintenance of the
Lihir operations facilities, operation of the mine, shareholding and lending,
future operations, regular reporting and environmental reporting. The on-lending agreement was signed on December 19, 1997, which set forth the
rights and obligations of MRDC and Lihir with respect to amounts on-lent to
Lihir by MRDC. In order to comply with the terms of the loan agreement, the
payment by Lihir, of any amounts under the on-lending agreement, was
subordinated in right of payment and upon liquidation to the syndicated
facility agreement. The loan contains Event of Default provisions that, if satisfied, give
EIB/MRDC the right to demand immediate repayment of the loan. These
provisions concern events such as material misrepresentation of fact, failure
to pay obligations under the loan when due, insolvency or liquidation of the
Company, abandonment of a substantial part of the Companys business,
substantial reduction in the net worth of the Company, default on other major
loan agreements, and any material adverse effect on the Companys ability to
service the loan. To date, no Event of Default has been triggered. As part of the refinancing agreement signed on November 22, 2000, MRDC
consented to revised terms of subordination and security in the on-lending
agreement. In January 2004, notice was forwarded to MRDC by Lihir of the companys
intention to prepay the facility. The facility was fully prepaid on April 30,
2004. 
 E. Exchange Controls Since achieving self-government in 1973 and independence in 1975, PNG has
maintained a consistent policy of welcoming direct foreign investment in most
activities, and foreign investment in the mining sector in particular. The
Investment Promotion Act assures investors that they will have the right to
remit after-tax profits, and to make external debt-service and supplier
payments, and that there will be no expropriation without adequate
compensation. The PNG Central Banking (Foreign Exchange and Gold) Regulations generally
require that PNG residents (including the company), obtain approval from the
PNG Central Bank or its delegate for the inflow and outflow of currency and
gold to and from PNG. More specifically, PNG companies are required to
transfer all of their non-Kina revenues to PNG, and convert them into Kina, and
require the prior approval of the PNG Central Bank to convert funds from Kina
into other currencies. However, as is ordinarily the case with large mining
and petroleum projects in PNG, under the Mining Development Contract, the PNG
Government has agreed to ensure that the PNG Central Bank will grant to the
company, permission to retain certain of its funds in other currencies in, and
to convert and transfer its Kina funds, into offshore accounts. Prior to the
completion of the development of the Lihir operation, this permission was
limited to certain proceeds from bank loans, insurance policies and the sale of
its securities (including all of the non-Kina proceeds of the Loan and the
global offering). The company is currently permitted to retain, in the offshore
accounts, proceeds from 85




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the sale of mining products, and the proceeds of bank
loans and insurance policies in an aggregate amount, sufficient to pay three
months anticipated loan servicing obligations, payments for goods and services
to persons resident outside of PNG, dividends to non-PNG shareholders, and
payments for certain approved reductions in share capital. To the extent the
foregoing permissions are insufficient for such purposes, the company would
require the approval of the PNG Central Bank, to pay cash dividends to
shareholders resident outside PNG, or to invest or purchase goods or property
outside PNG. The Kina is subject to exchange controls. There is a limited and inefficient
market for the Kina, and no assurance can be given that the company will be
able to convert any Kina funds it has into other currencies, at rates
comparable to those at which funds were initially remitted to PNG, or at all. Consent of the PNG Central Bank or its delegate, is required for the export of
gold from Papua New Guinea. While the discretion vested in the PNG Central
Bank is absolute, consent can be anticipated in circumstances where the
transaction is on reasonable commercial terms, and where the applicant has
complied with its PNG foreign exchange and taxation obligations. Foreign workers, including those employed by the company, if they are resident
in Papua New Guinea, will be subject to exchange control administered by the
Bank of Papua New Guinea (the Central Bank), under the Central Banking (Foreign
Exchange and Gold) Regulation. A taxation clearance certificate is generally
required where cumulative remittances of foreign currency exceed K50,000 in a
calendar year, and formal exchange control approval is generally required
where total cumulative foreign currency remittances exceed K500,000 in a
calendar year (approximately US$130,000), including for the purposes of buying
securities. A person in this position will be able to purchase the companys
ordinary shares, or American Depositary Shares, on exchanges outside Papua New
Guinea, on which they are listed for quotation. A foreign worker employed by the company, who is resident in Papua New Guinea,
will be permitted to purchase the companys ordinary shares on the Port Moresby
Stock Exchange in Papua New Guinea, without any restriction. A person who is
not resident in Papua New Guinea, will be able to purchase the companys
ordinary shares or American Depositary Shares, on the exchanges on which they
are listed for quotation without any restriction. This position is generally
applicable in PNG. Any person who has purchased the companys ordinary shares would be permitted
to hold them, and exercise the votes attached to them, without any limitations,
subject to the provisions of the PNG Companies Act. 
 F. Taxation The following discussion is a summary of United States federal income,
Australian and PNG tax consequences, to U.S. holders of ordinary shares, or of
ADSs evidenced by ADRs. The discussion does not purport to be a comprehensive
discussion, and is based on the United States Internal Revenue Code of 1986, as
amended (the Code), and the tax laws of PNG as in effect on the date hereof,
which are subject to change. This discussion is also based in part, upon the
representations of the ADS Depositary Bank of New York, and assumes that each
obligation in the Deposit Agreement, and any related agreement, will be
performed in accordance with its terms. The discussion does not consider any
specific facts or circumstances that may apply to a particular investor, some
of which (for example, tax-exempt entities, banks, broker-dealers, traders in
securities that elect to mark to market, investors liable for alternative
minimum tax, investors who hold ordinary shares or ADRs as part of straddles,
or hedging or conversion transactions and investors whose functional currency
is not the U.S. dollar) may be subject to special rules. Accordingly,
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 their ownership of ordinary
shares or ADSs. United States Federal Income Taxation For purposes of this discussion, a U.S. Holder, is any beneficial owner who
owns the ordinary shares or ADSs as a capital asset, and is (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an 86




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estate subject to United States federal income taxation on a net income basis or, (iv)
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United States
persons have the authority to control all substantial decisions of the trust.
The discussion does not address aspects of United States taxation other than
federal income taxation, and of PNG taxation, other than income taxation.
Prospective investors are urged to consult their tax advisors regarding the
United States federal, state, local, PNG, and other jurisdictions regarding tax
consequences of owning and disposing of ordinary shares and ADSs. In general, taking into account the earlier assumptions, for United States
federal income purposes, holders of ADRs evidencing ADSs, will be treated as
the owners of the ordinary shares represented by those ADSs. Taxation of Dividends Subject to the discussion under Passive Foreign Investment Company
Considerations below, under United States federal income tax law, U.S. Holders
will include, in gross income as a dividend, the gross amount of any
distribution paid (before reduction for PNG withholding taxes), by the company,
to the extent of its current or accumulated earnings and profits (as determined
for United States federal income tax purposes) as ordinary income, when the
dividend is received, actually or constructively, by the U.S. Holder, in the
case of ordinary shares, or by the Depositary, in the case of ADSs. The
dividend will not be eligible for the dividends-received deduction, generally
allowed to U.S. corporations. The amount of the distribution will be the U.S.
dollar value of the PNG Kina payments made, determined at the spot PNG
Kina/U.S. dollar rate on the date such dividend distribution is includible in
the income of the U.S. Holder, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, any gain or loss resulting from
currency exchange fluctuations during the period from the date the dividend is
paid to the date such payment is converted into U.S. dollars, will be treated
as ordinary U.S. sourced income or loss. Distributions in excess of current
and accumulated earnings and profits, as determined for United States federal
income tax purposes, will be treated as a non-taxable return of capital to the
extent of the US Holders basis in the ordinary shares or ADSs and thereafter as
capital gain. Subject to certain conditions and limitations, the PNG tax withheld and paid
over to PNG will be eligible for credit against the U.S. Holders United States
federal income tax liability. For foreign tax credit purposes, the dividend will be income from sources
without the United States, but generally will be passive income (or, in the
case of certain holders, financial services income) which is treated
separately from other types of income for purposes of computing the foreign tax
credit allowable to the U.S. Holder. Distributions of additional ordinary shares to U.S. Holders, with respect to
their ordinary shares or ADSs that are made as part of a pro rata distribution
to all shareholders of the company, generally, will not be subject to United
States federal income tax. Taxation of Capital Gains Subject to the discussion under Passive Foreign Investment Company
Considerations below, upon a sale or other disposition of ordinary shares or
ADSs, a U.S. Holder will recognize U.S. sourced gain or loss, for United States
federal income tax purposes, in an amount equal to the difference between the
U.S. dollar value of the amount realized and the U.S. Holders tax basis
(determined in U.S. dollars), in such ordinary shares or ADSs. Such gain or
loss will be a capital gain or loss and, if the U.S. Holders holding period
for such ordinary shares or ADSs exceeds one year, will be a long-term capital
gain or loss. Long-term capital gains of a non-corporate U.S. Holder are
generally subject to a maximum tax rate of 20%. Passive Foreign Investment Company Considerations The company believes that for its 1995, 1996 and 1997 taxable years, the
company was a passive foreign investment company, or PFIC, for United States
federal income tax purposes, because the company had 87




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earned passive income from investments, while it had not yet earned any income from mining operations.
While in certain circumstances, a company will not be treated as a PFIC during
the first taxable year, in which such company has gross income, because the
company had passive income for more than one taxable year, before earning
income from mining operations, the exception would not be applicable.
Consequently, U.S. Holders of the companys ordinary shares or ADSs, whose
holding period includes all or part of the 1995, 1996 or 1997 taxable years of
the company, will be subject to the special rules described below. The company believes that it will not be treated as a PFIC for its 1998, 1999,
2000, 2001 and 2002 taxable years. However, the classification of the company
as a PFIC will depend on a factual determination made annually and thus may be
subject to change, depending upon the character of the companys income and
assets in future years. The Code treats gains from transactions in
commodities, such as gold, as passive income unless substantially all, of a
companys business is as an active producer of the commodity. The Regulations
define substantially all to mean that 85% or more of a producers gross
receipts must be gross receipts from sales, in the active conduct of a
commodities business or certain related activities. Under these rules, there
can be no assurance that the company would not be treated as a PFIC in future
taxable years, even though it is earning income from its mining operations. A U.S. Holder of ordinary shares or ADSs, whose holding period includes a
taxable year of the company, in which the company was a PFIC and who does not
make a QEF election (as described below), will be subject to the following
rules: (a)    Distributions made by the company during a taxable year, to a U.S. Holder
with respect to the ordinary shares or ADSs that are an excess distribution,
(defined generally as the excess of the amount received with respect to the
ordinary shares or ADSs, in any taxable year, in excess of 125 percent of the
average received in the shorter of either the three previous years, or the U.S.
Holders holding period before the taxable year), must be allocated ratably to
each day of the U.S. Holders holding period. The amount allocated to the
current taxable year is included as ordinary income, in the U.S. Holders gross
income for that year. The amount allocated to each prior taxable year is taxed
as ordinary income at the highest rate in effect for the U.S. Holder in that
prior year, and the tax is subject to an interest charge at the rate applicable
to deficiencies in income taxes. (b)    The entire amount of any gain realized, upon the sale or other disposition
of ordinary shares or ADSs will be treated as an excess distribution made in
the year of sale or other disposition, and as a consequence will be treated as
ordinary income and, to the extent allocated to years prior to the year of sale
or disposition, will be subject to the interest charge described above. The special PFIC tax rules described above will not apply to a U.S. Holder if
the U.S. Holder, elects to have the company treated as a qualified electing
fund (a QEF election), in the first taxable year in which the U.S. Holder
owns the ordinary shares or ADSs, and for which the company is treated as a
PFIC, and the company complies with certain reporting requirements. The
company intends to comply with all reporting requirements necessary for a U.S.
Holder to make a QEF election, and will provide to U.S. Holders such
information as may be required to make such a QEF election effective. A U.S. Holder that makes a QEF election will be currently taxable on its pro
rata share of the companys ordinary earnings, and net capital gain (at
ordinary income and capital gains rates, respectively), for each taxable year
of the company in which the company is a PFIC (which, as discussed above, may
be a significant number of taxable years), regardless of whether or not
distributions were received. The U.S. Holders basis in the ordinary shares or
ADSs, will be increased to reflect taxed but undistributed income.
Distributions of income that had previously been taxed will result in a
corresponding reduction of basis in the ordinary shares or ADSs and will not be
taxed again as a distribution to the U.S. Holder. For taxable years beginning after 1997, a U.S. Holder of ordinary shares or
ADSs in a PFIC that is treated as marketable stock, may also make a
mark-to-market election. An electing shareholder will not be subject to the
PFIC rules described above. Instead, in general, an electing shareholder will
include in each taxable year as ordinary income the excess, if any, of
the fair market value of the ordinary shares or ADSs at the end of the taxable year over
their adjusted basis and will be permitted an ordinary loss in respect of the
excess, if any, of 88




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the adjusted basis, of the ordinary shares or ADSs, over
their fair market value at the end of the taxable year (but only to the extent
of the net amount of previously included income as a result of the
mark-to-market election). The electing U.S. Holders basis in the ordinary
shares or ADSs will be adjusted to reflect any such income or loss amounts. A U.S Holder who makes the mark-to-market election (described above), but who
did not make a QEF election for any holding periods prior to December 31, 1997,
in which the company was a PFIC, will be subject to the PFIC rules in the first
taxable year of making the mark-to-market election, with respect to any
distribution on or disposition of such ordinary shares or ADSs, or with respect
to any amount includable as a result of making the mark-to-market election. Special rules apply with respect to the calculation of the amount of the
foreign tax credit with respect to excess distributions by a PFIC or inclusions
under a QEF. A U.S. Holder who owns ordinary shares or ADSs during any year that the company
is a PFIC must file Internal Revenue Service Form 8621. Australian Taxation Australian stamp duty is not payable on transfers of marketable securities that
are quoted on the Australian Stock Exchange and registered in Australia. No
Australian stamp duty is payable on the issue or transfer in the United States
of an ADR for Lihir Gold shares. Papua New Guinea Taxation The application of PNG taxation to U.S. Holders in relation to income derived
from their ADRs or ordinary shares will depend upon whether they are resident
in PNG or not. A person, other than a company, will normally be a resident of
PNG if that person:  
    
    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. A company will normally be a resident of PNG if it is incorporated in PNG or if
it carries on business in PNG and has either its central management and control
in PNG, or its voting power is controlled by shareholders who are residents of
PNG. A superannuation fund will be a resident of PNG if it is established or managed
in PNG. Dividends paid by the company after January 1, 2001, including those paid to
residents of PNG, will generally be subject to 10% (17% previously) dividend
withholding tax. Dividends paid to resident and non-resident superannuation
funds are exempt from the withholding tax. If a US Holder is not a resident of PNG, the dividend (withholding) tax on the
Holders ordinary shares will be a final PNG tax on that income, provided that
the U.S. Holder does not carry on business through a permanent establishment in
PNG. Assuming that the US Depositary for the ADRs never becomes a resident of
PNG, this will apply to the ordinary shares held by the Depositary on behalf of
the ADR holders. Further distributions of the dividend income by the Depositary
to the ADR holders who are themselves not resident in PNG will not be liable to
any further PNG tax. If a US Holder is a resident of PNG, dividends paid by the company on the
ordinary shares held by that person and income received from the ADRs held by
that person, will be assessable income in PNG and, after any allowable
deductions are made, will be subject to income tax at the normal rates
applicable to individuals and companies. A credit may be claimed for the
dividend (withholding) tax which has already been paid. 89




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The sale of ordinary shares or ADRs may generate assessable income to certain
U.S. Holders, such as banks, insurance companies and other persons or
institutions in the business of investment, if such sale is carried out in PNG
or if the business is carried on in PNG through a permanent establishment and
the income earned is effectively connected with that permanent establishment.
Any such income would be assessable (after any allowable deductions are made)
at the ordinary rates applicable to individuals or companies. In addition, although PNG does not have a capital gains tax as such, any person
deriving in PNG a profit, arising from the sale of any property acquired for
the purpose of profit-making by sale, or from the carrying on or carrying out
of any profit making undertaking or scheme, will be liable to tax in PNG on
that profit. Such profit will be included in that persons assessable income
and, after any allowable deductions are made, will be subject to income tax at
the normal rates applicable to individuals and companies. Transfers of marketable securities which are registered in PNG will be liable
to PNG stamp duty as follows:  
    
    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. No PNG stamp duty will be payable on the issue or stock market transfer of an
ADR, provided that the ADR is registered on a register located outside PNG and
the transfer is effected on that register. 
 G. Dividends and Paying Agents Not applicable 
 H. Statement by Experts Not applicable 
 I. Documents on Display All company documents are in English and may be inspected at the registered
office in Port Moresby, PNG with the benefit of advance notice. It is also possible to read and copy documents referred to in this annual
report on Form 20-F that have been filed with the SEC at the SECs public
reference room located at 450 Fifth Street, NW, Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms and their copy charges. 
 J. Subsidiary Information Not applicable. 90




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Item 11. Quantitative and Qualitative Disclosure About Market Risk 
 A. Quantitative Information about Market Risk Gold Commodity Price Risk Market risks relating to the companys operations result primarily from changes
in the market price for gold.
The following tables summarizes Lihirs gold price hedging program as at
December 31, 2003: Put Options Bought AverageStrike price
    
    Put Revenue *1Year
    
    Ounces
    
    (US$/Oz)
    
    (US$ millions)2004
    
    
    20,000
    
    
    
    335.00
    
    
    
    6.72005
    
    
    95,000
    
    
    
    320.39
    
    
    
    30.42006
    
    
    39,000
    
    
    
    325.26
    
    
    
    12.72007
    
    
    96,000
    
    
    
    319.17
    
    
    
    30.62008
    
    
    40,000
    
    
    
    335.00
    
    
    
    13.4Total
    
    
    290,000
    
    
    
    323.66
    
    
    
    93.8
  *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. Call Options Sold AverageStrike price
    
    Call Revenue *2Year
    
    Ounces
    
    (US$/Oz)
    
    (US$ millions)2004
    
    
    20,000
    
    
    
    365.00
    
    
    
    7.32005
    
    
    95,000
    
    
    
    326.71
    
    
    
    31.02006
    
    
    39,000
    
    
    
    336.74
    
    
    
    13.12007
    
    
    96,000
    
    
    
    319.08
    
    
    
    30.62008
    
    
    20,000
    
    
    
    365.00
    
    
    
    7.3Total
    
    
    270,000
    
    
    
    331.12
    
    
    
    89.3
  *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. 91




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Forwards AverageStrike price
    
    RevenueYear
    
    Ounces
    
    (US$/Oz)
    
    (US$ millions)2004
    
    
    222,920
    
    
    
    325.46
    
    
    
    72.62005
    
    
    265,478
    
    
    
    333.71
    
    
    
    88.62006
    
    
    292,500
    
    
    
    328.50
    
    
    
    96.12007
    
    
    330,000
    
    
    
    323.76
    
    
    
    106.82008
    
    
    375,475
    
    
    
    331.96
    
    
    
    124.62009
    
    
    243,185
    
    
    
    350.76
    
    
    
    85.32010
    
    
    10,000
    
    
    
    327.00
    
    
    
    3.3Total
    
    
    1,739,558
    
    
    
    331.86
    
    
    
    577.3
 The revenue figures shown in the above tables are those that will be received
if, in the case of options, those options are exercised. For put options
bought by Lihir, this will be the case when the prevailing spot price at the
exercise date is below the put option strike price. For call options bought by
Lihir, the option would be exercised and the resulting ounces sold at the
prevailing spot price, only if the spot price were to be greater than the call
strike price. For call options sold by Lihir, the company will be obliged to
deliver gold at the strike price if required to do so by the counter-party.
This is only likely to occur if the spot price is greater than the call strike
price. In the case of Fixed Rate Forwards, Lihir is obliged to sell the
relevant number of ounces at the specified strike price on the value date, and
the revenue shown above is that which will actually be received. The minimum total revenue generated from these programmes will be US$671
million (2002: US$719 million and 2001: US$737 million). Revenue generated from
the same number of ounces at the prevailing spot price at December 31, 2003, of
US$417.50 per ounce would be US$847 million (2002: US$747 million at US$342.75
per ounce and 2001: US$634 million at US$276. 50 per ounce). On December 31, 2003, the estimated fair value of the total hedge programme, as
determined by an independent party, based on the ruling spot price of US$417.50
(2002: US$342.75 and 2001: US$276.50), was negative US$199.4 million (2002:
negative US$65.8 million and 2001: positive US$59.8). At the spot price plus
10% (US$459) the estimated fair value would be approximately US$280 million
out-of-the-money. At the spot price less 10% (US$376) the estimated fair value
would be US$120 million out of the money. The fair value of commodity
contracts is estimated, based on quotes from the market makers of these
instruments, and represents the estimated amounts that Lihir would expect to
receive or pay to terminate the agreements at the reporting date. Fair value
of put options is an estimate based on relevant market information such as:
volatility of similar options, futures prices and the contracted strike price. Net profit for 2003 included revaluation revenue relating to ineffective hedges
of US$12.1 million (2002: 2.2 million; 2001: 5.0 million). The hedge
effectiveness provisions of IAS 39 require that the ineffective portion of the
hedge be passed through the income statement. During the latter part of 2000
and early 2001, gold lease rates were historically high. In locking in the
gold price for future production, Lihir elected to retain a floating rate
exposure to lease rates by way of gold lease rate swaps. The US$12.1 million
(2002: $US2.2 million, 2001: US$ 5.0 million) revenue has primarily arisen due
to lease rates falling to historical levels, across the curve. The effective portion of the hedge is retained in equity, to be recycled to
earnings on delivery of designated production. At December 31, 2003,
shareholders equity included a hedging fair value reserve of negative US$206.5
million (2002: negative US$69.5 million; 2001: positive US$53.6 million). 92




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Interest Rate and Exchange Rate Risk The company does not currently use financial instruments to hedge interest rate
or exchange rate exposure. The companys interest expenses are most sensitive to changes in the London
Inter-Bank Offered Rate (LIBOR), as its borrowings under the syndicated
facility agreement bear a LIBOR based interest rate. At December 2003, the
company had US$19.5 million outstanding on its variable rate loan. The
potential loss to the group, over one year, that would result from a
hypothetical, instantaneous and unfavourable change in 100 basis points in the
interest rates of all variable financial assets, and liabilities on December
31, 2003, would be approximately US$0.1 million. Including the cash on deposit
component in the calculation, the net interest rate exposure would equate to a
potential net loss in earnings of US$0.6 million. The companys functional currency is the US dollar but some transactions are
denominated in Australian dollars and Kina. By way of illustration of the
sensitivity of exchange rates on such transactions, a 10% change in the
Australian to US dollar exchange rate would have an adverse effect of
approximately US$7 million on earnings after tax. Similarly, a 10% change in
the Kina to US dollar exchange rate would have an adverse effect of US$0.5
million on earnings after tax. 
 B. Qualitative Information about Market Risk Market risks relating to the companys operations result primarily from changes
in the market price for gold and changes in interest rates. The company does
not use derivative securities or other financial instruments for trading
purposes, and is not party to any leveraged derivatives. To reduce the risk related to the decrease in the market price of gold, the
company has entered into hedging transactions, which include put options, spot
deferred and forward sales covering a portion of its gold production and fixed
future prices. The company assesses the exposure that may result from a
hedging transaction prior to entering into commitment, and only enters into
transactions that it believes accurately hedge the underlying risk and could be
safely held to maturity. The company regularly reviews its unrealized gains
and losses on hedging transactions. The company is also required by its
obligations under the syndicated facility agreement, to hedge against decreases
in the market price of gold in order to maintain minimum revenue amounts on a
portion of its gold production. For a qualitative discussion of the companys
hedging strategies, see Item 5  Operating and Financial Review and Prospects
 Operating Results  Revenues  Hedging. 
 Item 12. Description of Securities Other than Equity Securities Not applicable. 
 PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies None 
 Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds None. 93




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Item 15 Controls and Procedures Evaluation of Disclosure Controls and Procedures For its fiscal year 2003, the company performed an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures. Disclosure controls and procedures are designed to ensure that the
material financial and non-financial information required to be disclosed in
Form 20-F and filed with the U.S. Securities and Exchange Commission is
recorded, processed, summarized and reported timely. The evaluation was
performed under the supervision of our Chief Executive Officer and our Chief
Financial Officer. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable, rather than
absolute, assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the foregoing, the
companys management, including the CEO and CFO, concluded that Lihirs
disclosure controls and procedures were effective as of December 31, 2003. Internal Controls There have been no changes in the companys internal control over financial
reporting during the period covered by this annual report that have materially
affected, or are reasonably likely to materially affect the Lihirs internal
control over financial reporting. 
 Item 16A: Audit Committee Financial Expert The companys board has determined that it does not have an audit committee
financial expert serving on its audit committee. The board is actively seeking
a candidate to fill this role, but this process is not yet complete because of
the difficulty in finding a suitable candidate with sufficient experience and
background to meet the SECs definition of audit committee financial expert. 94




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Item 16B: Code of Ethics The company has adopted policies and procedures which bind all employees,
including the Chief Executive Officer and the Chief Financial Officer, in the
interaction with each other and others parties. Employees are expected to
adopt the highest standards of ethical business practice in accordance with the
Lihirs Statement of Values. These policies are reference in employment
contracts and available to all employees through the companys intranet site.
The company undertakes to provide a copy of these procedures to any person
without charge, upon request at our principal executive offices. Additionally,
the executive staff, including the Chief Executive Officer and the Chief
Financial Officer, is contractual bound by Rio Tintos statement of business
practice entitled the way we work. Information on this statement of business
practice as associated guidance notes are found at
http://www.riotinto.com/library/reports/PDFs/corpPub_BusPract_English.pdf . 
 Item 16C: Audit Fees and Services The company, at the annual general meeting, re-appointed the current auditors,
PricewaterhouseCoopers, as independent auditors of Lihir for 2004. The
following list of services which PricewaterhouseCoopers provided to Lihir and
subsidiaries. 2003 Fees
    
    2002 Fees
    
    2001 FeesServices provided
    
    US$000
    
    US$000
    
    US$000Audit services
    
    $
    172,000
    
    
    $
    152,000
    
    
    $
    152,000Taxation services
    
    $
    28,000
    
    
    $
    73,000
    
    
    $
    48,000
 
 PART IV 
 Item 17. Financial Statements Not applicable 
 Item 18. Financial Statements See pages F-1 through F-36 incorporated herein by reference. 95




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Item 19  Exhibits Exhibit 1
    
    Constitution of 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)
    
    European Investment Bank Finance Contract between EIB, MRL
and Lihir, dated December 28, 1995 (incorporated by
reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 1996).Exhibit 2 (b)
    
    Subordinated On-Lending Agreement Amending Agreement No. 2
between Mineral Resources Development Company Limited dated
November 22, 2000 (incorporated by reference to Lihirs
annual report on Form 20-F for the fiscal year ended
December 31, 2000).Exhibit 2 (c)
    
    Syndicated Facility Agreement between Lihir, ABN AMRO
Australia Limited, ABN AMRO N.V. (Australian Branch) dated
November 22, 2000 (incorporated by reference to Lihirs
annual report on Form 20-F for the fiscal year ended
December 31, 2000).Exhibit 2 (d)
    
    Lihir Gold Security Trust Deed between Lihir, ABN AMRO
Australia Limited, Mineral Resources Development Company
Limited, Niugini Mining Limited, Niugini Mining (Australia)
Pty Ltd and certain hedge counter-parties, dated November
22, 2000 (incorporated by reference to Lihirs annual report
on Form 20-F for the fiscal year ended December 31, 2000).Exhibit 2 (e)
    
    Refinancing Co-ordination Deed between Lihir, UBS Australia
Limited, UBS AG, London Branch, Citibank, N.A., ABN AMRO
N.V., (Australian Branch), ABN AMRO Australia, Mineral
Resources Development Company Limited dated November 22,
2000 (incorporated by reference to Lihirs annual report on
Form 20-F for the fiscal year ended December 31, 2000).Exhibit 2 (f)
    
    Lihir Gold Present Assets Charge (Australia) between Lihir
between Lihir and ABN AMRO Australia Limited dated November
22, 2000 (incorporated by reference to Lihirs annual report
on Form 20-F for the fiscal year ended December 31, 2000).Exhibit 2 (g)
    
    Lihir Gold Future Assets Charge (Australia) between Lihir
and ABN AMRO Australia Limited dated November 22, 2000
(incorporated by reference to Lihirs annual report on Form
20-F for the fiscal year ended December 31, 2000).Exhibit 2 (h)
    
    Lihir Gold Offshore Assets Charge between Lihir and ABN AMRO
Australia Limited dated November 22, 2000 (incorporated by
reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 2000).Exhibit 2 (i)
    
    Lihir Gold Deed of Security (PNG) between Lihir and ABN AMRO
Australia Limited dated November 22, 2000 (incorporated by
reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 2000).
 96




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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).Exhibit 4 (e)
    
    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 (f)
    
    PutPut and Ladolam Relocation Agreement, dated 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 (g)
    
    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 (h)
    
    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, 2000).Exhibit 4 (i)
    
    Agreement for the Services of Professor Ross Garnaut as
Chairman of Lihir, dated April 26, 2004 between Lihir and
Maccullochella Pty Ltd.Exhibit 4 (j)
    
    Guarantee dated 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.Exhibit 4 (k)
    
    Confidentiality agreement between Lihir Management Company
Limited, Lihir and Technological Services Pty Limited, dated
May 31, 2004.Exhibit 4 (l)
    
    Patent and Know-How License Agreement dated 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.
 97




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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.
 98




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Certain Definitions ADRs means American Depositary Receipts evidencing ADSs. ADSs means American Depositary Shares, each of which represents 20 ordinary
shares in the company. ASX means the Australian Stock Exchange Limited. Australian dollar and A$ each mean the lawful currency of the Commonwealth
of Australia. Blasting Contractor means Orica Papua New Guinea Ltd. Compensation Agreement means the Compensation Agreement for Land, Crops,
Water and Air among Lihir Management, Lihir Mining Area Landowners Association
Inc, Block Executives (for and on behalf of the Landowners), Catholic Mission
(Kavieng Property Trust) and The United Church in PNG and the Solomon Islands,
dated April 26, 1995. Integrated Benefits Package means the package of benefits and
compensation agreements between Lihir Management Company and the people of
Lihir represented by The Nimamar Development Authority and the landowners of
Lihir represented by the Lihir Mining Area Landowners Association Inc, the
national and provincial governments. Kina and K each mean the lawful currency of PNG. Lihir Group means collectively the four islands (Aniolam, Masahet, Mahur and
Mali) located in the Province of New Ireland, PNG. Lihir Island means Aniolam Island. Lihirians means collectively the customary or traditional inhabitants of the
Lihir Group. Management Agreement means the Lihir Project Management Agreement dated March
17, 1995 between Lihir and Lihir Management Company Limited. Mining Development Contract means the Mining Development Contract between PNG
and the company, dated March 17, 1995. MRDC means Mineral Resources Development Corporation Limited, a company that
is wholly-owned by the PNG Government. MRL means Mineral Resources Lihir Limited, a wholly owned subsidiary of MRDC. Niugini Mining means Niugini Mining Limited. PNG Government means the Government of Independent State of Papua New Guinea
and PNG has corresponding meaning Project Assignment Agreement means the Project Assignment Agreement among
Southern Gold, Niugini Mining, MRL, PNG and the company, dated March 17, 1995. Rio Tinto or Rio Tinto Group means the entity created by the unification of
The RTZ Corporation PLC and CRA Limited in December 1995 pursuant to the
adoption by such companies of a dual listed companies structure. 99




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Southern Gold means Southern Gold (Bahamas) Ltd, a company, since
deregistered, owned by Rio Tinto (75%) and Vengold (25%). Special Mining Lease means the Special Mining Lease (No. 6) issued by the PNG
Department of Mining and Petroleum dated March 17, 1995. State Equity Acquisition Agreement means the State Equity Acquisition
Agreement among Kennecott, Niugini Mining, MRL and PNG, dated March 17, 1995. Technical Support Agreement means the Technical Support Agreement between Rio
Tinto and Lihir Management Company, dated June 30, 1995. US dollars, US$, $ and dollars each mean the lawful currency of the
United States of America and A$ means Australian dollars. Vengold means Vengold, Inc. 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
 100




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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
    
    The clarification and concentration of slurry material by the use of
several thickeners in series, with the washing solution flowing in
the opposite direction to the slurryCut-off grade
    
    In resource/reserve estimation, the lowest grade of mineralized
material that can be economically extractedCyanidation
    
    A standard method of extracting gold and silver from crushed or
ground mineralized rock using sodium cyanideCyanide leaching
    
    The extraction of a precious metal from an ore by its dissolution in
a cyanide solutionDilution
    
    Waste which is commingled with ore in the mining processDore
    
    A mixture of gold and other metals, mostly silver, usually the raw
metal produced from a precious metal mineElectro-winning
    
    The process of removal of gold from solution by the action of
electric currentsElution
    
    The process of desorption (taking of gold from carbon)Epithermal
    
    A term applied to deposits formed at shallow depths from ascending
solutions of moderate temperaturesExsolution
    
    To be removed from solutionFeasibility study
    
    A technical and financial study of a project at sufficient level of
accuracy and detail to allow a decision as to whether the project
should proceed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 a 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.
 101




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Geochemistry
    
    The study of the variation of chemical elements in rocks and soils; a
method of exploration based on thisGeotechnical
    
    Pertaining to the engineering properties of rocks and soilsGeothermal
    
    Pertaining to the heat of the earths interiorGrade
    
    The metal (or mineral) content per unit of rockGrinding
    
    Reducing mineralized rock to the consistency of fine sand by crushing
the abrading in a rotating steel grinding millGyratory Crusher
    
    A primary crusher consisting of a vertical spindle, the foot of which
is mounted in an eccentric bearing within a conical shell. The top
carries a conical crushing head revolving eccentrically in a conical
maw.Hydrological
    
    Pertaining to the science of hydrologykPa
    
    A unit of pressure  an abbreviation for kilopascals, gauge.Joint venture
    
    An arrangement in which two entities unite to form a new,
jointly-owned entity to achieve a specific purpose.Lime
    
    Calcium oxide; artificially made from limestoneLimestone
    
    Rock composed mainly of calcium carbonateLithology
    
    The physical characteristics of rockMafic
    
    Descriptive of rocks containing or made up of ferro-magnesian
minerals (usually dark in color)Magma; magmatic
    
    Liquid molten rock; pertaining to processes and rocks involving magmaMarcasite
    
    Iron sulfide mineral (a form of pyrite)Metallurgy
    
    The science and technology of metals, usually pertaining to the
processing of metals and minerals in miningMill feed grade
    
    The grade of material feed to the mill, equivalent to received at millMilling/mill
    
    The comminution of the ore, although the term has come to cover the
broad range of machinery inside the treatment plant where
economically valuable minerals are separated from the oreMineable
    
    The portion of a resource for which extraction is technically and
economically feasibleMineral deposit
    
    A mineralized underground body which has been intersected by a
sufficient number of closely-spaced drill holes and/or underground
sampling to support sufficient tonnage and ore grade to warrant
further exploration or development; a mineral deposit or mineralized
material does not qualify as a commercially mineable ore body
(Reserves), as prescribed under standards of the Commission, until a
final and
 102




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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 orebody.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
 103




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Refining
    
    The final stage of metal production in which final impurities are
removed from the molten metal by introducing air and fluxes. The
impurities are removed as gases or slagRefractory ore
    
    Ore not amenable to standard processing techniquesSampling
    
    Taking small pieces of rock at intervals along exposed mineralization
for assay (to determine the mineral content)SAG
    
    Semi-autogenous grinding, a method of comminution that utilizes the
rock fragments to assist in the grinding processSeismic
    
    Pertaining to shock waves that pass through the earthShotcreting
    
    Application by pressure spraying of a setting medium with the
characteristics of concrete for stabilization of rock faces.Silt curtain
    
    A flooding barrier to be deployed offshore from watercourses, which
causes temporary ponding of sediment laden fresh water within its
confines to enhance settling, and mixing with sea water, as the
turbid stream is forced underneath the barrierSlurry
    
    A fluid comprising fine solids suspended in a solution (generally
water containing additives)Smelting
    
    Thermal processing whereby molten metal is liberated from
beneficiated ore or concentrate with impurities separating as lighter
slagStockpile
    
    A store of unprocessed ore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
 104




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Conversion Table Units of Measure US$/ oz. Gold
    
    US dollars per troy ounce of goldUS$/ t ore
    
    US dollars per tonne of oreC
    
    Degrees Celsiusg Au/t
    
    Grams of gold per tonneha
    
    Hectareskg
    
    Kilogramskg Au/t
    
    Kilograms of gold per tonnekPa
    
    kilo Pascalskt
    
    kilo tonnesm2
    
    Square metersm3
    
    Cubic metersmtpy
    
    Million tonnes per yeart/d
    
    Tonnes per dayt/h
    
    Tonnes per hour
 Unit Equivalents Celsius degrees
    
    (Fahrenheit degrees minus 32.0) times 5/91 cubic meter
    
    35.314 cubic feet1 gram
    
    0.03215 troy ounces1 gram Au/tonne
    
    0.02917 troy ounces gold/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
 105




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SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. LIHIR GOLD LIMITED  /s/ Neil Swan Name: Neil Swan  Date: June 24, 2004 106




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Exhibit Index Exhibit
    
    Description
    
    Page1
    
    Constitution of 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).2 (a)
    
    European Investment Bank Finance Contract between EIB,
MRL and Lihir, dated December 28, 1995 (incorporated by
reference to Lihirs annual report on Form 20-F for the
fiscal year ended December 31, 1996).2 (b)
    
    Subordinated On-Lending Agreement Amending Agreement No.
2 between Mineral Resources Development Company Limited
dated November 22, 2000 (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year
ended December 31, 2000).2 (c)
    
    Syndicated Facility Agreement between Lihir, ABN AMRO
Australia Limited, ABN AMRO N.V. (Australian Branch)
dated November 22, 2000 (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year
ended December 31, 2000).2 (d)
    
    Lihir Gold Security Trust Deed between Lihir, ABN AMRO
Australia Limited, Mineral Resources Development Company
Limited, Niugini Mining Limited, Niugini Mining
(Australia) Pty Ltd and certain hedge counter-parties,
dated November 22, 2000 (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year
ended December 31, 2000).2 (e)
    
    Refinancing Co-ordination Deed between Lihir, UBS
Australia Limited, UBS AG, London Branch, Citibank,
N.A., ABN AMRO N.V., (Australian Branch), ABN AMRO
Australia, Mineral Resources Development Company Limited
dated November 22, 2000 (incorporated by reference to
Lihirs annual report on Form 20-F for the fiscal year
ended December 31, 2000).2 (f)
    
    Lihir Gold Present Assets Charge (Australia) between
Lihir between Lihir and ABN AMRO Australia Limited dated
November 22, 2000 (incorporated by reference to Lihirs
annual report on Form 20-F for the fiscal year ended
December 31, 2000).2 (g)
    
    Lihir Gold Future Assets Charge (Australia) between
Lihir and ABN AMRO Australia Limited dated November 22,
2000 (incorporated by reference to Lihirs annual report
on Form 20-F for the fiscal year ended December 31,
2000).2 (h)
    
    Lihir Gold Offshore Assets Charge between Lihir and ABN
AMRO Australia Limited dated November 22, 2000
(incorporated by reference to Lihirs annual report on
Form 20-F for the fiscal year ended December 31, 2000).2 (i)
    
    Lihir Gold Deed of Security (PNG) between Lihir and ABN
AMRO Australia Limited dated November 22, 2000
(incorporated by reference to Lihirs annual report on
Form 20-F for the fiscal year ended December 31, 2000).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).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).4 (c)
    
    Lihir Project Management Agreement, dated as of March
17, 1995, between Lihir and
 107




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##### Table of Contents



Exhibit
    
    Description
    
    PageLihir Management Company (incorporated by reference to
Lihirs Form F-1 filed September 6, 1995).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).4 (e)
    
    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).4 (f)
    
    PutPut and Ladolam Relocation Agreement, dated 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).4 (g)
    
    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)4 (h)
    
    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,
2000).4 (i)
    
    Agreement for the Services of Professor Ross Garnaut as
Chairman of Lihir, dated April 26, 2004 between Lihir
and Maccullochella Pty Ltd.4 (j)
    
    Guarantee dated 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.4 (k)
    
    Confidentiality agreement between Lihir Management
Company Limited, Lihir and Technological Services Pty
Limited, dated May 31, 2004.4 (l)
    
    Patent and Know-How License Agreement dated August 5,
1995 between Sherritt Inc and Lihir Management Company
Limited for and on behalf of Lihir, together with
amendment thereto dated August 18, 1995.8
    
    Significant subsidiaries.12.1
    
    Certification of the Registrants Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.12.2
    
    Certification of the Registrants Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.13.1
    
    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
2002.13.2
    
    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.
 108




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FINANCIAL STATEMENTS LIHIR GOLD LIMITED Audited financial statements Report of the independent accountants
    
    
    F-AProfit and loss accounts for the years ended December 31, 2003, 2002, and 2001
    
    
    F-2Balance sheets as at December 31, 2003, 2002, and 2001
    
    
    F-3Statements of changes in equity for the years ended December 31, 2003, 2002, and 2001
    
    
    F-4Statements of cash flows for the years ended December 31, 2003, 2002, and 2001
    
    
    F-5Notes to the financial statements
    
    
    F-6
 109




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##### Table of Contents



Report of Independent Accountants
To the Board of Directors and Shareholders of Lihir Gold Limited In our opinion, the accompanying consolidated balance sheets and the related
consolidated profit and loss accounts, statements of cash flows and statements
of changes in equity present fairly, in all material respects, the financial
position of Lihir Gold Limited and its subsidiaries at December 31, 2003, 2002,
and 2001, and the results of their operations and their cash flows for the
years then ended, in conformity with International Financial Reporting
Standards. These financial statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States of America) and International Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. International Financial Reporting Standards vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 30 to the consolidated financial statements. As discussed in
Note 30 (vii), Lihir Gold Limited has restated its shareholders equity, net
income and comprehensive income under accounting principles generally accepted
in the United States of America as of and for the year ended December 31, 2002. PricewaterhouseCoopers Port Moresby, Papua New Guinea
March 1, 2004 except for
Note 30 (vii), for which
the date is June 23, 2004 F-A




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##### Table of Contents



LIHIR GOLD LIMITED 
 CONSOLIDATED PROFIT AND LOSS ACCOUNTS
For the Years Ended December 31, 2003, 2002 and 2001
 2003
    
    2002
    
    2001Note
    
    US$000
    
    US$000
    
    US$000Sales revenue
    
    
    
    
    
    
    199,843
    
    
    
    208,623
    
    
    
    228,337Gold lease rate fees
    
    
    
    
    
    
    2,599
    
    
    
    2,339
    
    
    
    (185
    )Fair value gains
    
    
    
    
    
    
    12,067
    
    
    
    2,227
    
    
    
    5,003Total revenue
    
    
    6
    
    
    
    214,509
    
    
    
    213,189
    
    
    
    233,155Operating expensesMining expenses
    
    
    
    
    
    
    (68,017
    )
    
    
    (60,316
    )
    
    
    (55,498
    )Exploration expenses
    
    
    
    
    
    
    (10,506
    )
    
    
    (9,711
    )
    
    
    (7,587
    )Processing costs
    
    
    
    
    
    
    (35,326
    )
    
    
    (28,533
    )
    
    
    (29,925
    )Power generation costs
    
    
    
    
    
    
    (26,473
    )
    
    
    (23,899
    )
    
    
    (24,229
    )General and administrative costs
    
    
    
    
    
    
    (45,444
    )
    
    
    (36,356
    )
    
    
    (26,186
    )Refining, royalty and management fees
    
    
    
    
    
    
    (8,322
    )
    
    
    (7,933
    )
    
    
    (7,961
    )Deferred mining costs
    
    
    
    
    
    
    7,163
    
    
    
    3,675
    
    
    
    2,846Costs deferred and transferred to inventories
    
    
    
    
    
    
    24,378
    
    
    
    15,881
    
    
    
    234Impairment reversal: mine properties and deferred mining costs
    
    
    
    
    
    
    31,061
    
    
    
    37,893
    
    
    
    Impairment of low grade stockpile
    
    
    
    
    
    
    (17,079
    )
    
    
    (4,392
    )
    
    
    (5,841
    )Depreciation and amortisation
    
    
    
    
    
    
    (28,631
    )
    
    
    (27,135
    )
    
    
    (31,899
    )Total operating expenses
    
    
    6
    
    
    
    (177,196
    )
    
    
    (140,826
    )
    
    
    (186,046
    )Profit from operating activities
    
    
    
    
    
    
    37,313
    
    
    
    72,363
    
    
    
    47,109Interest income
    
    
    
    
    
    
    983
    
    
    
    1,015
    
    
    
    1,805Finance costs
    
    
    
    
    
    
    (3,518
    )
    
    
    (3,705
    )
    
    
    (6,164
    )Profit from ordinary activities before taxation
    
    
    6
    
    
    
    34,778
    
    
    
    69,673
    
    
    
    42,750Income tax
    
    
    15
    
    
    
    
    
    
    
    (16,426
    )
    
    
    16,426Profit from ordinary activities after taxation
    
    
    
    
    
    
    34,778
    
    
    
    53,247
    
    
    
    59,176Earnings per share
    
    
    27- Basic (US$/share)
    
    
    
    
    
    
    .030
    
    
    
    .047
    
    
    
    .052- Diluted (US$/share)
    
    
    
    
    
    
    .030
    
    
    
    .047
    
    
    
    .052
 The accompanying notes form part of these financial statements. F-2




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LIHIR GOLD LIMITED 
 CONSOLIDATED BALANCE SHEETS
As At December 31, 2003, 2002 and 2001
 2003
    
    2002
    
    2001Note
    
    US$000
    
    US$000
    
    US$000ASSETSCURRENT ASSETSCash and cash equivalents
    
    
    7
    
    
    
    152,630
    
    
    
    33,817
    
    
    
    37,915Derivative financial instruments
    
    
    24
    
    
    
    9,823
    
    
    
    1,948
    
    
    
    30,633Inventories
    
    
    9
    
    
    
    57,009
    
    
    
    46,972
    
    
    
    32,843Receivables
    
    
    10
    
    
    
    10,543
    
    
    
    4,652
    
    
    
    15,127Prepayments
    
    
    
    
    
    
    680
    
    
    
    422
    
    
    
    456Deferred mining costs
    
    
    11
    
    
    
    2,803
    
    
    
    4,185
    
    
    
    862TOTAL CURRENT ASSETS
    
    
    
    
    
    
    233,488
    
    
    
    91,996
    
    
    
    117,836NON-CURRENT ASSETSDerivative financial instruments
    
    
    24
    
    
    
    11,116
    
    
    
    10,037
    
    
    
    31,969Receivables
    
    
    10
    
    
    
    915
    
    
    
    2,793
    
    
    
    1,180Deferred mining costs
    
    
    11
    
    
    
    26,265
    
    
    
    17,720
    
    
    
    16,440Mine properties
    
    
    12
    
    
    
    477,095
    
    
    
    454,138
    
    
    
    417,830TOTAL NON-CURRENT ASSETS
    
    
    
    
    
    
    515,391
    
    
    
    484,688
    
    
    
    467,419TOTAL ASSETS
    
    
    
    
    
    
    748,879
    
    
    
    576,684
    
    
    
    585,255LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESBank overdraft
    
    
    7
    
    
    
    
    
    
    
    1,297
    
    
    
    Derivative financial instruments
    
    
    24
    
    
    
    31,375
    
    
    
    6,133
    
    
    
    Accounts payable
    
    
    13
    
    
    
    20,893
    
    
    
    14,382
    
    
    
    26,612Provisions
    
    
    14
    
    
    
    4,487
    
    
    
    2,218
    
    
    
    2,927Borrowings
    
    
    22
    
    
    
    3,510
    
    
    
    3,510
    
    
    
    3,775TOTAL CURRENT LIABILITIES
    
    
    
    
    
    
    60,265
    
    
    
    27,540
    
    
    
    33,314NON CURRENT LIABILITIESDerivative financial instruments
    
    
    24
    
    
    
    188,918
    
    
    
    71,619
    
    
    
    2,846Provisions
    
    
    14
    
    
    
    8,268
    
    
    
    14,067
    
    
    
    12,289Borrowings
    
    
    22
    
    
    
    30,038
    
    
    
    37,048
    
    
    
    40,558TOTAL NON CURRENT LIABILITIES
    
    
    
    
    
    
    227,224
    
    
    
    122,734
    
    
    
    55,693TOTAL LIABILITIES
    
    
    
    
    
    
    287,489
    
    
    
    150,274
    
    
    
    89,007SHAREHOLDERS EQUITYShare capital
    
    
    19
    
    
    
    1,025,288
    
    
    
    873,822
    
    
    
    873,822Fair value and other reserves
    
    
    
    
    
    
    (206,548
    )
    
    
    (69,469
    )
    
    
    53,616Accumulated losses
    
    
    
    
    
    
    (357,350
    )
    
    
    (377,943
    )
    
    
    (431,190
    )TOTAL SHAREHOLDERS EQUITY
    
    
    
    
    
    
    461,390
    
    
    
    426,410
    
    
    
    496,248TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    
    748,879
    
    
    
    576,684
    
    
    
    585,255
 The accompanying notes form part of these financial statements. F-3




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##### Table of Contents



LIHIR GOLD LIMITED 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2003, 2002 and 2001
 Share
    
    
    
    
    
    RetainedCapital
    
    Fair value
    
    Earnings /(Note 19)
    
    Reserves
    
    (Losses)
    
    TotalUS$000
    
    US$000
    
    US$000
    
    US$000Balance at January 1, 2001
    
    
    873,822
    
    
    
    
    
    
    
    (490,366
    )
    
    
    383,456Profit for the year
    
    
    
    
    
    
    
    
    
    
    59,176
    
    
    
    59,176Effect of adopting IAS39
    
    
    
    
    
    
    97,559
    
    
    
    
    
    
    
    97,559Deferred tax on adoption
    
    
    
    
    
    
    (16,325
    )
    
    
    
    
    
    
    (16,325
    )Fair value gains on cash flow hedges
    
    
    
    
    
    
    26,102
    
    
    
    
    
    
    
    26,102Net movement of deferred tax
    
    
    
    
    
    
    (101
    )
    
    
    
    
    
    
    (101
    )Reclassified and reported in the
income statement
    
    
    
    
    
    
    (53,619
    )
    
    
    
    
    
    
    (53,619
    )Balance at December 31, 2001
    
    
    873,822
    
    
    
    53,616
    
    
    
    (431,190
    )
    
    
    496,248Profit for the year
    
    
    
    
    
    
    
    
    
    
    53,247
    
    
    
    53,247Fair value losses on cash flow hedges
    
    
    
    
    
    
    (114,095
    )
    
    
    
    
    
    
    (114,095
    )Net movement of deferred tax
    
    
    
    
    
    
    16,426
    
    
    
    
    
    
    
    16,426Reclassified and reported in the
income statement
    
    
    
    
    
    
    (25,416
    )
    
    
    
    
    
    
    (25,416
    )Balance at December 31, 2002
    
    
    873,822
    
    
    
    (69,469
    )
    
    
    (377,943
    )
    
    
    426,410Profit for the year
    
    
    
    
    
    
    
    
    
    
    34,778
    
    
    
    34,778Dividend paid
    
    
    
    
    
    
    
    
    
    
    (14,185
    )
    
    
    (14,185
    )Issue of share capital
    
    
    156,240
    
    
    
    
    
    
    
    
    
    
    
    156,240Share issue transaction costs
    
    
    (4,774
    )
    
    
    
    
    
    
    
    
    
    
    (4,774
    )Fair value losses on cash flow hedges
    
    
    
    
    
    
    (148,610
    )
    
    
    
    
    
    
    (148,610
    )Reclassified and reported in the
income statement
    
    
    
    
    
    
    11,531
    
    
    
    
    
    
    
    11,531Balance at December 31, 2003
    
    
    1,025,288
    
    
    
    (206,548
    )
    
    
    (357,350
    )
    
    
    461,390
 The accompanying notes form part of these financial statements. F-4




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##### Table of Contents



LIHIR GOLD LIMITED 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2002 and 2001
 2003
    
    2002
    
    2001Note
    
    US$000
    
    US$000
    
    US$000CASH FLOWS FROM OPERATING ACTIVITIESReceipts from operating activities
    
    
    
    
    
    
    205,851
    
    
    
    199,201
    
    
    
    208,946Payments arising from operating activities
    
    
    
    
    
    
    (187,180
    )
    
    
    (173,988
    )
    
    
    (142,772
    )Interest received
    
    
    
    
    
    
    983
    
    
    
    1,015
    
    
    
    1,805Interest and finance charges paid to third parties
    
    
    
    
    
    
    (2,949
    )
    
    
    (3,411
    )
    
    
    (5,898
    )Net cash flows from operating activities
    
    
    8
    
    
    
    16,705
    
    
    
    22,817
    
    
    
    62,081CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property plant and equipment
    
    
    
    
    
    
    (27,065
    )
    
    
    (25,981
    )
    
    
    (36,898
    )Proceeds of disposal of fixed assets
    
    
    
    
    
    
    199
    
    
    
    1,544
    
    
    
    349Net cash used in investing activities
    
    
    
    
    
    
    (26,866
    )
    
    
    (24,437
    )
    
    
    (36,549
    )CASH FLOWS FROM FINANCING ACTIVITIESRepayment of term debt
    
    
    
    
    
    
    (7,010
    )
    
    
    (3,775
    )
    
    
    (28,440
    )Proceeds of equity issue
    
    
    
    
    
    
    156,240
    
    
    
    
    
    
    
    Share issue transaction costs
    
    
    
    
    
    
    (4,774
    )
    
    
    
    
    
    
    Dividend paid
    
    
    
    
    
    
    (14,185
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    
    
    
    
    130,271
    
    
    
    (3,775
    )
    
    
    (28,440
    )Net increase/(decrease) in cash held
    
    
    
    
    
    
    120,110
    
    
    
    (5,395
    )
    
    
    (2,908
    )Cash balance at beginning of year
    
    
    
    
    
    
    32,520
    
    
    
    37,915
    
    
    
    40,823Net increase/(decrease) in cash held
    
    
    
    
    
    
    120,110
    
    
    
    (5,395
    )
    
    
    (2,908
    )Cash balance at end of year
    
    
    7
    
    
    
    152,630
    
    
    
    32,520
    
    
    
    37,915
 The accompanying notes form part of these financial statements. F-5




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##### Table of Contents



LIHIR GOLD LIMITED 
 NOTES TO THE FINANCIAL STATEMENTS
 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES These financial statements are presented in accordance with the Papua New
Guinea Companies Act 1997, and comply with applicable financial reporting
standards and other mandatory professional reporting requirements approved for
use in Papua New Guinea by the Accounting Standards Board (ASB). These
financial statements have been prepared in accordance with International
Financial Reporting Standards, which have been adopted by the ASB as the
applicable financial reporting framework. The financial statements have also been prepared on the basis of historical
costs except as disclosed in the accounting policies below. For example,
financial instruments are shown at fair value. The accounting policies have
been consistently applied, unless otherwise stated. The following is a summary of the significant accounting policies adopted in
the preparation of the consolidated financial statements.  (i)
    
    Exploration and evaluation expenditureThe Group expenses exploration and evaluation costs as incurred.(ii)
    
    Development propertiesA property is classified as a development property when a mine plan has
been prepared, proved and probable resources have been established, and
the Group has decided to commercially develop the property. Development
expenditure is accumulated separately for each area of interest in which
economically recoverable mineral reserves 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 period under review the Group has had no
properties in the development stage. No development expenditure is
currently being incurred or capitalised.(iii)
    
    Mine propertiesMine properties represent the accumulation of all development
expenditures incurred by or on behalf of the Group in relation to areas
of interest in which mining of a mineral resource has commenced.When future economic benefits are established by further development
expenditure in respect of a mine property after the commencement of
production, such expenditure is carried forward as part of the cost of
that mine property. Otherwise such expenditure is classified as part of
the cost of production.Amortisation of costs is provided for using the units-of-production
method, separate calculations being made for each mineral resource. The
units-of-production basis results in an amortisation charge proportional
to the depletion of estimated recoverable gold ounces contained in proved
and probable ore reserves.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. F-6




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (iv)
    
    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 substantially all the activities necessary to prepare the qualifying
asset for its intended use or sale are complete. Interest earned on the
temporary investment of borrowed funds and funds received in connection
with the sale of equity securities prior to the expenditure being made is
deducted from interest paid on the borrowed funds in arriving at the
amounts so capitalised.Prior to the commencement of commercial production in 1997, the amount of
interest costs eligible for capitalisation were based on actual interest
costs incurred, as the borrowings were incurred to fund development of
the mine property. Capitalisation of borrowing costs ceased following the
commissioning of the assets upon commencement of commercial production.
These are amortised using the units-of-production method based on
estimated recoverable gold ounces contained in proved and probable ore
reserves. For the years ended 31 December 2003, 2002 and 2001, no
interest costs were capitalised.(v)
    
    Mine buildings, plant and equipmentThe cost of each item of buildings, machinery and equipment is
depreciated over its expected useful life. For the majority of assets
this is accomplished using the units-of-production method based on
estimated recoverable gold ounces contained in proved and probable ore
reserves, although some assets are depreciated using a percentage based
on time. Each items economic life has due regard to both physical life
limitations and to present assessments of economically recoverable
reserves of the mine property (where appropriate) and to possible future
variations in those assessments. Estimates of remaining useful lives are
made on a regular basis for all assets, with annual reassessments for
major items.The total net carrying values of mine building, plant and equipment at
each mine property are reviewed regularly and, to the extent to which
these values exceed their recoverable amounts, that excess is fully
provided against in the financial year in which this is determined.
[Refer to note 1 (vii)]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.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. The remaining life
of the mine is approximately 23 years. Those assets depreciated on a
straight line basis are done so predominantly over a life of five years. PercentageDepreciated
    
    PercentageAs
    
    DepreciatedFixed Asset Classification
    
    Units-of-Use
    
    As Straight LineDeferred Expenditure
    
    
    100
    %
    
    
    Land & Buildings
    
    
    100
    %
    
    
    Plant & Equipment
    
    
    85
    %
    
    
    15
    %Grand Total
    
    
    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. F-7




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (vi)
    
    Remaining mine lifeIn 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.(vii)
    
    Impairment of assetsMine properties and other non-current assets are reviewed for impairment
losses whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Impairments of assets are
recognised whenever the carrying amount of an asset exceeds its
recoverable value. The recoverable amount is measured as the higher of
net selling price and value in use. Value in use for individual assets is
calculated by discounting expected future cash flows using a pre-tax
discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset.In 1999 and 2000, impairment losses of $340.2 million were recognised
(1999: $223.8 million, 2000: $116.4 million), as the recoverable amount
of the companys cash generating unit (consisting of mining properties
and deferred mining costs) was less than the 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:
$US325) 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 $280 and a pre-tax real discount rate of 6%, no further
impairment was required.In 2003 and 2002, having applied the same principles as priors years and
revisiting critical assumptions, including life of mine and remaining
reserves, an impairment reversal of $31.1 million (2002: $37.9 million)
was credited to the income statement in accordance with IAS36, based on a
long term gold price assumption of $US340 (2002: $305) and a pre-tax real
discount rate of 7.0% (2002: 7.0%).(viii)
    
    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
expected future costs to be required to settle present obligations,
discounted using a pre-tax discount rate, reflecting current market
assessments of the time value of money and those risks specific to the
liability, of 6.5%, (2002: 2.5%). 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.The Companys restoration, rehabilitation and environmental expenditure
policy identifies the environmental, social and engineering issues to be
considered and the procedures to be followed when providing for costs
associated with the site closure. Site rehabilitation and closure
involves the dismantling and demolition of infrastructure not intended
for subsequent community use, the removal of residual materials and the
remediation of disturbed areas. Community requirements and long-term
land use objectives are also taken into account. F-8




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (ix)
    
    InventoriesInventories of ore and metal are physically measured or estimated and
valued at the lower of cost and net realisable value.Cost comprises direct material, direct labour and transportation
expenditure in getting such inventories to their existing location and
condition, together with an appropriate portion of fixed and variable
overhead expenditure and depreciation and amortisation, based on weighted
average costs incurred during the period in which such inventories are
produced. Net realisable value is the amount estimated to be obtained
from sale of the item of inventory in the normal course of business, less
any anticipated costs to be incurred prior to its sale.Inventories of 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.(x)
    
    Deferred mining costsDirect expenditure on mining is brought to account for each phase of the
mines development based on the estimated ratio of waste to ore for that
phase. During the mining period the actual ratio of waste to ore removed
for each phase varies from year to year. In periods where more than the
average amount of waste is removed the surplus is transferred to the
deferred mining cost account. 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 each mining phase,
and not over the entire life of the mine.Following the commencement of pre-stripping of the Lienetz orebody the
Group now includes the following direct expenditure in its deferred
mining costs: stripping, drilling, blasting and depreciation costs.
There is no material impact to prior periods results arising from this
treatment.The current portion of the deferred mining costs represents the
unamortised costs that are expected to be recouped within 12 months as
mining is completed for that phase.(xi)
    
    Revenue recognitionSales are recognised as revenue only when there has been a passing of
title and risk to the customer, and:  (a)
    
    the product is in a form suitable for delivery and no further
processing is required by, or on behalf of, the Group;(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 Group (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 Group; 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. F-9




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (xii)
    
    Accounting for derivative financial instruments and hedging
activitiesDerivative 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 Group 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. However, if the committed or
forecasted production is no longer expected to occur, the cumulative gain
or loss reported in equity is immediately transferred to the income
statement.At the inception of the transaction, the Group documents the relationship
between hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedge
transactions. This process includes linking all derivatives designated
as hedges to specific forecast gold sales. The Group 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 Group obtains a valuation from an independent external
party.(xiii)
    
    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.(xiv)
    
    Income taxTax effect accounting procedures are followed using the liability method
for all temporary differences arising between the tax bases of assets and
liabilities and their carrying values for financial reporting purposes.
Income tax on temporary differences is set aside to the deferred tax
liability and deferred tax asset accounts at current enacted tax rates.
Deferred tax assets relating to deductible temporary differences and tax
losses are only carried forward as an asset to the extent that it is
probable that future taxable profit will be available against which the
deductible temporary differences and tax losses can be utilised. F-10




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (xv)
    
    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 Group, 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.(xvi)
    
    Cash and Cash EquivalentsFor the purpose of the statement of cash flows and balance sheet, cash includes:  (a)
    
    cash on hand and at call deposits with banks or financial
institutions, net of bank overdrafts; and(b)
    
    investments in money market instruments with less than 90
days to maturity from the date of acquisition.  (xvii)
    
    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 Group
may not be able to collect all the amounts due, according to the original
terms of receivables.(xviii)
    
    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.(xix)
    
    BorrowingsBorrowings are recognised initially at the proceeds received, net of
transaction costs incurred. Borrowings are subsequently stated at
amortised cost.(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 Group contributes to a defined contribution plan for its employees.
A defined contribution plan is a pension plan under which the Group 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 Group 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. F-11




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (xxi)
    
    ProvisionsProvisions are recognised when the Group 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 Groups financial statements in the period
in which they are approved by the Groups shareholders.(xxiii)
    
    Comparative figuresWhere necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.(xxiv)
    
    Rounding of amountsThe Financial Statements have been rounded to the nearest thousand
dollars.(xxv)
    
    ConsolidationSubsidiary undertakings, which are those entities in which the Group 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 Group 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
Group. In the separate financial statements of the Company, the Company
accounts for investments in subsidiaries at cost less any impairment.(xxvi)
    
    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 with the PNG government, dated 17
March 1995 (the Mining Development Contract), 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.(xxvii)
    
    Use of EstimatesIn accordance with International Financial Reporting Standards, the
preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The most significant
estimates and assumptions relate to the long-term gold price, mineral
reserves and remaining mine lives, provision for restoration and
rehabilitation obligations, recoverability of deferred tax assets,
recoverability of long-lived assets (including ore stock piles),
depreciation and amortisation. Actual results could differ from those
estimates and may affect amounts reported in future periods. Management
believes that the estimates are reasonable. F-12




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 2: CHANGE IN ACCOUNTING POLICY Other than the release by the International Accounting Standards Board (IASB)
during 2003 of its Improvement to International Accounting Standards, there
have been no new standards applicable to Lihir Gold that require material
changes to the Groups accounting policies. The aims of the improvements
project was to raise the quality and consistency of financial reporting by
drawing on best practice from around the world and removing options in
international standards. The Improvements project is a first step by the IASB
to promote convergence on high quality solutions in its objective to establish
a globally accepted set of accounting standards. None of these standards had a
material affect on Lihirs December 31, 2003 financial statements. The revised
Standards do not apply until annual periods beginning on or after January 1,
2005. There were no other changes in accounting policy for 2003. NOTE 3: SPECIAL MINING LEASE The Special Mining Lease was issued on 17 March 1995 and has a term of 40
years. Under the Mining Act it may be renewed for subsequent 20-year periods
at the discretion of the PNG Government. NOTE 4: REQUIREMENTS REGARDING CASH RESERVES The Papua New Guinea Central Bank regulations (Foreign Exchange and Gold)
generally require PNG companies to hold all cash reserves in Kina. Prior
approval of the Bank of Papua New Guinea is required to convert funds from Kina
into other currencies. Under the Mining Development Contract, however, the Company has permission to
retain funds in foreign currencies to meet its obligations. Further approval
was granted by the Papua New Guinea Central Bank to retain the proceeds of the
recent equity issue offshore until the funds were utilised for debt prepayment
and other identified initiatives. NOTE 5: DIVIDEND RESTRICTIONS The Syndicated Finance Facility signed on 22 November 2000 permits the payment
of dividends and other distributions only if certain conditions are met. Lihir
may generally at any time prior to the next Calculation Date (30 June and 31
December each year as defined in the agreement) withdraw all or part of any
excess over a specified minimum cash balance in an offshore account for its own
purposes (including any distribution or payment into an unsecured distribution
account) subject to a debt service cover ratio of not less than 1.25:1 and a
life of mine cover ratio of not less than 2.50:1. The most recent debt service cover ratio and life-of-mine cover ratio agreed
with ABN Amro Ltd in terms of the agreement were 91.6:1 (2002: 35.6:1) and
40.4:1 (2002: 42.8:1) respectively. F-13




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 6: OPERATING PROFIT 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Operating profit before taxation has been determined after
crediting / (charging):SALES AND OTHER REVENUEGold sales at spot
    
    
    211,374
    
    
    
    183,207
    
    
    
    174,719Realisation of hedging instruments
    
    
    (2,956
    )
    
    
    13,655
    
    
    
    25,764Gold lease rate fees
    
    
    2,599
    
    
    
    2,339
    
    
    
    (185
    )Fair value gains
    
    
    12,067
    
    
    
    2,227
    
    
    
    5,003Realisation of deferred hedging income
    
    
    220
    
    
    
    15,889
    
    
    
    32,071Realisation of deferred hedging costs
    
    
    (8,795
    )
    
    
    (4,128
    )
    
    
    (4,217
    )214,509
    
    
    
    213,189
    
    
    
    233,155REFINING, ROYALTY AND MANAGEMENT FEESRefining costs
    
    
    (670
    )
    
    
    (556
    )
    
    
    (604
    )Royalties on sales
    
    
    (4,204
    )
    
    
    (3,975
    )
    
    
    (4,016
    )Management fees
    
    
    (3,448
    )
    
    
    (3,402
    )
    
    
    (3,341
    )(8,322
    )
    
    
    (7,933
    )
    
    
    (7,961
    )OTHER OPERATING COSTSOperating consumables
    
    
    (81,745
    )
    
    
    (74,486
    )
    
    
    (65,721
    )Contracted services
    
    
    (44,152
    )
    
    
    (36,012
    )
    
    
    (28,682
    )Staff costs
    
    
    (21,528
    )
    
    
    (17,277
    )
    
    
    (17,177
    )Mining levy
    
    
    (5,952
    )
    
    
    (5,625
    )
    
    
    (7,580
    )Insurance
    
    
    (5,108
    )
    
    
    (4,210
    )
    
    
    (2,379
    )Air travel
    
    
    (3,920
    )
    
    
    (3,004
    )
    
    
    (2,173
    )Operating lease rentals
    
    
    (1,753
    )
    
    
    (1,254
    )
    
    
    (2,035
    )Consultants
    
    
    (4,210
    )
    
    
    (2,009
    )
    
    
    (1,524
    )Donations and community assistance
    
    
    (139
    )
    
    
    (197
    )
    
    
    (417
    )Net foreign exchange gains and losses
    
    
    (4,130
    )
    
    
    (2,537
    )
    
    
    (6,444
    )Provision for stores stock obsolescence
    
    
    (780
    )
    
    
    (692
    )
    
    
    (987
    )Provision for doubtful debts
    
    
    (490
    )
    
    
    (306
    )
    
    
    (215
    )Deferred mining costs
    
    
    7,163
    
    
    
    3,675
    
    
    
    2,846Costs deferred and transferred to inventories
    
    
    24,378
    
    
    
    15,881
    
    
    
    234Impairment reversal: mine properties and deferred mining costs
    
    
    31,061
    
    
    
    37,893
    
    
    
    Low grade stockpile impairment
    
    
    (17,079
    )
    
    
    (4,392
    )
    
    
    (5,841
    )Contribution to Lihirian equity restructure
    
    
    (3,500
    )
    
    
    
    
    
    
    Other costs
    
    
    (8,358
    )
    
    
    (11,206
    )
    
    
    (8,091
    )(140,242
    )
    
    
    (105,758
    )
    
    
    (146,186
    )DEPRECIATION AND AMORTISATIONDepreciation and amortisation of costs of mine properties
    
    
    (28,631
    )
    
    
    (27,135
    )
    
    
    (31,889
    )(28,631
    )
    
    
    (27,135
    )
    
    
    (31,899
    )OPERATING COSTS
    
    
    (177,196
    )
    
    
    (140,826
    )
    
    
    (186,046
    )NET FINANCING COSTSInterest income
    
    
    983
    
    
    
    1,015
    
    
    
    1,805Finance costs
    
    
    (3,518
    )
    
    
    (3,705
    )
    
    
    (6,164
    )(2,535
    )
    
    
    (2,690
    )
    
    
    (4,359
    )
 F-14




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 7: CASH AND CASH EQUIVALENTS 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Cash at bank and on hand
    
    
    62,505
    
    
    
    23,304
    
    
    
    24,201Short term deposits with financial institutions
    
    
    90,125
    
    
    
    10,513
    
    
    
    13,714152,630
    
    
    
    33,817
    
    
    
    37,915Bank overdraft
    
    
    
    
    
    
    (1,297
    )
    
    
    152,630
    
    
    
    32,520
    
    
    
    37,915
 NOTE 8: NET CASHFLOW FROM OPERATING ACTIVITIES 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Reconciliation of cash flow from operating activities to
operating profit after taxOperating profit after tax
    
    
    34,778
    
    
    
    53,247
    
    
    
    59,176Depreciation and amortisation
    
    
    28,631
    
    
    
    27,135
    
    
    
    31,899Revaluation of financial instruments
    
    
    (12,067
    )
    
    
    (2,227
    )
    
    
    (5,003
    )Asset impairment reversal: mine properties, deferred mining costs
    
    
    (31,061
    )
    
    
    (37,893
    )
    
    
    Impairment of low grade stockpiles
    
    
    17,079
    
    
    
    4,392
    
    
    
    5,841Amortisation of deferred hedging income
    
    
    (220
    )
    
    
    (15,889
    )
    
    
    (32,071
    )Amortisation of deferred hedging costs
    
    
    8,795
    
    
    
    4,128
    
    
    
    4,217Provision for doubtful debts
    
    
    490
    
    
    
    306
    
    
    
    215(Profit)/loss on disposal of assets
    
    
    (187
    )
    
    
    (664
    )
    
    
    233Income tax expense/(benefit)
    
    
    
    
    
    
    16,426
    
    
    
    (16,426
    )(Increase)/decrease in debtors
    
    
    (4,759
    )
    
    
    8,590
    
    
    
    14,848(Increase)/decrease in inventories
    
    
    (27,117
    )
    
    
    (18,520
    )
    
    
    1,856(Increase)/decrease in deferred mining costs
    
    
    (7,163
    )
    
    
    (3,670
    )
    
    
    (2,846
    )(Decrease)/increase in creditors
    
    
    6,511
    
    
    
    (12,230
    )
    
    
    1,788(Decrease)/increase in provisions
    
    
    2,995
    
    
    
    (314
    )
    
    
    (1,646
    )Net cash flow from operating activities
    
    
    16,705
    
    
    
    22,817
    
    
    
    62,081
 NOTE 9: INVENTORIES 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000CURRENTStores
    
    
    33,627
    
    
    
    30,109
    
    
    
    26,778Less: Provision for obsolescence
    
    
    (3,354
    )
    
    
    (2,574
    )
    
    
    (1,882
    )30,273
    
    
    
    27,535
    
    
    
    24,896Production work in progress
    
    
    2,461
    
    
    
    1,652
    
    
    
    2,261Finished goods
    
    
    1,880
    
    
    
    5,857
    
    
    
    1,833Ore stockpiles
    
    
    22,395
    
    
    
    11,928
    
    
    
    3,85326,736
    
    
    
    19,437
    
    
    
    7,947Total current inventories
    
    
    57,009
    
    
    
    46,972
    
    
    
    32,843
 F-15




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 9: INVENTORIES (cont.) 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000NON-CURRENTOre stockpiles
    
    
    64,976
    
    
    
    47,896
    
    
    
    43,637Less: Impairment provision
    
    
    (64,976
    )
    
    
    (47,896
    )
    
    
    (43,637
    )Ore stockpiles
    
    
    
    
    
    
    
    
    
    
    Total inventories
    
    
    57,009
    
    
    
    46,972
    
    
    
    32,843
 Current stockpiled ore mainly relates to run-of-mine (ROM) stockpile and
crushed ore stocks ready for processing into finished goods within the next 12
months. These are valued at the lower of cost and net realisable value. Cost
includes mining costs, costs of conversion (crushing and conveying costs) and
an allocation of fixed and variable production overheads based on their
contained gold. At 31 December 2003, non-current stockpiles were fully provided against, based
on their net realisable values. Finished goods inventory is stated at the lower of cost and net realisable
value. NOTE 10: RECEIVABLES 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000CURRENTTrade receivables
    
    
    5,166
    
    
    
    
    
    
    
    Other debtors  related parties
    
    
    2,022
    
    
    
    2,247
    
    
    
    428Other amounts receivable from third parties:
    
    
    5,191
    
    
    
    3,752
    
    
    
    15,740Less: provision for doubtful debts
    
    
    (1,836
    )
    
    
    (1,347
    )
    
    
    (1,041
    )10,543
    
    
    
    4,652
    
    
    
    15,127NON-CURRENTOther debtors  related parties
    
    
    913
    
    
    
    2,791
    
    
    
    1,175Other amounts receivable
    
    
    2
    
    
    
    2
    
    
    
    5915
    
    
    
    2,793
    
    
    
    1,180Total amounts receivable
    
    
    11,458
    
    
    
    7,445
    
    
    
    16,307
 Leases accounted for as a lessor (included in other debtors  related parties). The Company leases earthmoving equipment to the Lakaka Group, a landowner company, under two separate arrangements whereby the
substantial risks and rewards of ownership are transferred to the other party. The term of the leases are 48 months and 36 months
respectively, with commencement dates of November 2000 and October 2002. The interest rate for both leases is 9% per annum. A
non-guaranteed residual amount of K100,000 is accounted for as a benefit to the Company under the terms of the earlier lease. No
unearned finance income or contingent rents have been recognised as income. 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Gross investments in finance leasesAmounts receivable not later than one year
    
    
    763
    
    
    
    1,006
    
    
    
    457Amounts receivable > 1 year and < than 5 years
    
    
    414
    
    
    
    1,138
    
    
    
    647Amounts receivable later than five years
    
    
    
    
    
    
    
    
    
    
    1,177
    
    
    
    2,144
    
    
    
    1,104Unearned finance income on finance leases
    
    
    (81
    )
    
    
    (222
    )
    
    
    (116
    )Net investment in finance leases
    
    
    1,096
    
    
    
    1,922
    
    
    
    988Amounts receivable not later than one year
    
    
    697
    
    
    
    864
    
    
    
    383Amounts receivable > 1 year and < than 5 years
    
    
    399
    
    
    
    1,058
    
    
    
    605Amounts receivable later than five years
    
    
    
    
    
    
    
    
    
    
    1,096
    
    
    
    1,922
    
    
    
    988
 F-16




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 10: RECEIVABLES (cont.) Loan (included in other debtors  related parties) The Group has extended unsecured loans, repayable in monthly instalments, to landowner companies. The
initial loan to the Lakaka Group for PGK 2.5 million in 2000, is repayable over a ten year term at an
interest rate of 10%. In 2002 the Group extended an unsecured loan to Kuridala Ltd of US$3.2 million at an
interest rate of 8.77%, repayable over a 2 year term, following the termination of a lease financing
facility used to fund mining equipment owned by Kuridala Ltd. 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Gross investments in loanAmounts receivable not later than one year
    
    
    1,431
    
    
    
    1,600
    
    
    
    104Amounts receivable > 1 year and < than 5 years
    
    
    462
    
    
    
    1,671
    
    
    
    417Amounts receivable later than five years
    
    
    222
    
    
    
    268
    
    
    
    4092,115
    
    
    
    3,539
    
    
    
    930Unearned finance income on loan
    
    
    (276
    )
    
    
    (423
    )
    
    
    (316
    )Net investment in loan
    
    
    1,839
    
    
    
    3,116
    
    
    
    614Amounts receivable not later than one year
    
    
    1,325
    
    
    
    1,383
    
    
    
    45Amounts receivable > 1 year and < than 5 years
    
    
    313
    
    
    
    1,496
    
    
    
    232Amounts receivable later than five years
    
    
    201
    
    
    
    237
    
    
    
    3371,839
    
    
    
    3,116
    
    
    
    614
 NOTE 11: DEFERRED MINING COSTS 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000CURRENTDeferred mining costs
    
    
    2,803
    
    
    
    4,185
    
    
    
    1,087Less: impairment provision
    
    
    
    
    
    
    
    
    
    
    (225
    )2,803
    
    
    
    4,185
    
    
    
    862NON-CURRENTDeferred mining costs
    
    
    26,265
    
    
    
    17,720
    
    
    
    17,994Less: impairment provision
    
    
    
    
    
    
    
    
    
    
    (1,554
    )26,265
    
    
    
    17,720
    
    
    
    16,440Total Deferred Mining Costs
    
    
    29,068
    
    
    
    21,905
    
    
    
    17,302
 The life of mine plan allows for a number of distinct phases, of which phases 1
to 3 are now complete, with all previously deferred mining expenditure for
these phases being fully expensed as at the end of 2002. 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Deferred waste by phasePhase 3:
    
    
    
    
    
    
    
    
    
    
    862Phase 4:
    
    
    2,803
    
    
    
    20,354
    
    
    
    16,440Phase 5:
    
    
    26,265
    
    
    
    1,551
    
    
    
    Total Deferred Mining Costs
    
    
    29,068
    
    
    
    21,905
    
    
    
    17,302
 Phase 4 is scheduled for completion by fourth quarter 2005, at which time
deferred mining costs for the phase will be fully expensed. Phase 5 is
scheduled for completion in the fourth quarter of 2006. F-17




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 12: MINE PROPERTIES 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000CAPITAL WORKS IN PROGRESSCost brought forward
    
    
    18,482
    
    
    
    21,436
    
    
    
    9,274Acquisitions and disposals
    
    
    27,064
    
    
    
    25,981
    
    
    
    36,898Transfers to mining properties
    
    
    (37,386
    )
    
    
    (28,935
    )
    
    
    (24,736
    )Costs carried forward
    
    
    8,160
    
    
    
    18,482
    
    
    
    21,436MINE PROPERTIESPlant and equipmentCost brought forward
    
    
    560,967
    
    
    
    536,744
    
    
    
    515,883Transfers from capital works in progress
    
    
    35,311
    
    
    
    27,720
    
    
    
    23,348Disposals
    
    
    (680
    )
    
    
    (3,497
    )
    
    
    (2,487
    )Cost carried forward
    
    
    595,598
    
    
    
    560,967
    
    
    
    536,744Depreciation brought forward
    
    
    (282,269
    )
    
    
    (288,892
    )
    
    
    (267,644
    )Charge for the year
    
    
    (22,160
    )
    
    
    (20,152
    )
    
    
    (23,155
    )Impairment (charge) / reversal
    
    
    20,829
    
    
    
    24,157
    
    
    
    Disposals
    
    
    664
    
    
    
    2,618
    
    
    
    1,907Depreciation carried forward
    
    
    (282,936
    )
    
    
    (282,269
    )
    
    
    (288,892
    )Net book value
    
    
    312,662
    
    
    
    278,698
    
    
    
    247,852Land and BuildingsCost brought forward
    
    
    77,939
    
    
    
    77,120
    
    
    
    77,049Transfers from capital works in progress
    
    
    1,503
    
    
    
    819
    
    
    
    71Cost carried forward
    
    
    79,442
    
    
    
    77,939
    
    
    
    77,120Depreciation brought forward
    
    
    (46,187
    )
    
    
    (47,537
    )
    
    
    (45,843
    )Charge for the year
    
    
    (1,381
    )
    
    
    (1,403
    )
    
    
    (1,694
    )Impairment reversal/(charge)
    
    
    2,274
    
    
    
    2,753
    
    
    
    Depreciation carried forward
    
    
    (45,294
    )
    
    
    (46,187
    )
    
    
    (47,537
    )Net book value
    
    
    34,148
    
    
    
    31,752
    
    
    
    29,583Deferred ExpenditureCost brought forward
    
    
    267,850
    
    
    
    267,454
    
    
    
    266,137Transfers from capital works in progress
    
    
    572
    
    
    
    396
    
    
    
    1,317Cost carried forward
    
    
    268,422
    
    
    
    267,850
    
    
    
    267,454Depreciation brought forward
    
    
    (151,918
    )
    
    
    (156,778
    )
    
    
    (150,075
    )Charge for the year
    
    
    (4,969
    )
    
    
    (5,190
    )
    
    
    (6,703
    )Impairment reversal/(charge)
    
    
    7,958
    
    
    
    10,050
    
    
    
    Depreciation carried forward
    
    
    (148,929
    )
    
    
    (151,918
    )
    
    
    (156,778
    )Net book value
    
    
    119,493
    
    
    
    115,932
    
    
    
    110,676
 F-18




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 12: MINE PROPERTIES (cont.) 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Sub-totalCost brought forward
    
    
    906,756
    
    
    
    881,318
    
    
    
    859,069Transfers from capital work in progress
    
    
    37,386
    
    
    
    28,935
    
    
    
    24,736Disposals
    
    
    (680
    )
    
    
    (3,497
    )
    
    
    (2,487
    )Cost carried forward
    
    
    943,462
    
    
    
    906,756
    
    
    
    881,318Depreciation brought forward
    
    
    (480,374
    )
    
    
    (493,207
    )
    
    
    (463,562
    )Charge for the year
    
    
    (28,510
    )
    
    
    (26,745
    )
    
    
    (31,552
    )Impairment reversal/(charge)
    
    
    31,061
    
    
    
    36,960
    
    
    
    Disposals
    
    
    664
    
    
    
    2,618
    
    
    
    1,907Depreciation carried forward
    
    
    (477,159
    )
    
    
    (480,374
    )
    
    
    (493,207
    )Net book value
    
    
    466,303
    
    
    
    426,382
    
    
    
    388,111
 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000RehabilitationCost brought forward
    
    
    11,314
    
    
    
    9,931
    
    
    
    8,107Additions and deductions
    
    
    (6,522
    )
    
    
    1,383
    
    
    
    1,824Cost carried forward
    
    
    4,792
    
    
    
    11,314
    
    
    
    9,931Amortisation brought forward
    
    
    (2,039
    )
    
    
    (1,650
    )
    
    
    (1,303
    )Charge for the year
    
    
    (121
    )
    
    
    (390
    )
    
    
    (347
    )Amortisation carried forward
    
    
    (2,160
    )
    
    
    (2,040
    )
    
    
    (1,650
    )Net book value
    
    
    2,632
    
    
    
    9,274
    
    
    
    8,281Total mine properties
    
    
    477,095
    
    
    
    454,138
    
    
    
    417,830
 NOTE 13: ACCOUNTS PAYABLE 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000CURRENTTrade creditors and accruals
    
    
    20,747
    
    
    
    14,204
    
    
    
    26,591Amounts payable to related parties
    
    
    146
    
    
    
    178
    
    
    
    2120,893
    
    
    
    14,382
    
    
    
    26,612
 F-19




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 14: PROVISIONS 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000CURRENTEmployee provisions
    
    
    4,487
    
    
    
    2,218
    
    
    
    2,9274,487
    
    
    
    2,218
    
    
    
    2,927NON CURRENTEmployee provisions
    
    
    1,253
    
    
    
    858
    
    
    
    756Rehabilitation provision- opening balance
    
    
    13,209
    
    
    
    11,533
    
    
    
    9,466- change in discount rate
    
    
    (7,586
    )
    
    
    
    
    
    
    - additional provision due to ground disturbance
    
    
    1,421
    
    
    
    
    
    
    
    1,686- life of mine variation
    
    
    (598
    )
    
    
    1,383
    
    
    
    115- interest charge
    
    
    569
    
    
    
    293
    
    
    
    266- closing balance
    
    
    7,015
    
    
    
    13,209
    
    
    
    11,5338,268
    
    
    
    14,067
    
    
    
    12,289Total provisions
    
    
    12,755
    
    
    
    16,285
    
    
    
    15,216
 Current employee provisions relate to the following short-term benefits which
are payable within 12 months: 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Annual leave
    
    
    1,396
    
    
    
    800
    
    
    
    686Sick leave
    
    
    29
    
    
    
    26
    
    
    
    20Rio Superannuation
    
    
    
    
    
    
    
    
    
    
    1Service bonus
    
    
    3,062
    
    
    
    1,392
    
    
    
    2,220Total
    
    
    4,487
    
    
    
    2,218
    
    
    
    2,927
 The service bonus is a scheme whereby employees contribute 10% of their gross
fortnight / monthly salary to the Group and are entitled to receive back their
contributions plus a further 10% from the Group, to be paid out in the current
period. All non-current employee provisions relate to long-service leave entitlements
and are determined in accordance with the requirements for other long-term
employee benefits. NOTE 15: INCOME TAX Income tax expense for the year has been calculated as follows: 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Profit before tax for the year
    
    
    34,778
    
    
    
    69,673
    
    
    
    42,750Prima facie income tax expense on operating profit at 30%
    
    
    10,433
    
    
    
    20,902
    
    
    
    12,825Tax effect of exempt and non-deductible items- Non-deductible entertainment
    
    
    1
    
    
    
    1
    
    
    
    1- Non-deductible superannuation
    
    
    151
    
    
    
    
    
    
    
    (459
    )- Non deductible rehabilitation
    
    
    
    
    
    
    
    
    
    
    184- Provision against subsidiary not recognised
    
    
    (212
    )
    
    
    213
    
    
    
    134- Foreign exchange (gains) / losses
    
    
    1,239
    
    
    
    761
    
    
    
    - Adjustment to tax bases
    
    
    
    
    
    
    (10,749
    )
    
    
    - Deferred tax assets unrecognised / (recognised)
    
    
    (11,612
    )
    
    
    5,298
    
    
    
    (29,111
    )Income tax expense / (benefit)
    
    
    
    
    
    
    16,426
    
    
    
    (16,426
    )
 F-20




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 15: INCOME TAX (cont.) 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Deferred tax positionDepreciation and impairment differences
    
    
    74,869
    
    
    
    98,458
    
    
    
    105,160Tax loss
    
    
    43,523
    
    
    
    33,404
    
    
    
    26,817Derivative financial instruments
    
    
    (5,404
    )
    
    
    (2,169
    )
    
    
    Fair value reserve
    
    
    61,109
    
    
    
    16,097
    
    
    
    (16,426
    )Provisions
    
    
    4,972
    
    
    
    3,280
    
    
    
    1,982Prepayments
    
    
    (172
    )
    
    
    (86
    )
    
    
    (87
    )Other
    
    
    (9,758
    )
    
    
    (10,651
    )
    
    
    (510
    )Less deferred tax assets not recognised
    
    
    (169,139
    )
    
    
    (138,333
    )
    
    
    (116,936
    )Net deferred tax
    
    
    
    
    
    
    
    
    
    
    
 At 31 December 2003 the Group had a net deferred tax position of US$ nil (2002:
US$ nil; 2001: US$ nil), a current period tax expense of US$ nil (2002: US$16.4
million tax expense; 2001: US$16.4 million tax benefit) included in the income
statement and a tax benefit of US$ nil (2002: US$16.4 million tax benefit;
2001: US$16.4 million expense) included in equity. The group also had
unrecognised tax losses of US$145.1 million (2002: US$111.3 million; 2001:
US$89.4 million) and net deductible temporary differences of US$418.7 million
(2002: US$349.8 million; 2001: US$300.4 million). The tax losses can be
carried forward for a period not exceeding 20 years. Deferred tax assets have not been recognised beyond deferred tax liabilities
because the group does not consider that the realisation of the tax benefits
through future taxable profits as probable, which implies a high level of
likelihood. The recognition of deferred tax assets to the extent of deferred
tax liabilities is required under IAS 12, as they relate to income taxes levied
by the same taxation authority and the taxable temporary differences are
expected to reverse in the same period as the deductible temporary differences. On 31 December 2001, in accordance with IAS 12, a deferred tax asset of US$16.4
million was recognised, being to the extent of the deferred tax liability. This
arose as a consequence of the valuation of the effective portion of the
hedgebook being US$54.8 million in-the-money. With the effective portion of
the hedgebook valuation being US$73.0 million out-of-the-money at 31 December
2002, the deferred tax liability was effectively eliminated. As at 31 December
2003 the effective portion of the hedgebook was US$210 million
out-of-the-money. As Lihir does not consider the realisation of its tax benefits as probable, no
deferred tax asset has been recognised. On the same basis, the deferred tax
asset previously raised as at 31 December 2001 was removed from the balance
sheet, giving rise to a tax charge of US$16.4 million for the year ended 31
December 2002. This tax charge was non-cash and offsets the non-cash tax
benefit of US$16.4 million recognised in the 2001 financial year. NOTE 16: REMUNERATION AND RETIREMENT BENEFITS (a) Directors remuneration, including the value of benefits received during the year: 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Baker, Phillips (retired 23 January, 2002)
    
    
    
    
    
    
    
    
    
    
    Cassidy, Peter
    
    
    40
    
    
    
    
    
    
    
    Eppler, Randy (retired 19 April, 2002)
    
    
    
    
    
    
    
    
    
    
    Garnaut, Ross
    
    
    114
    
    
    
    83
    
    
    
    66Leslie, Jonathan (retired 1 March, 2003)
    
    
    
    
    
    
    
    
    
    
    Loudon, Geoff
    
    
    43
    
    
    
    19
    
    
    
    23OReilly, John (retired 1 November, 2002,
reappointed 1 March,2003)
    
    
    
    
    
    
    
    
    
    
    Roberts, Alan (retired 31 March, 2003)
    
    
    195
    
    
    
    330
    
    
    
    300Siaguru, Anthony (deceased 16 April 2004)
    
    
    65
    
    
    
    17
    
    
    
    17Soipang, Mark (retired 7 March, 2003)
    
    
    
    
    
    
    
    
    
    
    2Swan, Neil
    
    
    402
    
    
    
    298
    
    
    
    
 During the year the Company paid a premium of US$66,000 (2002: US$55,000, 2001:
US$46,000) for directors and officers liability insurance. F-21




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS (b) The number of employees, not including directors, whose
remuneration and benefits exceeded K100,000 fall into the following
bands: Remuneration and benefit band
    
    Number of EmployeesUS$
    
    2003
    
    2002
    
    2001$30,001 - $40,000
    
    
    9
    
    
    
    9
    
    
    
    20$40,001 - $50,000
    
    
    
    
    
    
    7
    
    
    
    1$50,001 - $60,000
    
    
    4
    
    
    
    11
    
    
    
    6$60,001 - $70,000
    
    
    1
    
    
    
    3
    
    
    
    12$70,001 - $80,000
    
    
    2
    
    
    
    1
    
    
    
    25$80,001 - $90,000
    
    
    7
    
    
    
    16
    
    
    
    5$90,001 - $100,000
    
    
    5
    
    
    
    29
    
    
    
    8$100,001 - $110,000
    
    
    10
    
    
    
    4
    
    
    
    2$110,001 - $120,000
    
    
    12
    
    
    
    4
    
    
    
    1$120,001 - $130,000
    
    
    9
    
    
    
    2
    
    
    
    $130,001 - $140,000
    
    
    4
    
    
    
    
    
    
    
    $140,001 - $150,000
    
    
    1
    
    
    
    
    
    
    
    1$150,001 - $160,000
    
    
    2
    
    
    
    
    
    
    
    $160,001 - $170,000
    
    
    
    
    
    
    1
    
    
    
    $170,001 - $180,000
    
    
    
    
    
    
    
    
    
    
    $180,001 - $190,000
    
    
    3
    
    
    
    
    
    
    
    $190,001 - $200,000
    
    
    1
    
    
    
    
    
    
    
    $200,001 - $210,000
    
    
    1
    
    
    
    
    
    
    
    $260,001 - $270,000
    
    
    1
    
    
    
    
    
    
    
    
 Note: US$ bands are based on 2003 PGK exchange rates and may therefore differ
from those previously reported. NOTE 17: RETIREMENT BENEFITS Certain employees of the Group participate in a retirement benefit plan, and
contributions are made by the Group to the plan based on 15% of the employees
base salary. Contributions made during the year amounted to US$510,789. This
is a multi-employer plan, and members benefits are defined contribution. The Group also participates in the National Superannuation Fund of Papua New
Guinea in respect of its Papua New Guinean employees. The Group contributes to
this fund at the statutory rate of 9%, inclusive of a 2% government imposed
levy, of salary, and contributions made during the year amounted to US$575,251.
This is a multi-employer plan, and members benefits are defined contribution. NOTE 18: AUDITORS REMUNERATION 2003
    
    2002
    
    2001Fees paid / payable to the Groups auditors for:
    
    US$000
    
    US$000
    
    US$000Auditing the financial statementsPricewaterhouseCoopers, PNG firm
    
    
    137
    
    
    
    127
    
    
    
    167PricewaterhouseCoopers, overseas firms
    
    
    35
    
    
    
    25
    
    
    
    439Other services (tax)
    
    
    28
    
    
    
    73
    
    
    
    48200
    
    
    
    225
    
    
    
    654
 F-22




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 19: PAID UP CAPITAL US$0002003
    
    2002
    
    2001(a) Issued and paid up capitalOrdinary shares
Opening balance
    
    
    873,822
    
    
    
    873,822
    
    
    
    873,822Shares issued
    
    
    156,240
    
    
    
    
    
    
    
    Share issue transaction costs
    
    
    (4,774
    )
    
    
    
    
    
    
    Closing balance
    
    
    1,025,288
    
    
    
    873,822
    
    
    
    873,822
 Number of shares (000s)2003
    
    2002
    
    2001(b) Issued and paid up capitalOpening balance
    
    
    1,142,334
    
    
    
    1,142,334
    
    
    
    1,142,334Shares issued
    
    
    140,000
    
    
    
    
    
    
    
    Closing balance
    
    
    1,282,334
    
    
    
    1,142,334
    
    
    
    1,142,334Consisting of:Total shares
    
    
    1,443,861
    
    
    
    1,303,861
    
    
    
    1,303,861Treasury shares
    
    
    (161,527
    )
    
    
    (161,527
    )
    
    
    (161,527
    )Closing balance
    
    
    1,282,334
    
    
    
    1,142,334
    
    
    
    1,142,334
 All shares in the Company and the Group are ordinary shares, all being of the same
class, (other than Treasury shares), having equal participation and voting rights. The
Treasury shares are classified as B shares and arise from the merger with Niugini
Mining Limited in February 2000. These shares confer no voting rights, no rights to
participation in dividends, are not transferable and are redeemable at the option of
Lihir Gold Limited. In accordance with the Papua New Guinea Companies Act, par values are not attributable
to shares and there is no requirement for disclosure of authorised capital. NOTE 20: CAPITAL AND LEASING COMMITMENTS (a) Operating Lease Commitments Non-cancellable operating leases contracted for but
not capitalised in the accounts 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Payable- not later than one year
    
    
    502
    
    
    
    324
    
    
    
    1,322- later than one year but not later than 2 years
    
    
    501
    
    
    
    
    
    
    
    280- later than two years but not later than 5 years
    
    
    628
    
    
    
    
    
    
    
    1,631
    
    
    
    324
    
    
    
    1,602
 (b) Capital Expenditure Commitments Capital expenditure commitments contracted for: 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Payable- not later than one year
    
    
    20,651
    
    
    
    10,500
    
    
    
    6,930- later than one year but not later than 2 years
    
    
    
    
    
    
    
    
    
    
    20,651
    
    
    
    10,500
    
    
    
    6,930
 F-23




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 21: CONTINGENT LIABILITIES Environmental The Companys mining and exploration activities are subject to various laws and
regulations governing the protection of the environment, including the
Environmental Plan agreed with the Government of Papua New Guinea. These laws
and regulations are continually changing and are generally becoming more
restrictive. The Company conducts its operations so as to protect public health
and the environment and believes its operations are in compliance with all
applicable laws and regulations. The Companys environmental and management
program addresses continual monitoring of any effects on the environment,
together with assessments of the work necessary to rehabilitate areas affected
by mining operations after the eventual closure of operations. The Company has
made, and expects to make in the future, expenditures to comply with such laws
and regulations, but cannot predict the amount of such future expenditures.
Estimated future rehabilitation costs are based principally on the Companys
estimates of rehabilitation and restoration activities and costs pursuant to
the Environmental Plan. At December 31, 2003, 2002 and 2001 $7.0 million, $13.2
million and $11.5 million, respectively, were accrued for rehabilitation costs
for areas disturbed to date. In addition, the Company has been involved in
several matters concerning environmental obligations associated with former
mining activities. Generally, these matters concerned developing and
implementing remediation plans at the Red Dome mine site in Queensland,
Australia, which was formerly operated by Niugini Mining (Australia) Pty
Limited, a fully owned subsidiary of the Company. This site was subsequently
been sold in 2003, and the purchaser has assumed full responsibility for
environmental remediation. Depending upon the ultimate scope and cost of work undertaken during final
rehabilitation, the Company believes that it is reasonably possible that the
liability for these matters could be as much as 50% greater or 25% lower than
the amount accrued at December 31, 2003. The amounts accrued for these matters
are reviewed periodically based upon facts and circumstances available at the
time. Guarantees As part of the Groups support of Lihirian owned businesses, the Group has
provided a number of guarantees to various financiers in favour of Lihirian
companies. These guarantees total approximately US$ nil (2002: US$0.3 million,
2001: US$0.7 million). Claims In December 2000 the Companys wholly owned subsidiary - Niugini Mining
(Australia) Pty Limited - terminated a sales agreement for seven mining leases
located in North Queensland. The purchaser commenced an action against Niugini
Mining (Australia) Pty Limited in the Supreme Court of Queensland, seeking to
have the termination revoked and claims for unspecified damages. The action was struck out by the court in October 2001 because of the
purchasers failure to prosecute its action against Niugini Mining (Australia)
Pty Limited. The purchaser is free to lodge a new action and threatened to do
so in mid-2002, however, at balance date, has not done so. In March 2003,
Niugini Mining (Australia) Pty Ltd sold its North Queensland assets, including
the seven mining leases to Kagara Pty Limited, which is aware of the previous
litigation. In June 2001 Niugini Mining (Australia) Pty Limited became a party to a native
title claim over some of its mining tenements in North Queensland. The company
is currently arranging to with draw from that native title claim following the
sale of its relevant interests to Kagara Pty Limited. In previous financial years, Niugini Mining Limited received claims for
unspecified damages relating to the decommissioned Mt Victor mine in Papua New
Guinea. These claims date back several years and the Company is seeking to
have them removed from the court list, as they have not been pursued. The
Company believes from legal advice obtained that neither of these claims has
substance and, if required, intends to defend both vigorously. F-24




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 22: FINANCE FACILITIES The major facilities are summarised as follows:  (a)
    
    Project Financing FacilityThe Syndicated Finance Facility, signed on 22 November 2000, is a US$50
million revolving credit facility arranged and underwritten by ABN AMRO
Australia Limited. Commonwealth Bank of Australia, Deutsche Bank AG,
Macquarie Bank Limited and SG Australia Limited are participating with ABN
AMRO Australia Limited as financiers of the structure. The interest
applicable to the facility, inclusive of political risk insurance, is 2.9%
over LIBOR. The facility limit reduces as follows:30 June 2004         US$10 million
30 June 2005         US$30 millionThe facility was previously reduced by US$ 10 million as at 30 June 2003.Mandatory prepayments are required under the Finance Facility under
certain conditions. The Company has pledged its assets as collateral and
has provided a range of covenants and warranties in relation to the
facility (Refer to Note 5).Events of Default: In addition to the normal default provisions relating
to non payment, financial distress, misrepresentation, cross default and
breach of undertakings, the agreement includes default provisions covering
material adverse change, expropriation, war and political violence and
exchange control.The US$50 million facility agreement also includes financial covenants
that would trigger default if at December 31 and June 30 of each year the
debt service cover ratio for the next twelve months is less than 1.0 or
the life of mine debt cover ratio is less than 1.5.If an event of default is continuing the lenders, acting on majority
consent, may cancel the revolving credit commitment and accelerate
repayment of the loan.Review Events: If, without consent of the agent (acting on the
instructions of all the lenders), Rio Tinto sells in whole or in part its
current shareholding in Lihir or the manager of the project ceases to be a
wholly owned subsidiary of Rio Tinto, the Agent may give notice to Lihir,
within 21 days of becoming aware or being notified of such an event:  -
    
    requiring the US$ 50 million revolving credit be immediately
restructured in a manner acceptable to the Agent; or-
    
    requiring the US$ 50 million revolving credit be repaid and
cancelled within 180 days from such notification.  (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 who then on lent those
funds to the Company. The amount of the loan was US$26.5 million when
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 is unsecured.The loan contains Event of Default provisions that, if satisfied, give
EIB/MRDC the right to demand immediate repayment of the loan. These
provisions concern events such as material misrepresentation of fact,
failure to pay obligations under the loan when due, insolvency or
liquidation of the Company, abandonment of a substantial part
of the Companys business, substantial reduction in the net worth of the
Company, default on other major loan agreements, and any material adverse
effect on the Companys ability to service the loan. F-25




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 22: FINANCE FACILITIES (cont.) The following table details the profile of debt repayments (based on the
outstanding balance of the Syndicated Finance Facility at 31 December 2003 of
US$19.509 million): SyndicatedFinance
    
    EIBRepayment Maturity
    
    Facility
    
    Facility
    
    TotalUS$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 000
    
    US$ 0002003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001CurrentLess than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,510
    
    
    
    3,510
    
    
    
    3,775
    
    
    
    3510
    
    
    
    3,510
    
    
    
    3,775Non-currentBetween one and two years
    
    
    19,509
    
    
    
    
    
    
    
    
    
    
    
    3,510
    
    
    
    3,510
    
    
    
    3,510
    
    
    
    23,019
    
    
    
    3,510
    
    
    
    3,510Between two and three years
    
    
    
    
    
    
    23,009
    
    
    
    10,000
    
    
    
    3,510
    
    
    
    3,510
    
    
    
    3,510
    
    
    
    3,510
    
    
    
    26,519
    
    
    
    13,510In excess of three years
    
    
    
    
    
    
    
    
    
    
    13,009
    
    
    
    3,509
    
    
    
    7,019
    
    
    
    10,529
    
    
    
    3,509
    
    
    
    7,019
    
    
    
    23,53819,509
    
    
    
    23,009
    
    
    
    23,009
    
    
    
    10,529
    
    
    
    14,039
    
    
    
    17,549
    
    
    
    30,038
    
    
    
    37,048
    
    
    
    40,558Total
    
    
    19,509
    
    
    
    23,009
    
    
    
    23,009
    
    
    
    14,039
    
    
    
    17,549
    
    
    
    21,324
    
    
    
    33,548
    
    
    
    40,558
    
    
    
    44,333
 NOTE 23: FINANCIAL RISK MANAGEMENT The Group is exposed to a variety of financial risks, including the effects of
changes in debt and equity market prices, foreign exchange and interest rates.
The Groups overall risk management programme focuses on the unpredictability
of the gold price, seeking to protect the level of income in future years. The
Group uses derivative financial instruments including forward gold sale
agreements and put options to hedge this exposure. It is not Group policy to
engage in speculative transactions. Risk management is carried out under policies approved by the Board of
Directors. The board provides direction with regards to overall risk
management and has endorsed a written policy covering specific areas including
foreign exchange risk, interest rate risk, credit risk, liquidity risk and the
use of financial instruments. (1) Foreign Exchange Risk The Group is exposed to foreign exchange risk arising from various currency
exposures primarily with respect to the Papua New Guinea Kina and Australian
Dollar. As revenue and a large proportion of expenditure is denominated in
US$, the foreign exchange exposure is deemed a residual risk and the Group
therefore does not hedge its foreign exchange exposure. (2) Interest rate risk Following the equity raising in November 2003 the Group had investments of US$
152.6M on deposit at yearend to cover operating costs and identified capital
and debt reduction initiatives. Of interest bearing liabilities the fixed /
floating split is 42% (2002: 43%, 2001: 48%) and 58% (2002: 57%, 2001: 52%)
respectively. A change in interest rates of 1% will have an approximate income
impact of US$0.8 million per annum. (3) Credit risk For hedging transactions the maximum credit risk at any point in time will be
the difference between the agreed strike price in the contract, and the
prevailing spot price to the extent that the hedging positions are in the
money. At the prevailing spot price of US$417.50 / oz on 31 December 2003
(2002: US$342.75, 2001: US$276.50), the hedge book was US$199.4 million
out-of-the-money (2002: US$65.8 million out-of-the-money, 2001: US$59.8
million in-the-money) effectively eliminating the Groups credit risk as at
that date. Transactions are spread between six major bullion banks, with no
significant concentration of risk amongst those parties. F-26




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS All counterparties to these transactions are recognised financial institutions
with a minimum credit rating of Aa3. The Groups risk in the event of any of
the counterparties defaulting on their contractual obligations is limited to
any revenue that may be foregone in the case where the defaulted contracts
strike price exceeds the prevailing spot price at the value date. The company
does not expect any counterparty to fail to meet its obligations. (4) Liquidity Risk The Group engages in prudent liquidity risk management by maintaining
sufficient cash and cash equivalents and ensuring the availability of adequate
committed credit facilities. NOTE 24: DERIVATIVE FINANCIAL INSTRUMENTS 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Derivative Financial InstrumentsCurrent Assets- Forward contracts
    
    
    9,733
    
    
    
    1,948
    
    
    
    30,619- Put options bought
    
    
    90
    
    
    
    
    
    
    
    149,823
    
    
    
    1,948
    
    
    
    30,633Non-Current Assets- Spot deferred contracts
    
    
    
    
    
    
    
    
    
    
    150- Forward contracts
    
    
    7,437
    
    
    
    5,455
    
    
    
    25,516- Put options bought
    
    
    3,679
    
    
    
    4,582
    
    
    
    6,30311,116
    
    
    
    10,037
    
    
    
    31,969Current Liabilities- Forward contracts
    
    
    30,179
    
    
    
    6,133
    
    
    
    - Call option sold
    
    
    1,196
    
    
    
    
    
    
    
    31,375
    
    
    
    6,133
    
    
    
    Non-Current Liabilities- Forward contracts
    
    
    161,290
    
    
    
    59,704
    
    
    
    - Call options sold
    
    
    27,628
    
    
    
    11,915
    
    
    
    2,846188,918
    
    
    
    71,619
    
    
    
    2,846Shareholders equity - Fair value and other reserves- Spot deferred contracts
    
    
    
    
    
    
    
    
    
    
    150- Forward contracts
    
    
    (177,152
    )
    
    
    (46,494
    )
    
    
    51,469- Put options bought
    
    
    
    
    
    
    
    
    
    
    3,133- Call options sold
    
    
    (26,542
    )
    
    
    (6,583
    )
    
    
    - Deferred hedging gains / (losses)
    
    
    (2,854
    )
    
    
    (16,392
    )
    
    
    15,290- Deferred tax liability
    
    
    
    
    
    
    
    
    
    
    (16,426
    )(206,548
    )
    
    
    (69,469
    )
    
    
    53,616
 The estimated net amount of gains / (losses) contained in the fair value
revaluation reserve which are expected to be reclassified into earnings within
the next 12 months is as follows: 2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Forward contracts
    
    
    (20,851
    )
    
    
    (7,849
    )
    
    
    30,619Deferred hedging gains / (losses)
    
    
    (6,101
    )
    
    
    (191
    )
    
    
    11,762Deferred tax liability
    
    
    
    
    
    
    
    
    
    
    (9,186
    )(26,952
    )
    
    
    (8,040
    )
    
    
    33,195
 F-27




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 24: DERIVATIVE FINANCIAL INSTRUMENTS (cont.) The Group has entered into a series of agreements with financial institutions
in relation to future sales of gold. The purpose of these transactions is to
protect the level of income in future years. It is not Group policy to engage
in speculative hedging activities. As at 31 December 2003 Lihirs hedge book amounted to 2,029,558 ounces as shown
in the following summary: Forward Sales
    
    Put Options Bought
    
    Call Options SoldCommitted
    
    
    
    Minimum
    
    
    
    MinimumOunces
    
    Price
    
    Ounces
    
    Price
    
    Ounces
    
    Price0-3 months
    
    
    54,494
    
    
    $
    325.38
    
    
    
    5,000
    
    
    $
    335.00
    
    
    
    5,000
    
    
    $
    365.003-6 months
    
    
    54,494
    
    
    $
    325.38
    
    
    
    5,000
    
    
    $
    335.00
    
    
    
    5,000
    
    
    $
    365.006-9 months
    
    
    54,494
    
    
    $
    325.38
    
    
    
    5,000
    
    
    $
    335.00
    
    
    
    5,000
    
    
    $
    365.009-12 months
    
    
    59,438
    
    
    $
    325.81
    
    
    
    5,000
    
    
    $
    335.00
    
    
    
    5,000
    
    
    $
    365.002005
    
    
    265,478
    
    
    $
    333.71
    
    
    
    95,000
    
    
    $
    320.39
    
    
    
    95,000
    
    
    $
    326.712006
    
    
    292,500
    
    
    $
    328.50
    
    
    
    39,000
    
    
    $
    325.26
    
    
    
    39,000
    
    
    $
    336.742007
    
    
    330,000
    
    
    $
    323.76
    
    
    
    96,000
    
    
    $
    319.17
    
    
    
    96,000
    
    
    $
    319.082008
    
    
    375,475
    
    
    $
    331.96
    
    
    
    40,000
    
    
    $
    335.00
    
    
    
    20,000
    
    
    $
    365.002009
    
    
    243,185
    
    
    $
    350.762010
    
    
    10,000
    
    
    $
    327.001,739,558
    
    
    $
    331.86
    
    
    
    290,000
    
    
    $
    323.66
    
    
    
    270,000
    
    
    $
    331.12
 Forward sales are transactions against which the Group will be obliged to
deliver when they fall due. The price therefore represents a fixed and
guaranteed amount of revenue. Bought put options are transactions that will occur at the discretion of the
Group. Should the spot price exceed the strike price of the option at the date
on which the option expires, the Group will allow the option to expire and will
sell the equivalent amount of gold in the spot market. Conversely, if the
strike price is higher than the spot price on that date, the option will be
exercised. Sold call options are transactions that will occur at the discretion of the
purchaser. Should the spot price exceed the strike price of the option at the
date on which the option expires, a rational purchaser would exercise the
option obliging the Group to deliver gold into the contract at the contracted
strike price. Spot deferred sales are short term transactions into which the Group has
entered and, while designated against specific future production, do not have a
fixed contracted delivery date, but are rolled forward until the date the sale
occurs. The strike price eventually received will depend on the contango
applied during the intervening period. Gold lease rate swaps entitle the Group to receive a fixed rate allowance, used
in the determination of the forward contract price, in exchange for an
obligation to pay a floating rate, where settlement occurs on a periodic basis. The Group does not enter into hedging transactions containing provisions for
margin calls. The minimum revenue generated from these programs will be US$671 million (2002:
US$719 million, 2001: US$737 million). Revenue generated from an equivalent
number of ounces at the prevailing spot price at 31 December 2003 of US$417.50
(2002: US$342.75, 2001: US$276.50) per ounce would be US$847 million (2002
US$747 million, 2001: US$634 million). F-28




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 24: DERIVATIVE FINANCIAL INSTRUMENTS (cont.) On 31 December 2003, the estimated fair value of the total hedge program as
determined by an independent party, based on the ruling spot price of US$417.50
(2002: US$342.75, 2001: US$276.50), was US$199.4 million out-of-the-money
(2002: US$65.8 million out-of-the-money, 2001: US$59.8 million in-the-money).
At the spot price plus 10% (US$459) fair value would approximate US$280 million
out-of-the-money. Conversely at the spot price less 10% (US$376), fair value
would approximate US$120 million out-of-the money. The fair value of commodity
contracts is estimated based on quotes from market makers of these instruments
and represents the estimated amounts that the Company would expect to receive
or pay to terminate the agreements at the reporting date. Fair value of
options is an estimate based on relevant market information including
volatility of similar options, futures prices and the contracted strike price. Net profit for 2003 included revaluation revenue relating to ineffective hedges
of US$12.1 million (2002: US$2.2 million, 2001: US$5.0 million). The hedge
effectiveness provisions of IAS 39 require that the movement in market value of
the ineffective portion of the hedge be recognised in the income statement.
During the latter part of 2000 and early 2001, gold lease rates were
historically high. In locking in the gold price for future production, Lihir
elected to retain a floating rate exposure to lease rates by way of gold lease
rate swaps. The US$12.1 million (2002: US$2.2 million, 2001: US$5.0 million)
revenue has primarily arisen due to lease rates falling to historical levels,
across the lease rate yield curve coupled with the expiration of time, on what
is typically an upwardly sloping yield curve. The effective portion of the hedge is retained in equity, to be recycled to
earnings on delivery of designated production. At 31 December 2003,
shareholders equity included a hedging fair value reserve of negative US$206.5
million (2002: negative US$69.5 million, 2001: positive US$53.6 million). During the latter half of 2002 and following an increase in the gold price to
over US$300 / ounce, approval was sought and obtained from the syndicate
lenders to vary the minimum hedge requirements under the syndicated loan
facility, enabling the hedgebook to be restructured to provide shareholders
with additional exposure to the spot price. This was achieved through the
rollout and re-designation of existing hedge positions against longer dated
production. Any gain or loss recognised on the effective portion of the hedge
at the time of rollout was crystallised in equity to be recycled to earnings on
the delivery of the originally designated production. Subsequent movements in
market value of the effective portion of the re-designated hedge are to be
recycled to earnings on maturity. The net amount of gains losses, arising from early closure and redesignation of
hedge structures, retained in equity at 31 December 2003 was a loss of US$2.4
million (2002: loss of US$11.4 million, 2001: gain of US$15.3 million). The Company does not use financial instruments to hedge future interest rate or
foreign exchange transactions. NOTE 25: SEGMENT REPORTING The Group produces gold in Papua New Guinea. NOTE 26: RELATED PARTY TRANSACTIONS Transactions between related parties are on normal commercial terms and
conditions that are no more favourable than those available to other parties. Lihir Management Company Limited (LMC) manages the Company pursuant to a
Management Agreement dated 17 March 1995. LMC is a wholly owned subsidiary of
Rio Tinto plc, which is a significant beneficial owner of equity in the
Company. LMC receives a management fee according to the terms of this
agreement, which is calculated as the greater of:  
    
    US$250,000 per month set in 1995, and increased annually thereafter
according to application of the Implicit Price Deflator for the US Gross
National Product, and
    
    1.5% of the average operating costs (excluding the management fee)
for the preceding 3 months. Following a dilution of Rio Tinto Plcs equity interest in the Company to below
15%, the management fee was renegotiated and reduced to US$1.5 million per
annum (US$125,000 per month), commencing 1 January 2004. F-29




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 26: RELATED PARTY TRANSACTIONS (cont.) There are two directors who are on the Board of the Company and LMC. There is one director who is a consultant to Blake Dawson Waldron, who provides
general legal advice to the Company. Lihir provided debt to the Lakaka group and to Kuridala during the year as
disclosed in note 10. There is no exposure to losses in these companies apart
from the credit risk exposure for amounts owed. All the amounts advanced are
deemed as recoverable. The Lakaka Group provides various services to the Company under long-term
contracts for earthmoving and road maintenance. In addition, the Lakaka Group
has interests in other entities that provide services in catering, stevedoring
and various retail enterprises. Kuridala provides, for a fixed rental fee, 6
heavy earthmoving trucks used by the Company in its mining operations. 2003
    
    2002
    
    2001Related Companies
    
    US$000
    
    US$000
    
    US$000The Rio Tinto Group supplies labour on a
secondment basis and bears expenses on
behalf of the Company which are
subsequently recharged to the Company
    
    
    1,111
    
    
    
    709
    
    
    
    1,434LMC Management fee
    
    
    3,449
    
    
    
    3,402
    
    
    
    3,341Interest received from related entities
on finance provided (refer note 10)
    
    
    369
    
    
    
    281
    
    
    
    181Lakaka supplies various services to the
Group on an arms length basis
    
    
    5,844
    
    
    
    4,080
    
    
    
    4,255Blake Dawson Waldron provide legal
advice to the Group on an arms length
basis
    
    
    182
    
    
    
    23
    
    
    
    11Kuridala, a landowner company, supplies
various services to the group on an arms
length basis.
    
    
    1,439
    
    
    
    1,710
    
    
    
    1,673
 NOTE 27: EARNINGS PER SHARE The number of ordinary shares has been based on the weighted average number of
ordinary shares on issue during the year. At 31 December 2003 no options were
outstanding. 2003
    
    2002
    
    2001Net profit attributable to ordinary shareholders
    
    US$000
    
    
    34,778
    
    
    
    53,247
    
    
    
    59,176Weighted average number of ordinary shares
    
    
    000
    
    
    
    1,158,444
    
    
    
    1,142,334
    
    
    
    1,142,334Basic EPS (US$/share)
    
    
    
    
    
    
    0.030
    
    
    
    0.047
    
    
    
    0.052Conversion of options into ordinary shares
    
    
    000
    
    
    
    
    
    
    
    
    
    
    
    Diluted number of ordinary shares
    
    
    000
    
    
    
    1,158,444
    
    
    
    1,142,334
    
    
    
    1,142,334Diluted EPS (US$/share)
    
    
    
    
    
    
    0.030
    
    
    
    0.047
    
    
    
    0.052
 NOTE 28: DIVIDENDS PER SHARE At the Annual General Meeting on 29 April 2003, a dividend in respect of 2002
of $A0.02 per share amounting to a total dividend of $14.2 million was proposed
and paid on 16 July 2003. Dividends paid in 2003 are shown in the Statement of
Changes in Equity as an appropriation of retained earnings / (losses) during
the year ended 31 December 2003. No dividends were declared or paid in 2002. F-30




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS NOTE 29: MERGER WITH NIUGINI MINING LIMITED Name of subsidiary
    
    % ownership interest
    
    Country of incorporationNiugini Mining Limited
    
    
    100
    %
    
    Papua New GuineaNiugini Mining Australia Pty Ltd
    
    
    100
    %
    
    Australia
 On October 6, 1999 the Company announced its agreement with Niugini Mining
Limited, subject to various conditions, to merge by Scheme of Arrangement under
Papua New Guinea Law. The basis of the merger was set out in the notice of
special meeting forwarded to shareholders on November 27, 1999. Shareholders
on December 15, 1999 approved the required resolutions to progress the merger.
Niugini Mining shareholders also approved the required resolutions in early
January 2000 and final approval from the National Court of Papua New Guinea was
obtained by Niugini Mining on February 1, 2000. The merger was effective on
February 2, 2000. As a result of the merger, Niugini Mining became a 100 % owned subsidiary of
the Company. Niugini Mining continues to hold 161,527,405 ordinary shares in
the company, which have been reclassified as B class shares, refer Note 19. The fair value of net assets and liabilities acquired in Niugini Mining Limited
were as follows: US$000Sundry receivables
    
    
    1,329Sundry payables
    
    
    (1,087
    )Cash and bank
    
    
    54,355Investment in Lihir Gold shares
    
    
    90,560Fair value of net assets acquired
    
    
    145,157Shares issued as consideration
    
    
    145,157Less elimination of cross shareholding
    
    
    (90,560
    )Net proceeds of issuing shares on consolidation
    
    
    54,597Cash effect on acquisition
    
    
    54,355Cash paid
    
    
    (1,814
    )Cash obtained
    
    
    52,541
 Contingent liabilities relating to Niugini Mining Limited and its subsidiary
Niugini Mining Australia (Pty) Limited are disclosed in Note 21. NOTE 30: RECONCILIATION TO US GAAP The basis of preparation of these financial statements is set out in Note 1.
These accounting policies vary in certain important respects from the
accounting principles generally accepted in the United States (US GAAP). The
material differences affecting the profit and loss account and shareholders
equity between generally accepted accounting principles followed by the Company
and those generally accepted in the US are summarised below.  (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. The difference between IAS and US GAAP was therefore
eliminated.(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)
    
    Interest capitalization as part of mine properties: Under IFRS, only
interest directly attributable to acquiring a qualifying asset is
capitalized whereas under US GAAP, the amount of interest capitalized is
based on an available interest concept, which results in additional
interest being capitalized under US GAAP. F-31




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (iv)
    
    Depreciation of mine properties: Depreciation expense under US GAAP
differs from that under IFRS due to the difference in the basis for mine
properties under the two bases of accounting.(v)
    
    Impairment: Under IAS 36, the impairment test for determining the
recoverable amount of non-current assets is the higher of net selling
price and value in use. At 31 December 1999 and again at 31 December 2000,
the Company determined that an impairment charge was necessary as the
discounted cash flows were less than the carrying value
of the asset. Under US GAAP, the mine property assets were evaluated for
impairment on an undiscounted basis and, because the sum of expected
(undiscounted) future cash flows exceeded the assets carrying amount, no
impairment loss was recognised in 1999. During 2000 the undiscounted value
of expected future cash flows were less than the assets carrying values,
which resulted in an impairment provision calculated on the same basis as
for IFRS. In 2003, having revised critical assumptions, including life of
mine, remaining reserves, a long term gold price assumption of $US340
(2002: $US305) and a pre-tax real discount rate of 7% (2002: 7%), the
directors resolved to partially reverse previously recognised impairments,
to the value of $US31.1 million (2002: $US37.9 million). US GAAP does not
allow the reversal of impairment provisions previously recognised.(vi)
    
    Deferred tax assets: Under US GAAP, changes in the income tax valuation
provision are recognised in the income statement unless they relate to
gains and losses included in comprehensive income but excluded from net
income. During 2001, the valuation provision was reduced with the
recognition of a deferred tax liability related to the fair value of
derivative financial instruments included in other comprehensive income,
and therefore the tax benefit was taken to other comprehensive income
under US GAAP. This was effectively reversed in 2002, with the hedgebook
valuation being out-of-the money. (Refer to note 15).(vii)
    
    Deferred mining costs: Until 17 April 2000, all mining operations were
provided by a third party. Subsequent to that date, Lihir Gold Limited
began conducting direct mining operations incurring direct expenditures
for stripping, drilling, blasting and related depreciation costs. 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. Under IFRS, the correction of this error
does not have an impact on net income or shareholders equity as at and
for the years ended 31 December 2002 and 2001. This is because any
additional mining costs capitalised in 2000 and 2001 would have resulted
in offsetting impairment charges, and any additional mining costs
capitalised in 2002 would have resulted in a corresponding reduction in
the impairment charge reversal recognized in that year.RestatementUnder USGAAP, Lihir Gold Limited has restated shareholders equity and net
income as at and for the year ended 31 December 2002, to reflect the impact
of capitalizing the above mentioned stripping, drilling, blasting and
related depreciation costs not previously capitalised in deferred mining
costs.Under US GAAP, through 31 December 2001, there was no impact of not
including these costs in the deferred mining cost model on either net
income or capitalised deferred mining costs as capitalising the additional
costs would have resulted in the recognition of offsetting impairment
charges.Under US GAAP, the reversal of previous impairment write downs are
precluded, therefore the correction of the error in 2002 gives rise to the
following restatement adjustments: F-32




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##### Table of Contents



LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS 2002USGAAP
    
    US$000Shareholders equity as previously reported
    
    
    388,117Increase in deferred mining costs
    
    
    7,219Shareholders equity as restated
    
    
    395,336Net income as previously reported
    
    
    31,406Increase in deferred mining costs movement (as
credited to the income statement)
    
    
    7,219Net income as restated
    
    
    38,625Comprehensive income/(loss) as previously reported
    
    
    (108,105
    )Increase in deferred mining costs movement (as
credited to the income statement)
    
    
    7,219Comprehensive income/(loss) as restated
    
    
    (100,886
    )Earnings per share as previously reported
    
    
    0.027Effect of increase in deferred mining costs movement
    
    
    0.007Earnings per share as restated
    
    
    0.034
  (viii)
    
    New effective accounting standards for 2003, which will impact on the
Group accounting policies are:The Group does not expect any impact from the adoption of FASB
Interpretation No. 45: Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others or
FASB Interpretation No. 46 Consolidation of Variable Interest Entities.In 2003 the FASB issued a number of new Statements and Interpretations.
Lihir has evaluated the potential impact of each of the new pronouncements
and believes that adoption of these pronouncements has not had any material
impact on its financial results or financial position in 2003 and based on
the Companys present assessment, is not expected to have a material impact
in 2004.The following particular Statements and Interpretations were considered.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. Lihir is
currently evaluating the potential impact of adopting FIN 46R.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 in 2003. F-33




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS As Restated2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Shareholders Equity in accordance with IAS GAAP
    
    
    461,390
    
    
    
    426,410
    
    
    
    496,248Adjusted as follows:Rehabilitation, restoration and environmental (i) Provisions
    
    
    
    
    
    
    8,874
    
    
    
    8,255 Capitalized rehabilitation costs (See Note 12)
    
    
    
    
    
    
    (9,274
    )
    
    
    (8,281
    )Mine properties - project financing costs (ii)
    
    
    (11,470
    )
    
    
    (11,470
    )
    
    
    (11,470
    )Mine properties - capitalised interest (iii)
    
    
    1,611
    
    
    
    1,611
    
    
    
    1,611Depreciation of mine properties (iv)
    
    
    (8,051
    )
    
    
    (8,404
    )
    
    
    (8,404
    )Impairment provision under IAS GAAP (v)
    
    
    288,463
    
    
    
    319,524
    
    
    
    357,417Impairment provision under US GAAP (v)
    
    
    (339,154
    )
    
    
    (339,154
    )
    
    
    (339,154
    )Deferred mining costs under IAS GAAP (vii)
    
    
    (29,068
    )
    
    
    (21,905
    )
    
    
    Deferred mining costs under US GAAP (vii)
    
    
    32,191
    
    
    
    29,124
    
    
    
    Accumulated adjustments under US GAAP
    
    
    (65,478
    )
    
    
    (31,074
    )
    
    
    (26
    )Shareholders Equity under US GAAP
    
    
    395,912
    
    
    
    395,336
    
    
    
    496,222
 As Restated2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Net income / (loss) in accordance with IAS GAAP
    
    
    34,778
    
    
    
    53,247
    
    
    
    59,176Adjusted as follows:Rehabilitation, restoration and environmental provisions (i)
    
    
    
    
    
    
    (374
    )
    
    
    (420
    )Mine properties - capitalised interest (ii)
    
    
    
    
    
    
    
    
    
    
    Depreciation of mine properties (iii)
    
    
    353
    
    
    
    
    
    
    
    Impairment charge / (reversal) under IAS GAAP (v)
    
    
    (31,061
    )
    
    
    (37,893
    )
    
    
    Deferred tax benefit under IAS GAAP (vi)
    
    
    
    
    
    
    16,426
    
    
    
    (16,426
    )Deferred mining costs under IAS GAAP (vii)
    
    
    (7,163
    )
    
    
    (3,675
    )
    
    
    Deferred mining costs under US GAAP (vii)
    
    
    3,067
    
    
    
    10,894
    
    
    
    Net income/(loss) under US GAAP before cumulative effect of
change in accounting policy
    
    
    (26
    )
    
    
    38,625
    
    
    
    42,330Cumulative effect of change in accounting policy (i)
    
    
    400
    
    
    
    
    
    
    
    Net income/(loss) under US GAAP after cumulative
effect of change in accounting policy
    
    
    374
    
    
    
    38,625
    
    
    
    42,330
 F-34




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS As Restated2003
    
    2002
    
    2001US$000
    
    US$000
    
    US$000Comprehensive incomeNet income / (loss) under US GAAP
    
    
    374
    
    
    
    38,625
    
    
    
    42,330Other comprehensive income under IAS GAAP
    
    
    (137,079
    )
    
    
    (123,085
    )
    
    
    53,616Release of valuation allowance under US GAAP (vi)
    
    
    
    
    
    
    (16,426
    )
    
    
    16,426Other comprehensive income under US GAAP
    
    
    (137,079
    )
    
    
    (139,511
    )
    
    
    70,042Comprehensive income / (loss) under US GAAP
    
    
    (136,705
    )
    
    
    (100,886
    )
    
    
    112,372
 Cash flow statement under US GAAP In terms of US GAAP bank overdrafts are treated as financing activities and not
as cash. The balance and inflow from financing cash flows per the cash flow
statement under US GAAP would therefore increase by US$1.297 million in 2002. As Restated2003
    
    2002
    
    2001Statement of changes in equity under US GAAP
    
    US$000
    
    US$000
    
    US$000Accumulated lossesBalance at January 1
    
    
    (478,486
    )
    
    
    (377,600
    )
    
    
    (489,972
    )Comprehensive income / (loss)
    
    
    (136,705
    )
    
    
    (100,886
    )
    
    
    112,372Dividend
    
    
    (14,185
    )
    
    
    
    
    
    
    Balance at December 31
    
    
    (629,376
    )
    
    
    (478,486
    )
    
    
    (377,600
    )Paid up capitalBalance at 1 January
    
    
    873,822
    
    
    
    873,822
    
    
    
    873,822Shares issued
    
    
    156,240
    
    
    
    
    
    
    
    Share issue transaction costs
    
    
    (4,774
    )
    
    
    
    
    
    
    Balance at 31 December
    
    
    1,025,288
    
    
    
    873,822
    
    
    
    873,822395,912
    
    
    
    395,336
    
    
    
    496,222
 As RestatedEPS under US GAAP
    
    2003
    
    2002
    
    2001Net Earnings            US$000
    
    
    374
    
    
    
    38,625
    
    
    
    42,330Net Earnings Per Common Share  Basic (US$  per share)
    
    
    0.0003
    
    
    
    0.034
    
    
    
    0.037Net Earnings Per Common Share  Diluted (US$  per share)
    
    
    0.0003
    
    
    
    0.034
    
    
    
    0.037
 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 options for 2001, 2002 or 2003. 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)
    
    2003
    
    2002
    
    2001Basic
    
    
    1,158,444
    
    
    
    1,142,334
    
    
    
    1,142,334Diluted
    
    
    1,158,444
    
    
    
    1,142,334
    
    
    
    1,142,334
 F-35




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LIHIR GOLD LIMITED
NOTES TO THE FINANCIAL STATEMENTS US$ thousandsAdditional disclosures - Movement in valuation allowances
    
    2003
    
    2002
    
    2001Provision for Doubtful DebtsBalance, beginning of year
    
    
    1,347
    
    
    
    1,041
    
    
    
    826Additions: charges to costs and expenses
    
    
    489
    
    
    
    333
    
    
    
    215Write-offs
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    1,836
    
    
    
    1,347
    
    
    
    1,041Provision for Stores Stock ObsolescenceBalance, beginning of year
    
    
    2,574
    
    
    
    1,882
    
    
    
    896Additions: charges to costs and expenses
    
    
    780
    
    
    
    692
    
    
    
    986Write-offs
    
    
    
    
    
    
    
    
    
    
    Balance, end of year
    
    
    3,354
    
    
    
    2,574
    
    
    
    1,882Provision for Impairment of Mining PropertiesBalance, beginning of year
    
    
    303,151
    
    
    
    340,111
    
    
    
    340,111Additions: charges to costs and expenses
    
    
    
    
    
    
    
    
    
    
    Write-offs
    
    
    (31,061
    )
    
    
    (36,960
    )
    
    
    Balance, end of year
    
    
    272,090
    
    
    
    303,151
    
    
    
    340,111Provision for Impairment of Deferred Mining CostsBalance, beginning of year
    
    
    
    
    
    
    1,780
    
    
    
    4,286Additions: charges to costs and expenses
    
    
    
    
    
    
    
    
    
    
    Write-offs
    
    
    
    
    
    
    (1,780
    )
    
    
    (2,506
    )Balance, end of year
    
    
    
    
    
    
    
    
    
    
    1,780Deferred
Tax Valuation AllowanceBalance,
beginning of year
    
    
    138,333
    
    
    
    116,936
    
    
    
    146,048Additions:
charged/(credited) against income tax
    
    
    30,806
    
    
    
    21,397
    
    
    
    (29,112
    )Balance, end
of year
    
    
    169,139
    
    
    
    138,333
    
    
    
    116,936
 F-36