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    LHG Lowering FY06 Earnings Following 3Q06 Production Report
    31/10/06 15:30 Ian Preston

    LHG; Materials; Lowering FY06 Earnings Following 3Q06 Production Report

    RECOMMENDATION … Our thinking

    We continue to favour LHG for direct gold exposure given the high exposure to the spot gold price and the growth options available through firstly the current flotation expansion and then through an additional autoclave expansion. The merger with BGF adds ~20% additional production with geographic and operational diversification – but in our view does not lower the overall risk.

    On balance, we believe that the market has failed to adequately take account of the past gold production history of the Ballarat field and thus that BGF plan is deliverable (LHG has undertaken extensive due diligence). We believe that with LHG now behind BGF, the mine plan should be delivered.

    Overall, we see the BGF merger as eps accretive from FY08 and it is valuation accretive. In our view, LHG’s relative rating to the North American gold companies suffers more from lack of production than lack of reserves.

    We retain our S/T OP and L/T Buy recommendations.

    Adjusting for the lower grades in 3Q06 and increased production and costs in FY07 results in the lower earnings forecast.

    EPS Revision:
    FY06: -27.6% to 5.1c
    FY07: -3.3% to 9.7c
    FY08: -0.7% to 10.3c
    FY09: -0.6% to 12.6c

    Valuation: $1.76 (was $1.73)
    Recommendation: S/T Outperform; L/T Buy
    Share price: $2.76
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Currently unlisted public company.

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