Huntleys' Stock of the Week

Recommendations: Sell

LGL's current stock prices

Newcrest Comparison

Investment Rating:

LGL is an unhedged gold producer. Lihir Island mine in PNG is the main asset. The deposit comprises a massive 40Moz gold resource. Hosted within a sea-side volcano, keeping the ocean out and temperatures down are issues. High fixed costs may allow improved returns through expansion but capital costs are high and historic returns woeful. A risky scrip acquisition strategy kicked off with Ballarat Goldfields in early 2007. Equigold followed in June 2008, bringing operations in Australia and Ivory Coast. Diversification and exploration upside has improved but acquisitions were expensive and mines second rate with development and sovereign risk. Poor historical profitability makes LGL a trading play for gold bulls. PNG sovereign risk needs consideration.

Event:

• We compare Newcrest (NCM) and LGL on a number of metrics including resources, reserves, production, growth and costs.

Impact:

• We continue to prefer Newcrest from a long term investment point of view. LGL provides more short term speculative upside.

• Our valuation rises from $1.25 to $1.50 a share with the recent US$325m share placement. New shares were issued at A$3.00, a significant premium to our valuation.

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