Lihir closes, sells 'difficult' Ballarat gold mine to a junior

Lihir on Friday announced it would close the mine and had agreed to sell it to Castlemaine Goldfields Ltd for $4.5 million in cash plus a 2.5 per cent royalty interest in any future production capped at $50 million.

The deal is conditional on Castlemaine shareholders approving the issue of new equity to raise between $20 million and $40 million.

Castlemaine chief executive Gary Scanlan said the company planned about nine months of exploration at the Ballarat mine after taking possession in early May.

If successful, a further nine months of development activities will be undertaken before production will resume, Scanlan said.

"Lihir has started the process of care and maintenance, and that's how we will inherit it," he told reporters.

Lihir announced its intention to offload the mine in July last year after reviewing the technically difficult project.

Its general manager of Australian and African operations Peter Smith said the company had been hampered by `nuggety' mineralisation - which is hard-to-predict and not continuous.

"It's a difficult resource - it has always been known to be difficult - and has presented us with challenges in being able to extract viable quantities of gold, particularly at the level we wanted to work," he said.

The company had initially sought to produce 100,000 ounces per annum (ozpa) from the operation but dramatically scaled this forecast back to 20,000 ozpa and only poured 12,565 ounces in calendar 2009.

Lihir took the mine over in 2007 under a $350 million friendly merger with Ballarat Goldfields NL.

Lihir booked a $US409 million ($A453.9 million) writedown related to the mine in its results for the six months to June last year.

Market watchers described the decision to sell the mine as marking the end of a much-vaunted Ballarat goldfields' renaissance that envisaged a return to the glory days of the historic gold mining region.

After being reclassified as a discontinued operation last year, Ballarat mine employee numbers fell to 90, down from a peak of 500.

Half the remaining employees are expected to leave immediately while a dozen will be redeployed to other Lihir operations, a spokeswoman said.

"We put some effort in to try to keep the asset as a going concern and we haven't been able to do that," Smith told reporters in an interview.

"We're working through appropriate process with our people to make sure they're looked after and helped into the future.

"It's not the most pleasant of outcomes for them but probably it's also not all that surprising."

Smith said the deal was a good outcome for Lihir financially.

The mine would be better off in the hands of a smaller, single-asset operator content with modest production volumes.

However, for Lihir and its aggressive expansion plans, the mine was simply too expensive to operate and produced too little, Smith said.

Lihir announced on Tuesday its total output plan of 1.45 million ozpa on average for the five years from 2012 to 2016, up from forecast output of between 960,000 ounces and 1.06 million ounces this calendar year.

Production is expected to rise to about 1.5 million ozpa between 2016 and 2021.

Smith said the goal was "doable" and there was a possibility production could be even more during the period.

Lihir is focused on the prolific Lihir Island operations in Papua New Guinea and Bonikro mine in Cote d'Ivoire where production is rising sharply and exploration potential is strong.

Lihir would not rule out buying more assets in Australia, adding to existing mines in WA and Queensland, Smith said.

"I the right asset came up in Australia, I'm sure the company would look at it."