Lihir's New Downgrade

It was gloom on the downside. Lihir shares shed a couple of per cent, Bradken shares lost a staggering 40% in value on news of a flat first half and a less than forecast rise in full year forecast earnings.

Lihir is our second largest listed gold miner but that didn't help when it revealed its second production downgrade in as many months.

Lihir cut its full-year production forecast for the second time this year because of lower ore grades and unplanned plant shutdowns continued to disrupted output.

The company said output for the year to the end of this month will now be 700,000 ounces, 7% lower than its previous estimate.

Its earlier forecast of 750,000 ounces was down on a first estimate of 800,000 to 830,000 ounces, but the final figure will still be a record for the miner, it's just not as big a record as first forecast.

The fall has stopped the company from fully exploiting near record world gold prices in the past couple of months. Currency pressures from the higher Australian dollar and weaker US are also hurting earnings.

Lihir reduced its estimate in October after a strike at its mine in Papua New Guinea stopped output for two weeks.

Chief Executive Officer Arthur Hood is seeking to benefit from gold prices at 27-year highs after ending forward sales contracts and starting a $550 million expansion study.

"Despite these temporary setbacks, Lihir remains on track to achieve record production in 2007,'' Mr Hood said in the statement to the ASX.

He said expansion projects and the removal of forward contract hedging earlier this year "will position Lihir for a strong improvement in operating cash flows in 2008 and beyond".

Lihir shares fell 18c to $3.72. Volume was more than 19.6 million shares.

But Bradken, the mining and rail freight services group, copped the pounding of the day, with the shares plunging 40%, or $5.96 to $8.84 at the close.

It was a stunning sell off, with 11.6 million shares traded in the once high flying favourite of a rising number of brokers and fund managers.

Bradken told the market before trading that earnings growth has been below market expectations and that it now expects flat profit growth for the first half.

The company has now forecast earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to the end of December to rise about 12% on the same period last year but after tax earnings are expected to be "flat".

The company says that for the year, it expects EBITDA growth of around 20% and earnings per share growth of about 15%.

Investors had been expecting better numbers from the company after recent upbeat analyst briefings in October. Goldman Sachs JBWere was forecasting 2008 EBITDA to grow around 32% to $132 million. No more. So lots of numbers being reworked by analysts who would have done lost of notes yesterday to clients.

Judging from the fall in the share price, investors didn't wait for the broking notes: they sold straight way.

The company said in yesterday's statement to the ASX, issued before trading: "We flagged at the 2007 full year results announcement and the annual general meeting that mining volumes have not been growing significantly.

"This has now been confirmed by ABARE's (Australian Bureau of Agricultural and Resource Economics) and September 2007 Mineral Statistics.

"The lack of growth has been compounded by delays in some of the major mine expansion projects, impacting growth in the first half results.

"A number of these projects are expected to be executed in the second half."

The company said its industrial division would have a strong first half and second half while the rail division is also likely to have a strong first half, though delays in the start up of a major coal wagon project have had an impact.

The company says the performance of the company's power and cement division was also expected to improve in the second half. But that will be after some difficulties in the business.

"After a good six months to June 2007, the Power & Cement division undertook a low margin contract and this along with manufacturing cost increases has resulted in minimal EBITDA in the first six months.

"In October/November 2007, the Bradken information technology ("IT") system was installed in the Power & Cement division, at which time these issues came to light. Performance will improve in the second half, in line with the strong order book and as the remnants of the low margin contract are completed during the first quarter of 2008.

"The new IT system will give improved visibility of margins, variances etc and we are looking to increase our spend on maintenance and capital to remove bottlenecks in the production process. Our ongoing strategy continues, focusing on investing capital expenditure to improve the business and to pursue complementary acquisitions. This will enable Bradken to take advantage of the long-term growth in the resources sector," the company said.

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