Rio Tinto books US$170m profit on gold stake

SYDNEY - Rio Tinto sold its 14.5 per cent stake in Papua New Guinea miner Lihir Gold at a 9 per cent discount for A$399 million ($420 million), more than doubling its investment in 10 years.

The sale, to Citigroup, comes as gold - used as an inflation hedge and in jewellery, electronic and medical applications - sits near 18-year highs at around US$500 ($710) an ounce and amid consolidation in the sector.

Fund managers said Citigroup, which declined to comment, was selling the Lihir shares on to institutions, looking for offers between A$2.15 and A$2.20 a share.

"With bullion prices where they are, there should be good demand for the stock from institutions.

Also Lihir is a pure gold play, which makes it an attractive investment," said Steven Robinson, a portfolio manager with Alleron Investment Management, which owns Lihir shares.

"It also frees up the book for some other large corporates to take a look at Lihir now," he added.

The world's second-biggest miner, behind BHP Billiton, expected to book a gain of about US$170 million on the sale, a Rio Tinto spokesman said.

"We have taken advantage of current favourable market conditions to sell our holding in Lihir," chief executive Leigh Clifford said in a statement.

Rio Tinto's sale at A$2.15 a share, handled by Caliburn Partnership, was 9 per cent below Lihir's A$2.35 Tuesday close.

Rio Tinto's shares rose to a high of A$62 - just off last week's all-time high of A$62.87 - then eased.

Rio gave up its management rights over Lihir in September, paving the way for it to quit its minority stake at a time when gold miners are scouring takeover opportunities.

Barrick Gold, the world number-three gold miner, has made a hostile, US$9.2 billion, bid for smaller Canadian rival Placer Dome, and South Africa's Gold Fields, the world's fourth-ranked gold producer, has set a friendly US$330 million bid for Canada's Bolivar Gold.

Shares in Lihir, which has forecast calendar 2005 gold production at 600,000 ounces, were placed on a trading halt late on Tuesday when it said Rio was considering selling its stake.

Lihir shares have more than doubled so far this year.

- REUTERS