Lihir earlier revised its forecast gold output for 1998 to 530,000 ounces from 600,000 ounces due to longer-than expected remedial and maintenance work at its Lihir Island mine.

"Because the number of ounces will be smaller that will have an adverse impact," Lihir managing director Michael Merton told Reuters.

"But it will be very substantially offset by very good cost savings that we've had here," Merton said.

In the second quarter gross cash production costs ran at $221 an ounce, he said. "I would expect for the year it will be a little bit more than that."

A more favourable US dollar/PNG kina exchange rate, lower heavy fuel oil prices and reduced employment numbers were delivering cost savings.

The recent rise in gold prices was a good sign, although much of the mine's yield is sold forward, Merton said. "We are modest hedgers relative to our reserves andresource, but we are 100 percent hedged this year and 100 percent, effectively next year."

Gold prices jumped about $4 an ounce to just under $295 in New York on Thursday, prodded on by speculation that the United States would cut interest rates soon.

Merton said Lihir will achieve an average gold sales price of $350 an ounce in 1998.

Lihir, whose mine is located in a flooded volcano in New Ireland Province and poured its first gold in May 1997, achieved a net profit of US$4.1 million in the first half to June 30.