Castlemaine Goldfields today bought Lihir Gold's unsuccessful Ballarat gold project for $4.5 million in cash as well as a percentage of future production revenues.
Lihir will be entitled to earn a 2.5% royalty on future production, but this will be capped at $50 million.
According to Castlemaine, the sale is conditional on its shareholders approving the issue of new equity to raise a minimum of $20m.
Lihir acquired the project for $440 million in 2007, but decided to sell in July last year after it became clear production would not meet expectations.
The company determined that large scale bulk mining techniques would not be sustainable and production was unlikely to exceed 100,000 ounces per year.
However, exploration in the northern areas of the gold field had yielded encouraging results, Lihir said.
Castlemaine said it would focus on exploring these northern areas and would cease mining and processing for the immediate future.
However, once it had identified sufficient resources, it would restart the mine with a smaller scale production rate of 50,000 ounces per annum.
"This would present an opportunity to re-employ local personnel and re-engage local contractors," Castlemaine said.
In a statement released today, Lihir said the operation will be wound down and placed on care and maintenance and redundancies will be offered to affected employees.
"Lihir will provide full entitlements and support services to employees and their families, including outplacement assistance," the company said.
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