AOR apollo series 2013-1 trust

J.P. Morgan buy 4.53 28/5/2002 at 4.53, page-2

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    AOR in process of recalculating reserves NCM/June/ AOR/July or later/LHG Oct/res/upgrade ilrobbinrosso 25/5/02 11:20:12 PM
    http://afr.com/companies/2002/05/28/FFXHQOP8P1D.html
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    Gold price rises on less forward sellingMay 28Stephen Wyatt
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    The gold market, already at its highest level for two years, was buoyed yesterday after Vancouver-based Placer Dome launched its $2 billion bid for major Australian gold producer, AurionGold.
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    While the gold price edged just $1 higher to $US321 an ounce in Asian trading, gold dealers said the takeover would result in reduced gold hedging.
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    Less aggressive gold sell hedging by producers has been a major factor behind the 20 per cent rise in the gold price over the past year.
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    And a driver of this reduced hedging has been consolidation in the gold industry. Less aggressive hedgers, like Newmont and now perhaps Placer Dome, have been taking over more willing hedgers, like Normandy Mining. The result has been less forward selling pressure and also a reduction in the size of hedge books.
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    Comments by Placer Dome president and chief executive, Jay Taylor, indicate that AurionGold's hedge book will also be trimmed. If the takeover succeeds, Taylor said, "Our intention is to reduce the size of the book to bring it more in conformity with Placer's policy, which is to have a modest amount of hedging, and leave most of the upside to our shareholders."
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    Currently Placer Dome has 8.6 million ounces of gold hedged for delivery over 15 years at an average price of $US400 ($700) oz. This is 20 per cent of its reserves. In comparison, AurionGold has hedged 5.479 million ounces out to 2005-06. The straight forward sales average $570 oz while the options and contingent hedges range between $560 and $601 oz. AurionGold has hedged about 90 per cent of its current reserves.
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    Superficially, a successful Placer Dome takeover would see a paring back of the AurionGold hedge book from 90 per cent to 20 per cent of its reserves. But there are a number of issues that remove the bullish sting from this hedge book restructure.
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    Firstly, AurionGold has been conservative at measuring its reserves. It has used a gold price of $450 oz. But the current gold price is $575 oz. AurionGold is in the process of recalculating its reserves. Placer Dome would be aware of this and one dealer said it partly explains why Placer Dome had bid fairly aggressively for AurionGold.
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    A recalculation of reserves at a higher gold price would result in more reserves and correspondingly it would automatically reduce the percentage of the reserves that had been hedged. One gold dealer estimated that at $500 oz the AurionGold reserves would rise so as to reduce its hedge position to about 60 per cent of reserves.
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    Secondly, the manner in which a hedge book is unwound determines the impact on the market. Placer Dome could simply buy back several million ounces of AurionGold's hedge book. And so could Newmont have bought back the Normandy hedge. This would trigger prices suddenly higher.
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    But neither will do this because these hedges are out-of-the money. The Aurion hedge has a marked-to-market loss in excess of $330 million.
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    Instead, Placer Dome will simply deliver gold into the hedge positions and let the hedge book naturally decline, said Jay Taylor.
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    Thirdly, AurionGold had already informed the market that it was in the process of reducing its hedge book back to 60 per cent of its reserves by delivering into hedges.
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    The reality is that reduced hedging of AurionGold has already been factored into the gold price, said Charles Dowsett, head of structuring and trading at ABN Amro in Sydney.
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    However, he added that the takeover will add the perception of less gold producer hedging. Along with ongoing terrorist threats, geo-political uncertainties, particularly between India and Pakistan, and macro-economic concerns, the gold market should be well supported at these levels.
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