jpm+newmont fight from gold eagle, page-18

  1. 228 Posts.
    An update on the Newmont hedges:

    Anyone have an opinion on what this does for Audax at Bronzewing? The share price is down 12% yesterday, without any released explanation as to why.

    UPDATE 2-Newmont closes book on Yandal gold hedges
    6/4/2003 4:05:21 PM

    By Alden Bentley

    NEW YORK, June 4 (Reuters) - Newmont Mining Corp.'s (NEM) $77 million payout to six of its bullion bankers in Australia may close the book on a gold hedging predicament that has dogged the world's largest gold producer since it merged with Australia's Normandy Mining last year, analysts said.

    All but one of the counterparties to the money-losing hedge positions of Newmont's Australian mining subsidiary, Newmont Yandal Operations Ltd. (Yandal), agreed to accept 50 cents on the dollar before the offer's Tuesday evening deadline.

    A hedge position is a commitment to sell future production at prices set in long-term contracts. Hedging can protect a company from falling gold prices but has backfired on many producers during the rally in gold prices since last year.

    The Australian hedges have complicated Newmont's relations with its shareholders and kept gold traders on edge about the timing of large buybacks in the open market. It still is not clear whether the Yandal hedges have already been unwound.

    "It seems that the crisis, if there ever was one, is now over," said Victor Flores, mining analyst with HSBC Securities. "From Newmont's point of view, they've had to write some checks, but they've fulfilled their pledge to reduce hedge books and it cost them potentially half of what it would have cost them."

    Denver-based Newmont said it accepted the assignments from six bankers for all their gold contracts with Yandal. These represent 94 percent of the ounces in the Yandal hedge book and 76 percent of the negative mark-to-market value, due to the high price of gold in Australian dollar terms.

    "The remaining counterparty alleges a right to terminate its gold hedge contract with Yandal before its respective maturity, based on the alleged occurrence of an early termination event under the contract," Newmont said.

    It acquired Yandal's substantial portfolio of forward gold sales and derivatives in a three-way merger in Feb. 2002 with Australia's Normandy Mining and Canada's Franco-Nevada Mining Corp, vowing to close all its Australian hedges as market conditions allowed. It inherited about 10 million ounces of gold sales and derivatives commitments from Normandy.

    Gold bankers and traders have been whispering about supposed "right to break" clauses in Yandal's gold contracts.

    Dealers said these unusual covenants allow the bankers to call in contracts early and were linked to the perceived counterparty risk of Yandal, formerly Great Central Mines Ltd.

    Great Central Mines was part of the collapsed gold empire of the colorful Joe Gutnick, a rabbi and mining impresario.

    "It's just a dramatic finish. That hedge book is gone with the exception of that one position," said a New York bullion trader. "Its going to severely limit the pace of buybacks.

    "It's definitely going to alleviate the upside pressure for gold, once the market digests what happened," he said.

    Newmont has avoided hedging, pledging stock owners maximum benefit from rising bullion prices. Its large North American rivals Barrick Gold Corp. (CA:ABX) and Placer Dome Inc. (CA:PDG) of Canada, are both sophisticated hedgers.

    "It's ironic that Newmont, which has all along had a non-hedging philosophy, has found itself in the middle of the hedging issue," Flores said, "Whereas the Barricks of the world and the Placers have been often maligned for being hedgers and haven't had to face any of these problems."

    Newmont's cash offer, from another unit, Yandal Bond Co. Ltd, expired Tuesday evening. The company also offered to pay $118.6 million, or 50 cents on the dollar, for all of Yandal's 8-7/8 percent senior notes, due in April 2008.

    Newmont shares ended up 72 cents, or 2.4 percent, at $30.87 in Wednesday trading on the New York Stock Exchange.
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