Newmont offers $220-million to pay off unit's obligations
from the Globe and Mail
Yandal's hedging contracts a problem
By WENDY STUECK
MINING REPORTER
Wednesday, May 28, 2003 - Page B4
VANCOUVER -- Newmont Mining Corp. has offered almost $220-million (U.S.) to pay off notes and hedging contracts held by Australian subsidiary Newmont Yandal Operations Ltd.
Denver-based Newmont, the world's biggest gold producer, had been widely expected to come up with a proposal to close the troublesome Yandal obligations, which Newmont acquired in February, 2002, through its takeover of Australian producer Normandy Mining Ltd.
"Newmont has been an ardent anti-hedger, and [Yandal] has been the one hedge contract that spoiled the pudding," said John Ing, president of Maison Placements Canada Inc. in Toronto.
Earlier this year, Newmont disclosed that Yandal had more gold committed under hedging obligations than it owned in proved and probable gold reserves. Some of the contracts had "right-to-break" clauses that gave counterparties the right to get cash immediately for the value of their contracts instead of accepting gold at an agreed-upon date.
In March, Newmont chief executive officer Wayne Murdy said Yandal could be pushed into insolvency if those rights were exercised. The obligations were non-recourse to Newmont, but Newmont reported the liabilities on its balance sheet.
Analysts said Newmont legally could have walked away from Yandal and allowed hedging counterparties to take over the asset, but that such a move would have soured relations between Newmont and major bullion banks, and so was not likely.
Newmont said yesterday it would offer, through a subsidiary, $118.6-million to acquire notes and $100.8-million to close out hedge positions. The offers amount to 50 cents on the dollar of outstanding principal for note holders, and 50 cents for each dollar of liability under the hedge contracts.
Hedge counterparties also have the option to transfer their agreements, at 40 per cent of their existing value, to Newmont.
In a statement, Mr. Murdy said Newmont believes the offers "represent significant premiums to the alternative of an insolvency administration."
Analysts said they expect the offers will be accepted and that the effect will be positive for Newmont.
"It's a good opportunity from their point of view -- they want to get rid of the liability," Mr. Ing said.
Yandal's three mines produced about 611,000 ounces of gold last year. The company has proved and probable reserves of about 2.1 million ounces, and has 3.4 million ounces committed under hedging contracts.
Newmont has forecast production of 7.1 million to 7.3 million ounces this year.
Hedging, or selling gold forward, can protect gold producers when prices are flat or falling but can limit their ability to benefit from higher prices. As the price of gold began to climb last year, many investors shunned hedged producers and sought companies that had full exposure to a rising gold price.
In response to market sentiment and improved gold prices, many producers, including Placer Dome Inc. and Barrick Gold Corp., have reduced their hedged positions.
Gold for May delivery fell by $1 to $367.80 yesterday on the New York Mercantile Exchange. Newmont shares rose 30 cents to close at $29.89 on the New York Stock Exchange |
