Gold book tells story
Mar 15
Stephen Wyatt
Yesterday's appointment of an administrator to Centaur Mining Ltd was a slow bleed.
A combination of difficulties in meeting US bond holder obligations and a gold forward book that had been stripped of cash, finally squeezed the life out of Mr Joe Gutnick's group.
Interest on the $US225 million ($450 million) bonds is not due until June 1 but, under the terms of the issue, Centaur was required to pre-pay into a trust account the $US12 million in interest by March 9.
Centaur could not meet this prepayment and was seeking an extension from the bond holders.
At the same time, however, the falling Australian dollar and firm US dollar gold price was pushing up the price of Australian dollar gold. Centaur had been stripping its forward sales position covering future gold sales from its Mount Pleasant operation for some time.
This had reduced the average forward sales price of gold to around $420/oz. As the Australian dollar gold price steadily rose, this forward book went deeper and deeper out of the money; unrealised losses were rising alarmingly.
Yesterday, the $A gold price hit $530/oz. On the complex forward book of about 1.6 million ounces (about 47 tonnes), this meant unrealised losses of about $150 million, said one bullion dealer.
The bullion banker to Centaur is Chase Manhattan. Yesterday, Australian bullion dealers noted steady buying of gold and steady selling of the $A by Chase. Some suggested Chase might have bought about 10 tonnes of gold and pushed the price up about $US2/oz to $US268.50/oz.
And dealers yesterday were keen to see if Chase bought the 25 tonnes of gold auctioned by the Bank of England last night.
Whether or not this is the beginning of liquidation of the Centaur/Mount Pleasant gold book is speculation. But one gold analyst said that Centaur's inability to meet its interest prepayment might have triggered a clause in the Chase gold facility that enabled Chase to liquidate the gold position.
Certainly, Chase has had the motivation to clarify its losses. After all, as the Australian dollar makes new lows the Centaur unrealised losses build.
The Cawse nickel project itself is doing well, said one analyst. The problem with the group is that the gold forward book had been plundered to provide cash for Cawse and cash to fund debt.
And the nickel forward book is negligible.The history of the gold book tells the story. A strong forward book at the start of 1999 has been decimated. Then it had an average forward price (out to 2010) of around $570/oz on 2.9 million ounces. In May 1999 $47 million was taken out of the gold hedge book after 1.26 million ounces of forward sales were liquidated and in July 1999 $30 million. Now it has an average forward price of $423/oz on 1.6 million ounces. This is considerably below the current spot gold price of $530/oz.
For the Centaur group's Mt Pleasant gold operations, with cash operating costs of $381/oz and total production costs of $443/oz in the December quarter, sales into the hedge book at $447/oz (average realized price for the December quarter) meant slim pickings.
The group's major banker, Chase Manhattan, requires Centaur to deliver gold into the hedge book.
The weaker Australian dollar also pushed currency positions deeper out of the money as well.
The group has $US48 million of currency forwards and $US148 million puts and calls out to 2004 at an average US64.75¢. The currency is now just over US50¢.
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