Gold Bottom??????????
INTERVIEW-Newmont CEO sees floor for gold prices
By Derek J. CaneySCOTTSDALE, Ariz., March 29 (Reuters) - The downward spiral in gold prices has reached its floor and top producer Newmont Mining Corp (NYSE:NEM - news) is well positioned to take advantage of an upswing when it occurs, the company's top executive said.''We've seen the low point of the cycle,'' said Ronald Cambre, chief executive of Newmont, in an interview with Reuters.''It's a confluence of factors that have forced prices down this low: world economic disaster, low demand for commodities, the U.S. dollar is extremely strong,'' Cambre said.''Producers can't afford to put new capital into their projects. That has to mean that production is going to come down. And that's usually the first sign that prices are about to turn,'' he added.Gold prices are currently around $280 an ounce, hovering near their lowest level in six months. And yet, Newmont wears its unwillingness to hedge its production like a badge of honor.''When people buy a gold stock, they want the exposure to the commodity,'' he explained. "If you're selling forward, you run the risk of capping your upside. And the shareholder is likely to say, 'Why did I pay a premium for a company that's limited its upside?'''At Newmont, our hedge, if you will, is our low cost,'' Cambre said. ''We are able to service our debt and indeed reduce our debt assuming a gold price at $300 an ounce. And it's our low cost that permits us to do that. There aren't many gold producers who can claim that. Many of them have to sell forward at $350 in order to make money. We don't hedge because we don't have to.''
Asked if he would consider hedging strategies that leave the upside open, such as put options, which preserve the upside potential, Cambre said, ''We obviously look at those strategies from time to time. But given where the price of gold is right now, that doesn't look like an attractive strategy at this point.''The company's total unit cost in 1998 was $183 an ounce. But the debt it needs to service, following the acquisition of Santa Fe Gold Corporation and the development costs of such properties as Batu Hijau in Indonesia, is considerable, by Cambre's own admission.
Its debt-to-total equity ratio is was 44 percent. ''Assuming a gold price of $300 an ounce, we expect to able to lower our debt going forward.''
The company is planning capital expenditures in 1999 totaling $375 million, down from $421 million in 1998. ''We expect expenditures to fall to $125 million to $150 million after this year.''
Since its acquisition of Santa Fe Gold, Newmont has been conspicuously absent from the recent buying spree by some larger producers of smaller ones.Placer Dome Inc. (Toronto:PDG.TO - news) spent $235 million for a 50 percent stake in South Deep, South Africa's biggest gold mine, followed by its acquisition of Getchell Gold for $1.1 billion in stock.Homestake Mining Co (NYSE:HM - news) beat out Barrick Corp (Toronto:ABX.TO - news) in its $200 million takeover of Argentina Gold.''This is a small industry and we obviously look at everything out there,'' Cambre said. ''With the kinds of premiums that are being paid out there in some of these deals, we don't see how it's possible to make any money, even if gold prices rally to $400 an ounce. |
