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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: TheBusDriver who wrote (796)	12/10/2001 8:23:59 AM
From: russwinter	Read Replies (2) \| Respond to of 39344

<Prudent Bear: good proxy on PM> Not really, as they are largely a short seller fund with a small position in golds. Unlike most funds with gold leanings, they have a taste for juniors, typically bought through private placements. David Tice using a Swiss based gold guru for his picks. Newmont disowns hedging as Normandy bid upped By James Regan SYDNEY, Dec 10 (Reuters) - Newmont Mining Corp, which on Monday lifted its bid for Australia's Normandy Mining Ltd by A$900 million, is betting that gold prices are poised to rise after years in the doldrums. "We think there is a substantial movement in the gold price coming," Newmont chief executive officer Wayne Murdy said. Gold has averaged around US$350 an ounce over the last 10 years, but these days rarely trades above US$280 an ounce. Newmont has vowed to dismantle Normandy's hedge book of nearly eight million ounces of gold sold forward to 2010 at an average price of A$585 an ounce, bringing the Australian miner in line with Newmont's no-hedging policy. Gold currently fetches US$273 an ounce or about A$525 an ounce. With Normandy in the Newmont fold, a US$25 an ounce rise in bullion would increase Newmont's pre-tax cash flow to almost US$200 million from US$162 million on its own. "This company will have the strongest EBITDA (earnings before interest, depreciation and amortisation) than anyone in the industry, and we will do it based on the spot gold price," Newmont's Murdy told a media briefing on the raised bid. Newmont stormed back into the battle for Normandy in New York on Sunday, winning the support of Normandy's board for its revised offer. The new offer, which values Normandy at A$4.24 billion or about A$1.90 per share, is 15 percent higher than a rival bid made by South African miner AngloGold Ltd . Newmont's policy differs from AngloGold, which has hedged about 84 percent of next year's production at an average price of US$281 an ounce, compared with spot bullion at US$273 an ounce. Newmont is also offering another US$2.58 billion in shares to buy Canadian gold investor Franco-Nevada Mining Corp Ltd , which owns 19.9 percent of Normandy. Franco-Nevada also has thrown its hat in with Newmont and is liable for US$100 million in break fees if it pulls out. "We bring together a strong balance sheet and the royalty income flows that Franco-Nevada contributes, that becomes our natural hedge, therefore we can remain exposed to the gold price," Newmont's Murdy said. Hedging allows a company to guard against falling gold prices by selling future production at a fixed price, but it can backfire when bullion prices rise. A boom in hedging, designed to guarantee fixed selling prices for future production of gold, has placed mining companies and other investors in gold at risk if bullion prices rise too much. The plight of Ashanti Goldfields Ltd and Cambior Inc , which were forced to restructure in 1999 after a price surge tipped their hedge books out of kilter, highlighted the downside risk to industry hedging. "Hedging has been the bane of this industry," said Franco-Nevada president Pierre Lassonde. He predicted some 1,000 tonnes of gold will be removed from the world gold pool annually over the next few years as low interest rates dull the appeal of borrowing gold to install hedges and mine output declines, Lassonde said. "The price could easily go up fifty dollars (an ounce)," Lassonde said.