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To: 4figureau who wrote (3480)	2/28/2003 3:00:30 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 5423

Newmont: Gold hedging brinkmanship is here by Tim Wood Posted: 2003/02/25 Tue 21:00 EST \| © Mineweb 1997-2003 [apparently, hedging sometimes goes far beyond the available reserves -- bullish for gold!!!] NEW YORK -- Newmont [NEM] has provided unusually fulsome disclosure – as far as gold producers go – on a troublesome portion of its hedge book. The revelations are important because they potentially recast the definition of hedging margin calls, as well as provide an unusual view of hedging counter party risk management. Newmont revealed that its hedge counter parties for the Yandal operations have exercised “right-to-break” clauses prior to the scheduled maturities of Yandal’s forward sale contracts. This means that the counterparties can demand cash settlement rather than wait to take delivery of promised ounces of gold. UPDATE: A source has informed Mineweb that the Yandal counterparties are not JP Morgan and Credit Suisse First Boston. The counterparties demanded early cash settlement in December and January, with the right to do so again in June 2004. The right-to-break amounts to a type of margin call since it creates a distinct liability that is solely determined by the counterparty and is vastly different in character and impact from hypothetical mark-to-market losses conventionally reported. If anything, it looks like a clawback. Yandal is the festering sore on Newmont’s overall hedge book, comprising two thirds of its unrealised negative value of $433 million. Alarmingly for American investors, but commonplace for their Australian counterparts, is Yandal’s paucity of reserves relative to its hedged commitment (2.1 million ounces and 3.4 million ounces respectively.) The 1.3 million ounce deficit is equivalent to nearly two years of production and can only be offset by a large exploration discovery or by buying metal in the market. Brinkmanship Newmont is the first company to detail hedging right-to-breaks, but the move could compel other companies to provide similar disclosure where they are similarly affected; at least investors should demand it. The number one gold producer can afford the broader disclosure because it holds an ace up its sleeve –- Yandal is ringfenced from Newmont, just as the operations were when engineered into Great Central Mines and then Normandy. Newmont reinforced the arms length relationship in its 2002 second quarter report to the SEC wherein it clarified its repurchase of Yandal’s outstanding senior notes worth $300 million: “Newmont’s offer, however, should not be construed as a commitment by Newmont to provide ongoing financial or credit support to Normandy Yandal.” Consequently, sources say Newmont is prepared to try brinkmanship with the Yandal counterparties. The right-to-break options bunch up in 2005 and, assuming gold prices at least stay in the $350 per ounce range, would bankrupt Yandal. Newmont is apparently prepared to let that happen rather than defend Yandal with what could be a year’s worth of group profits, especially if gold prices rise as many expect and clobber the hedge book even more. If the counterparties go ahead and call for accelerated cash settlement then they’ll simply be joining a line of creditors, along with Newmont. In one respect it would help Newmont by vapourising 3 million ounces of unwanted hedge commitments. On the other hand, it would cost 2 million ounces of reserves at a time when the market is desperate for them as well as roil the bullion banking business that is already a victim of declining liquidity. The bullion banks are clearly trapped. If they do not offer Newmont some assurance that they will hold off from cashing in, then the producer has no incentive to invest in exploration; indeed to do anything other than high grade the operations into premature closure. That would leave the bullion banks will a fraction of what they are after. Alternatively, if they back off the cash calls, then they could at least get the ounces back, but have to face down the increasing risk implicit in a rising gold price. Risk The problem is all risk –- what else could have triggered the cash calls. Yandal’s impecunious balance sheet and the sharply higher gold price has clearly caused turbulence in the counterparties’ own offsetting contracts. So Bullion banks' willingness to stay their cash calls may be a function only of their leverage over players further along the chain. In the case of the Australian banks it seems, from anecdotal evidence, that they are under some pressure to deliver on their portion of producer hedge agreements, while the country’s Central Bank is no source of help given its gold reserve sales and past heavy lending. That has some experts convinced Newmont’s brinkmanship could have ramifications for bullion banking across the globe. It is another timely reminder of how bullion banks held the upper hand when providing financing for new projects through gold forward sales, protecting themselves in several ways whilst leaving shareholders vulnerable. More so for companies with feeble balance sheets to begin with – companies investors should not have been encouraging to bring marginal deposits to account anyway. Yandal Yandal was bathed in controversy after being used as the vehicle by which Normandy’s Robert Champion de Crespigny and fellow Aussie magnate, Joseph Gutnick, gained control of Adelaide based Great Central Mines at a super price. Normandy and Gutnick’s family business were subsequently charged with acting illegally in the takeover, but the matter was overturned on appeal. Great Central subsequently came to be wholly owned by Normandy. Yandal consists of the Bronzewing, Jundee and Wiluna mines which produced a combined 177,000 ounces of gold in the fourth quarter. -end-

To: 4figureau who wrote (3480)	2/28/2003 4:08:54 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 5423

a note on Congressional bill that involves silver so many attempts in recent years to replace widely used silver now a case where widely used arsenic might be replaced by silver it concerns pressure-treated wood (like on back decks) arsenic based treatments are now seen as environmentally damaging Morgan on Gold-Eagle silver news: gold-eagle.com some snippets Unless you follow the silver market closely, you may have missed some recent and important news regarding the silver market. Legislation has recently been introduced into both the House and Senate that could require 100 million ounces of silver on an ANNUAL basis. Think about that for just a moment. If this legislation is passed, the possibility of using what is currently held on the COMEX would be eaten up per year. One hundred million ounces of silver demand year in and year out. Year after year, someone in the silver market buying roughly what Mr. Warren Buffett bought, again and again, and again. This news certainly falls into the bullish argument for silver. ....... The following quote is straight from the Silver Institute and should help to affirm any silver investors worries. "Since ancient times silver has been used as a treatment to prevent the spread of bacteria and has acted as a purifying agent. Its healthful properties are well known, and it's projected that by 2006 silver's use as a biocide in various applications could grow by 600%," said Paul Bateman, Executive Director of the Silver Institute. "However, if silver-based biocides were used as an alternative to harmful arsenic-based preservatives, over 100 million ounces a year would be consumed in this application alone, adding significantly to overall worldwide fabrication demand," Bateman added. Very positive news for the silver bulls correct? The following is for verification for those that wish to check further.(Washington, D.C. - October 10, 2002) - Senator Larry Craig (R-ID) has introduced legislation directing the Secretary of Agriculture to conduct a study of the effectiveness of silver-based biocides as an alternative treatment to preserve wood. Senator John Ensign (R-NV) has cosponsored the bill. see www.silverinstitute.org/news/pr10oct02.html Now that was in the fall of last year, and I have been watching this closely ever since, in fact I made a good contact point in Senator Craig's office. Since last Friday, the 21 of February we have learned the following. (Washington, D.C. - February 21, 2003) - Members of the United States House of Representatives introduced legislation last week directing the Secretary of Agriculture to conduct a study of the effectiveness of silver-based biocides as an alternative treatment to preserve wood. see www.silverinstitute.org/news/pr21feb03.html The House has introduced but it needs to go to the Senate to become law, and of course passed by both the House and the Senate. Fine, a few days ago we learned the following. (Washington, D.C. - February 25, 2003) - Three leading U.S. Senators introduced S. 432, legislation to authorize both the Secretary of the Interior and the Secretary of Agriculture to conduct and support research into alternative preservation treatments for wood using silver-based biocides. Senator Larry Craig (R-ID), Senator Mike Crapo (R-ID) and Senator John Ensign (R-NV) introduced the bill. See www.silverinstitute.org/news/pr25feb03.html Certainly, this legislation will need to be watched closely and does not guarantee that an additional 100 million ounces of silver will be demanded immediately. I just wish to eliminate some of the silver blues and spread the good news. -end-