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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Pogeu Mahone who wrote (11175)	8/31/2004 12:33:12 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Gold hedger blows up! PERTH (Dow Jones)--Sons of Gwalia Ltd. (SGW.AU), Australia's second-biggest gold producer, has fallen into administration over a A$348 million hedge book liability. The Perth-based company said Monday that it appointed voluntary administrators over the weekend after identifying a "serious deterioration" in the status of its gold reserves. In Australia, going into administration gives an insolvent or near-insolvent company breathing space to deal with its financial difficulties. The administrator investigates the company's affairs and gives creditors information to decide whether the company should be allowed to keep trading or wind up. Sons of Gwalia's gold counterparties - nine banks and financial institutions - refused to accept a standstill agreement on the hedging debt. Hedging, which is a form of risk management used by companies to reduce the chance of a loss from price movements, includes tools such as forward selling and options. Citigroup Inc. (C) is understood to be the company's biggest hedging counterparty, with an exposure of between A$100 million and A$150 million. Other counterparties include: BankWest, a unit of HBOS Plc (HBOS.LN); Goldman Sachs Group Inc. (GS); JP Morgan (JPM); Dresdner Bank AG (DRB.YY); Commonwealth Bank of Australia (CBA.AU); Australia & New Zealand Banking Group Ltd. (ANZ) and HSBC Holdings Plc (HBC). As of June 30, Sons of Gwalia's 3.1 million-ounce gold hedge book had a negative mark-to-market value of A$348 million. It also had currency hedges that were A$75 million in the red. Sons of Gwalia also owes US$170 million to U.S. pension funds, following a private note placement in 2000 arranged by JP Morgan. The administration move has caught out some big North American companies, including long-term shareholders Teck Cominco (TEK.A.T) of Canada and U.S.-based Cabot Corp. (CBT). California-based Franklin Resources Inc. (BEN) has been a major buyer of Sons of Gwalia shares in recent months, boosting its holding to 20.7 million shares or 11% of the company. Analysts estimate that Franklin has invested more than A$50 million in Sons of Gwalia since it started buying shares in early 2004.