Choking on hedge book, Newcrest stalls payment by 2 years


Newcrest Defers Gold Hedges
to Gain Exposure to Spot Price

From Reuters
Friday, November 17, 2006

SYDNEY -- Australia's Newcrest Mining Ltd. said on Friday it had restructured its hedge book by deferring 1.6 million ounces of gold in order to get better exposure to market bullion prices. The company said the purpose of the restructure was to achieve a better balance of exposure to spot gold prices and to reduce the percentage of production hedged for any one year.

It deferred 1.6 million ounces from fiscal 2006/07 to 2009/10 into the subsequent three years from 2010/11 to 2012/13, extending its hedge book by a further two years.

"The restructure has potential cash flow benefits with minimal profit and balance sheet implications," Newcrest said.

At current spot prices, the impact of the restructured hedge book on the company's cash flow would be positive in the early years, it said.

Newcrest Managing Director Ian Smith has previously said the company would lower the amount of gold it hedges to about 50 percent of production, from 75 percent to 80 percent, by mid-2007 in the hope of capturing higher spot prices for bullion.

The hedge book, a hangover from the 1990s when miners routinely sought to fix selling prices for nuggets not yet mined to protect profits, has been clouding Newcrest's performance outlook.

A near-uninterrupted rise in bullion since 2000 has turned the sector away from hedging in favour of direct exposure to gold's spot market prices.

Gold, which sells for around $618 an ounce, hit a 26-year high of $730 an ounce in May as investors seeking more tangible assets flooded commodities markets.

Newcrest now has 358,158 ounces hedged for 2006/07, with 323,965 ounces hedged at A$591 an ounce and 34,193 hedged at A$488 an ounce (US$373.54 an ounce).

The gold miner has 1.4 million ounces hedged at US$386 an ounce for the remaining two years.

Newcrest shares were 2.8 percent higher at A$22.86 at 0118 GMT, in step with higher bullion price, bucking a modest decline in the wider S&P/ASX200 index.

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