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Goldman Sachs reported to be resisting Newmont''s Yandal ultimatum
Newmont closes book on Yandal gold hedges
By Alden Bentley
NEW YORK, June 4 (Reuters) -- Newmont Mining Corp.'s
$77 million payout to six of its bullion bankers in
Australia may close the book on a gold hedging
predicament that has dogged the world's largest gold
producer since it merged with Australia's Normandy
Mining last year, analysts said.
All but one of the counterparties to the money-losing
hedge positions of Newmont's Australian mining
subsidiary, Newmont Yandal Operations Ltd. (Yandal),
agreed to accept 50 cents on the dollar before the offer's
Tuesday evening deadline.A hedge position is a
commitment to sell future production at prices set in
long-term contracts. Hedging can protect a company
from falling gold prices but has backfired on many
producers during the rally in gold prices since last year.
The Australian hedges have complicated Newmont's
relations with its shareholders and kept gold traders
on edge about the timing of large buybacks in the
open market. It still is not clear whether the Yandal
hedges have already been unwound.quot;It seems that
the crisis, if there ever was one, is now over,quot; said
Victor Flores, mining analyst with HSBC Securities.
quot;From Newmont's point of view, they've had to write
some checks, but they've fulfilled their pledge to
reduce hedge books and it cost them potentially
half of what it would have cost them.quot;
Denver-based Newmont said it accepted the
assignments from six bankers for all their gold
contracts with Yandal. These represent 94 percent
of the ounces in the Yandal hedge book and 76
percent of the negative mark-to-market value, due
to the high price of gold in Australian dollar terms.
quot;The remaining counterparty alleges a right to
terminate its gold hedge contract with Yandal before
its respective maturity, based on the alleged
occurrence of an early termination event under the
contract,quot; Newmont said.
It acquired Yandal's substantial portfolio of forward
gold sales and derivatives in a three-way merger in
February 2002 with Australia's Normandy Mining and
Canada's Franco-Nevada Mining Corp, vowing to
close all its Australian hedges as market conditions
allowed. It inherited about 10 million ounces of gold
sales and derivatives commitments from Normandy.
Gold bankers and traders have been whispering
about supposed quot;right to breakquot; clauses in Yandal's
Dealers said these unusual covenants allow the
bankers to call in contracts early and were linked to
the perceived counterparty risk of Yandal, formerly
Great Central Mines Ltd.
Great Central Mines was part of the collapsed gold
empire of the colorful Joe Gutnick, a rabbi and mining
quot;It's just a dramatic finish. That hedge book is gone
with the exception of that one position,quot; said a New
York bullion trader. quot;It's going to severely limit the
pace of buybacks.quot;
It's definitely going to alleviate the upside pressure for
gold, once the market digests what happened,quot; he said.
Newmont has avoided hedging, pledging stock owners
maximum benefit from rising bullion prices. Its large North
American rivals Barrick Gold Corp. and Placer Dome Inc.
of Canada, are both sophisticated hedgers.
quot;It's ironic that Newmont, which has all along had a
non-hedging philosophy, has found itself in the middle
of the hedging issue,quot; Flores said, quot;Whereas the Barricks
of the world and the Placers have been often maligned
for being hedgers and haven't had to face any of these
Newmont's cash offer, from another unit, Yandal Bond Co.
Ltd, expired Tuesday evening. The company also offered
to pay $118.6 million, or 50 cents on the dollar, for all of
Yandal's 8-7/8 percent senior notes, due in April 2008.
Newmont shares ended up 72 cents, or 2.4 percent, at
$30.87 in Wednesday trading on the New York Stock