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80% hedged, Newcrest sure wishes it wasn't

Section: Daily Dispatches

Gold Price Rise Likely, Says Yet Another Top Producer

By Ambrose Evans-Pritchard 
The Telegraph, London
Thursday, August 10, 2006

Australia's biggest gold miner, Newcrest, has become the latest producer to bet on further rises in the price of bullion, pledging to slash its hedge book contracts to 50 percent of output within a year.

Acknowledging a possible surge in gold to all-time highs above $1,000 an ounce, the company said it would sharply curtail its practice of locking in sales years ahead.

Newcrest is selling 80 percent of this year's expected production of 1.53 million ounces under hedging obligations, much of it far below $600 an ounce.

Gold rose strongly yesterday to top $652 on a weaker dollar as the markets continued to digest Tuesday's pause in rate rises by the U.S. Federal Reserve.

The hedging policy has left Newcrest on the sidelines through much of the five-year gold boom, failing to enjoy the full benefit of soaring prices, with a soggy share price to match.

Ian Smith, Newcrest's chief executive, said yesterday that it was determined to rid the monkey on its back.

"It would be nice if we didn't have a hedge book," he said.

Investors have tended to shun the shares of hedged mining companies, preferring a purer play on the rising gold price.

The consultancy Virtual Metals said mining companies slashed their hedge books by 5.1 million ounces in the second quarter, led by Barrick and Anglogold Ashanti.

The scale of dehedging suggests that these companies have been stumping up money to close contracts at a loss, as well as delivering metal into the futures market, a clear sign they believe the gold price will move yet higher in coming months.