Sydney - Australia's Newcrest Mining said it believed its recent buying in gold markets to unwind hedges had contributed to a recent sharp rise in world bullion prices.
Gold traded above the key US$700 ($1006) level earlier this week, within sight of a 16-month high, with dealers attributing
its recent rise to a weaker US dollar and bullion's safe-haven appeal.
Newcrest managing director Ian Smith said over the last few weeks the company purchased 2.3 million ounces of gold on the open market at an average price of A$831 ($989) an ounce.
Smith said Newcrest still planned to buy 1.7 million ounces of gold over the next 12 months as part of its plan to exit its gold hedges.
Newcrest, which is expected to mine 1.8 million ounces of gold this year, has hedges in place for four million ounces at an average price of A$570 an ounce.
"This transaction will unlock all that hedging," Smith said.
Gold miners typically hedge more -contracting to sell nuggets not yet mined at fixed prices - when they think bullion prices are in long-term decline, but like greater exposure when the gold price is running higher.
Unwinding the hedges will meet demands by Newcrest's shareholders for the company to become fully exposed to market prices for gold, which have mostly been on the up for the past six years.
A planned A$2 billion capital raising will also reduce the company's gearing from 49 per cent to 15 per cent.
It would also allow the company to be cash-flow positive for at least the next five years, Smith said.
Analysts said that by closing out the hedges, Newcrest may also be removing an impediment to potential predators, who have overlooked Newcrest despite widespread sector consolidation. Shares in Newcrest last traded on Monday at A$24.80. The shares were on a trading halt for the capital raising.
- Reuters
