Australian mining company wants crest of the wave - Thursday 13th September 2007

Newcrest Mining, Australia's biggest gold-mining company, has indicated that it will stop selling gold forward, hoping to free up capital for mergers and acquisitions by doing away with hedging.

After reports suggesting that the company's recent buying in gold markets has contributed to the large increase in the bullion price, Newcrest has announced plans to sell up to $2 billion in stock to allow total closure of its gold hedge book.

In doing so the company hopes to enable its full exposure to the rising gold price, now trading above $700 per ounce, consequently becoming more attractive to investors.

The announced move comes amid reports that a merger with Papua New Guinea-based mining company Lihir may be on the cards, with similar stock decisions from Barrick Gold and Newmont Mining recently fuelling rumors of a possible merger between the two.

Analaysts at Credit Suisse have highlighted the Newcrest merger prospects, among them Michael Slifirski who highlighted the positives of "long-life assets, diversity of operations, low portfolio risk and a strong balance sheet".

According to Credit Suisse these factors would all work in favour of a Newcrest-Lihir partnership capable of producing 3.5 million ounces per year.

Changing conditions for gold have led Newcrest to reconsider its options and prepare for a possible merger, with many gold-mining companies finding that selling output forward has not allowed them to maximize profits from the recent increases in gold bullion prices.
Goldbug, 13 Sep '07

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