Newcrest to issue $1.6 billion in stock to buy back gold hedges

By Tan Hwee Ann
Bloomberg News Service
Monday, September 10, 2007

http://www.bloomberg.com/apps/news?pid=20601081&sid=aId8yLG1WwF8

MELBOURNE, Australia -- Newcrest Mining Ltd. plans to sell A$2 billion ($1.6 billion) of stock to close its hedge book and repay debt as Australia's largest gold-mining company bets on a rising bullion price.

Shareholders will be offered new shares at A$17.40 each, a 30 percent discount to today's closing price, the Melbourne-based company said today in a statement to the Australian Stock Exchange. The company has a market value of A$8.3 billion.

Barrick Gold Corp. and Newmont Mining Corp., the world's two largest gold producers, have cut the amount of the metal sold in forward contracts to take advantage of rising prices. The spot price of gold has climbed 20 percent in the past year.

"The hedge book was probably the biggest stifling factor about Newcrest," said Michael McCormick, who helps manage and advise on the equivalent of $181 million at Leyland Private Asset Management in Sydney. "The offer should be well subscribed, and will take their value up quickly."

The announcement came after the market closed. Newcrest, which has dropped 6 percent this year on the Australian Stock Exchange, declined 0.8 percent to A$24.80 at the 4:10 p.m. close in Sydney. Gold rose $2.23, or 0.3 percent, to $703.23 at 7:18 p.m. Sydney time.

Gold-mining companies that sold forward contracts on their production have lost out on some income as the price of the bullion more than doubled in the past five years. Demand for the metal has gained as investors sought a hedge against rising inflation, and on higher jewelry demand.

Newcrest will offer shareholders seven new shares for every 20 they hold in the fully-underwritten offer, it said. In total, 114.94 million shares could be sold, according to Bloomberg calculations. Newcrest has about 335 million shares on issue at present.

The gold hedges will be closed in two stages, with an initial settlement of 2.3 million ounces costing A$842 million, it said. The remainder may be closed within 12 months, it added.

The closures will "provide full upside exposure to the gold price," the statement said. It will also "improve the credit profile of the company."

Citigroup Inc. had estimated in July that Newcrest could raise earnings per share by 17 percent if it closed out the forward contracts, and it would need to sell A$1 billion in shares.

The funds from the planned share sale will also be used to reduce U.S. dollar loans, Newcrest said.

Newcrest was expected to remain suspended until Sept. 17, the statement said. It did not state which companies are underwriting the offer. Spokesmen for Newcrest were not immediately available for comment.

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