Newmont Mining to Shutter Merchant Banking Business, Eliminate Gold Hedge

Newmont Mining's new CEO Richard O'Brien, who is completing his first week in that position after being promoted from CFO, is already making his mark by closing the company's merchant banking unit to focus on its core gold mining operations. The unit "has not helped Newmont grow its gold business and may have been a distraction," said HSBC analyst Victor Flores. Several options are being considered for the unit, including an IPO or sale. Newmont will take a $1.7 billion impairment charge in Q2 as a result of the closure. The company also announced that last month, it eliminated its entire 1.85-million-ounce gold hedge position at a cost of $578 million. Newmont will post a pretax loss of $531 million for early settlement of all its price-capped forward sales contracts. "With the elimination of our gold hedge book, we have renewed our commitment to maximizing gold price leverage for our shareholders," O'Brien said in a release. Analyst Patrick Chidley forecasts Newmont will post a "very poor second quarter" because the charges should outweigh results, but sees the elimination of the gold hedge as a net positive that could ultimately attract investors.

Sources: Press release (.pdf), Bloomberg, Dow Jones, MarketWatch, TheStreet.com, MoneyCentral
Commentary: Eight Ways to Add Gold to Your Portfolio • Is a Bottom in Store For Gold Miners? • Gold Should Continue To Gain vs. Paper Assets
Stocks/ETFs to watch: Newmont Mining Corp. (NEM). Competitors: AngloGold Ashanti Ltd. (AU), Barrick Gold Corp. (ABX), Gold Fields Ltd. (GFI). ETFs: Market Vectors Gold Miners (GDX), Materials Select Sector SPDR (XLB), Vanguard Materials ETF (VAW)
Earnings call transcript: Newmont Mining Q1 2007

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Comments

[ptrader:]

our clients and all our papertrades happily welcome the elimination of the hedge,---since the majors started taking off the hedges the prices have shot up --- ptrades.com

2007 Jul 06 12:20 PM