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It appears that this company is feeling the pinch of a low share price and has acted accordingly. This statement on hedging was purposeful in that they are stating openly that they have broken the shackles of their financiers! As a side issue good profit figures posted as well -

Expect a small retracement in the PoG before another spike ... Note that these spikes will definitely give the money men in the mining companies palputations!!


NDY - ASX Company Announcement
$gol1
16 February 2000
Part 1/1
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NORMANDY MINING LIMITED
-----------------------
HOMEX - Adelaide
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Statement on Hedging
Normandy Mining Limited is a strong advocate of hedging disclosure.
The policy was first published in the 1990 Annual Report, and hedge positions and marked-to-market values disclosed on a quarterly basis from September 1994 and December 1997 respectively. Hedging has been
conducted in a prudent manner and in moderation - in strict adherence to our publicly stated policy.
At present, there is no need, and at the current gold price, no intention to conduct further hedging as 60 percent of reserves (conservatively stated) are covered. Normandy continues to deliver into existing hedge positions, although at current prices with a
predominance of options, this is increasingly into the spot gold market.
Future hedging will be primarily influenced by development decisions to guarantee cashflow particularly through the project finance payback period.
Normandy has demonstrated its confidence in the gold price on at least five occasions in the last two years. Specifically, Normandy has:
* Repaid (bought back) the final outstanding gold loan - 280,000
ounces (December 1997)
* Restructured the hedge book, realising $650 million in a tax
effective manner (February 1999)
* Repaid (bought back) 500,000 ounce gold Notes - four years early
(July 1999)
* Maintained a substantial gold exploration budget for 1999/00 (July
1999), and
* Continues to transition the hedge book to options (February 1999 to
present).
Today with the transition in the hedge book to options, 56 percent of reserves participate in positive gold price movements. With resources, a high percentage of which are expected to be converted to
reserves, 86 percent participate in positive gold price movements.
Major North American and South African gold companies have recently commented on their short term hedging intentions. Australian companies were among the first to develop hedging activities and accordingly have substantial amounts of gold hedged.
Normandy believes the interests of Australian gold producers would be best served by giving consideration to strategies that minimise the impact of hedging activity and limit the quantum executed in any
given time frame.
With the majority or central banks and gold producers identifying their intention, Normandy also calls on bullion banks, when acting as principal, and hedge funds trading in gold, to also make their intentions clear in the interests of market transparency.
R J Champion de Crespigny
EXECUTIVE CHAIRMAN
Enquiries concerning this report may be directed to:
C G Jackson, Group Executive - Corporate
100 Hutt Street, Adelaide 5000
South Australia, Australia
Telephone: +61 8 8303 1703 Facsimile: +61 8 8303 1994
This announcement and other previous announcements are available at Normandy website: http://www.normandy.com.au
ends - AAP
16-02 0956
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hi demiller,
Well, it's good to see de Crespigny continuing to keep shareholders (myself included) about Normandy's hedging policies. I thought the record half year results were pretty good, considering a US$40 dollar an oz fall in the realised gold price, altho' I notice zinc made a big comeback.
Merill Lynch's analysts were moaning on about how Normandy needed to let go of some of its assets to fund a share buyback; not necessarily a bad idea at the present lowly share price, but why sell assets at the present depressed prices if you believe, as de Crespigny stated, and as his actions have demonstrated, that he believes the price of gold, and other minerals, is going up.
Anyway, I may reduce my unrealised loss on the purchase of Normandy from 50% to 35% if gold stays above US$300 an oz.
Here's hoping
badgley
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The SINGLE issue with Normandy is its hedge book. If you look at the majority of Oz miners they are heavily indebted on the forward sales ** and the only way to weed these out is to concentrate on the quarterly reports. Normandy actually lost money by meeting lower priced gold hedging contracts during the quarter!

Normandy is now hedging through COMEX with call options.

Hill50 (my personal favourite) has a hedge book and they too are worried about the Price of Gold as they feel that losses may follow if they cannot offset these forward sales by playing the COMEX with puts and calls.


Herein is the problem with that philosophy... you are no longer a mining company! You are entering into even higher risks by playing puts and calls on COMEX in NY. You are playing margins with the really big boyz and can get egg on your face very quickly with one wrong call. Therefore they are no longer miners they are financial margin players. If you think that I speak with forked tongue then read on.

Open interest in this particular market (COMEX) points to a bull or a bear and the watchers have it down to pat, yet I have never seen a call 'in the money' actually having delivery made. It is rolled over! Not only odd and strange sightly bewildering as the physical technically should be delivered! Therefore someone is in default and it is in order to allow that person off the hook so that there is no short price increase whilst they scramble to cover.

This is paper gold. Technically once you stand for delivery the physical has to be delivered. However, the lack of physical means they are issuing more paper!

Commodities technically have to be delivered sooner or later yet COMEX is not forcing the issue. One should ask the US Fed's why? and also this type of manipulation should technically be investigated by the corporate watchdog (CFTC) but they do nothing.

So where does this lead us. To a short position of actual physical in the market. The Ashanti's, Cambiors, Barricks, DROOY, Normandy, Hill50, Sons of Gwalia etal have sold forward thousands of tonnes of gold. This gold is subject to be mined over the next 10 to 12 years. It is estimated that over 12,000 tonnes have been shorted by mining companies and gold leasing bullion banks. This is huge and this is why we are having such an absurdly gyrating gold price. These spikes in gold are causing all sorts of problems with the mining houses - as was witnessed with Ashanti and Cambior. It will not take a Rhodes Scholar to work out that these are not the only two companies in jeopardy and every time the gold price spikes - there are several more companies in deep manure.

Therefore no hedging means bigger and better profits - at the end of the day a non hedging mining company has a 3:1 leverage on and increase in the PoG. Why ... costs are fixed and with a rising gold price means leveraged profits.


** [good example was New Hampton Gold forward sales @ 474 and current spot 490 means they are loosing $16 per ounce - then you have Sons of Gwalia who have hedged 10 years into the future at a fixed price ... hmmm no crystal ball for guessing whether they are right or wrong]
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If people are interested in a gold miner with little or no hedging Lihir is worth a look. I don't know anything about the company other than it does not hedge much of its production, so make sure that you do a full DD before investing.
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DO NOT jump into Lihir at present as there are more problems under the surface for this company than has been reported.

The merger with Nuigini will not get this company out of the quagmire and those in the know are aware that the huge cost of production means that the PoG must be at or around US$350 per ounce for any semblence of a profit.

Buyer beware!


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