Again off a US chat site. This guy is quite knowledgeable.Date:...

Again off a US chat site. This guy is quite knowledgeable.

Date: May 31, 2003 06:06 PM
Author: Vangel



When Newmont merged with Franco Nevada and Normandy it inherited the Normandy Yandal hedge book. At the approval meeting I asked Pierre Lassonde and Seymour Schulich why we would be dumb enough to go after Normandy with its huge hedge book that was about $250 million under water at the time. Lassonde said that the issue could be handled without too much harm to Newmont and the other assets would more than compensate shareholders for the hedge book disaster.

Last month we started to hear about Newmont's refusal to fund Yandal any longer. Although Yandal was cash flow positive the bullion banks exercised a right to terminate a hedge contract before the scheduled maturity. Since the Yandal liabilities are non-recourse to Newmont it decided to let Yandal go under unless the hedge contracts were changed. Basically, it has stated that it would pay half of what the hedge book is worth to the bullion banks. It has also offered to buy the outstanding bonds at 50 cents on the dollar. If Newmont does not succeed it will let Yandal go under. The bullion banks and bondholders are pissed at Newmont but it can afford to be tough and they would get less if Yandal were liquidated than what is being offered.

This is a very important development because it makes it harder for the bullion banks to continue playing their games. Other counterparties may find that it is better to try the same approach rather than die a slow death. This development makes it more likely that we will see a gold derivative blowup down the line and that the leasing deception will be exposed. If prices move up too quickly Eddie George's fear will be realized. I wonder what the abyss looks like?




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