Anti-hedger Newmont ups the ante in Normandy bid

The takeover battle for Australia’s leading gold mining firm, Normandy Mining, took another twist today, as a revised $2.2 billion bid from the US’ Newmont Mining, renowned for its anti-hedging policy, appeared to gain support from Normandy’s board.

Newmont’s latest bid for Normandy, equivalent to A$1.90 per share, is around 15% higher than that of arch-rival, South Africa's AngloGold. The South African gold miner’s bid, equivalent to A$1.64 per share, was made in September, and the firm will now either have to make a counter bid or admit defeat given the expectation that Normandy’s board would recommend Newmont’s bid to its shareholders.

Newmont is keen to remove Normandy's present hedging strategy, saying it would unwind hedge positions when economically attractive.Newmont’s policy of not hedging is a de facto bet that gold prices will rise in the near future. Gold is currently priced at around $275 per ounce, and Normandy's hedges currently lock in forward prices until 2010 on around eight million ounces of gold at around $304 per ounce.

Many gold investors and miners have hedged their gold positions and future production by selling a future price using options or futures just beyond the current spot price. But this assumption that gold prices will continue to be range-bound leaves such positions susceptible to large losses if the gold price spikes. But such a surge in prices would mean Newmont’s anti-hedging policy would bolster its profits.