Newmont Mining said on Thursday it eliminated its entire 1.85 million-ounce gold hedge position. The Denver-based gold company also said it is mulling a possible sale or initial public offering of its merchant banking business.
During June, Newmont spent $578 million to eliminate its entire price-capped forward sales contracts, Newmont said in a statement.
The company will report a pretax loss of $531 million on the early settlement of these contracts, after a $47 million reversal of previously recognized deferred revenue.
In addition, Newmont said it expects to incur a noncash impairment charge of approximately $1.7 billion, to be recorded as part of discontinued operations, in the second quarter.
Chief Executive Officer Richard O'Brien, who just replaced the retiring Wayne Murdy, said that by eliminating the gold hedge book, it "renewed our commitment to maximizing gold price leverage for our shareholders.
"In addition, we are focused on delivering improvements in our operating performance and cost structure ... We intend to realize the value from a significant portion of our non-core, Merchant Banking portfolio and use the proceeds to fund the development and growth of our core gold business."
Analyst Victor Flores of HSBC Securities said the move appeared designed to mollify Newmont investors who have been disappointed with the company's share-price performance during the last five years of a bullish gold market.
"This is a way to get the markets excited about Newmont," said Flores. "Look at the share price."
Noting the company said it has spent $578 million on hedge buybacks, he said that would be worth the price if the share price goes up by one or two dollars.
The company said it has engaged financial and legal advisers to evaluate alternatives to maximize the realized value of the discontinued Merchant Banking portfolio.
Potential alternatives include, among others, a public offering and/or private sale transactions.
Flores said he was not surprised Newmont was buying back gold hedges, but a little more surprised it was ending its merchant banking business, which invested in such things as Alberta oil sands in Canada.
"But at the end of the day, it was meant to help the mining business, and after five years and in a bull market for gold, production is still down and it has not helped the share price."