18 May 2006

DJ INTERVIEW: Australia's Tanami Avoids Gold Hedging Trap

Welcome to Jim Sinclair's MineSet: "PERTH (Dow Jones)--Australia's Tanami Gold Ltd. (TAM.AU) doesn't plan to hedge any gold from its new Coyote mine in Western Australia, despite the recent dip in world bullion prices.
Perth-based Tanami has not sold forward, or hedged, any of its gold to help fund the development of Coyote, executive chairman Denis Waddell told Dow Jones Newswires in an interview Wednesday.
Instead, it raised A$20 million in a recent share issue that is sufficient to 'fund the entire project,' Waddell said.
A forecast 60,000 ounces a year mine in the outback desert of central Australia, Coyote is due to be officially opened next week by Michael Jeffery, Governor-General of Australia.
The project is due to pour its first gold bar in late June, adding to Australian gold production that has slumped in recent years due to rising costs and declining exploration levels.
Waddell said that Tanami is fully exposed to gold prices, which have fallen more than 5% from a 26-year-high of around US$727 an ounce hit a week ago. It was trading at about US$706 in Asian trade Wednesday afternoon, up about US$16.
Waddell remains comfortable with the company's exposure to the spot market. 'Had we debt funded, we would've needed to have hedged,' he said.
'Thankfully we didn't because we would be prettily heavily under water at the moment,' he said, adding that gold prices have risen by around US$200 since Tanami approved the development in December.
Hedge books can be a severe burden if prices move the wrong way and a mine has unexpected production issues, Waddell said.
'If there are any hiccups and the banks get nervous, having a hedge book out of the money is something you want to avoid.'
Sons of Gwalia, formerly one of Australia's biggest gold producers, fell into administration in August 2004 "

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