Swift death for Western Areas hedge book (January 25, 2007)

Gold Fields (GFI-N, GFI-L, GFI-J) has killed off the hedge book it inherited in its takeover of South Deeps gold producer Western Areas.

In a prepared announcement that characterized the hedge position as “a crippling liability to the South Deep mine,” Gold Fields chief executive Ian Cockerill said “we terminated the Western Areas hedge book because we believe in gold.”

The book was despatched with comparable brevity: Gold Fields simply bought itself out of the hedge contracts for US$528 million, or an average price of US$622.14 per oz.

The hedge book had a negative mark-to-market value of US$383 million with another US$157 million in deferred premiums, for a total of US$540 million.

Gold Fields plans to raise US$1.2 billion in private placements to institutional investors to cover the cost of wiping out the hedge and to reduce its debt generally. When the financing is completed, Gold Fields will have about US$696 million in net debt.

The company also reported earnings of US$104 million for the three months ended Dec. 31, on US$609 million in revenue. In the corresponding period of 2005 it earned US$44 million on US$482 million in revenues.