The company, one of Australia's oldest mining houses, moved into voluntary financial administration, underscoring the gamble of hedging contracts that allowed it to sell gold not yet mined for a fixed price.

Sons of Gwalia had borrowed heavily through a complex web of gold hedges that committed the company to selling millions of ounces still in the ground at mines scattered around the Australian outback - a practice increasingly shunned by mining houses as too risky.

Administrator Ferrier Hodgson has called for a meeting of creditors in one month.

Analysts said Gwalia may have found itself facing big losses by being forced to buy the gold to deliver into its hedges at a higher price than it was contracted to sell it for.

Many miners have adopted no-hedge policies, preferring to take their chances on world bullion prices, which have risen 40 per cent since 2002.

The tactic protects miners when prices fall, but can backfire when gold goes up.

Gwalia, which had been due to release its full-year results yesterday, launched a review of its business earlier this year as it struggled with declining gold output and below-forecast demand for tantalum, used widely in making computers.

Gwalia on the weekend proposed a moratorium with creditors to allow it to restructure, but was unable to win unanimous support, leading it to seek protection or face collapse.

Amid efforts to cut its hedges, Gwalia warned in July that net profit for the 12 months to June 30 would fall by almost 40 per cent as it struggled to find richer ores, adding that the fiscal 2005 result was unlikely to show any improvement.

Gwalia's once-rich Tarmoola gold mine was close to being shut down after one of the walls collapsed, making it too dangerous and uneconomic to mine.

Other mines needed work in order to maintain Gwalia's annual production rate of more than a half-million ounces.

Gwalia's output fell six per cent to 521,081 ounces in the year to June 30.

In the meantime, it cut its hedging position by 209,000 ounces in the fourth quarter of fiscal 2004 and by a further 24,000 ounces so far this year, in order to gain greater exposure to rising bullion markets.

But its hedge book, structured in a combination of put options and forward sales, still stands at about 2,6 million ounces.

-Nampa-Reuters

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