UPDATE 1-Sino Gold raising A$204 million, to close hedges

(Adds details, changes dateline to Sydney)

SYDNEY, May 20 (Reuters) - Sino Gold Mining Ltd SGX.AX said on Tuesday its major shareholder, Gold Fields Ltd (GFIJ.J) of South Africa, will raise its stake in the company via a A$204 million ($194 million) capital raising, with the funds used to close out its gold hedge book.

Gold Fields will purchase A$68 million worth of shares and increase its stake in Sino to 19.9 percent from 15.5 percent Trading of Sino's Australian and Hong Kong shares 1862.HK was temporarily suspended on Tuesday pending the announcement.

Sino, which owns China's second-largest gold mine, will sell a further A$136 million worth of shares to existing institutional and retail shareholders, it said.

The proceeds will be used to close out all of the company's gold forward sales contracts, which totalled 278,657 ounces as at April 30, it said.

Sino is targeting production of a half million ounces a year from its Jinfeng gold mine in Guizhou Province, and also is developing another mine in the northern Jilin Province.

Sino joins a growing list of gold miners spending heavily to unwind gold hedges taken out at prices well below today's heady levels of $900 an ounce and more, underscoring the risks in trying to predict bullion prices.

Australia's Newcrest Mining Ltd (NCM.AX) last year was forced to dilute its stock and offer A$2 billion in new deeply discounted shares to pay for closing out 4 million ounces of hedge contracts assembled when no one believed gld prices would rise to today's levels of over $900 an ounce.

Investors are favouring gold miners such as Gold Fields, Newmont Mining (NEM.N), Barrick Gold (ABX.N) (ABX.TO) and Harmony Mining (HARJ.J) that have cleared away most hedging, to better weather any fallout from the U.S.-induced debt crisis.

Hedging guarantees that miners get a minimum price for their products and essentially involves the producer agreeing to sell some or all of its output at a set price over a period of years.

While hedging can protect a mining company against price falls, it also means they can miss out when the market rises. ($1=A$1.05) (Additional reporting by Jimmy Tsim in HONG KONG); (Reporting by James Regan, editing by Jonathan Standing)