Good news on the hedge book as wellGold de-hedging could total 15 million ounces this year
By: Tessa Kruger
Posted: '20-NOV-06 14:00' GMT © Mineweb 1997-2006
JOHANNESBURG (Mineweb.com) --Gold de-hedging is expected to total 15 million ounces (460 tonnes) this year – the highest level of de-hedging since the cycle started in 2000.
A further decline of 2.4 million ounces in the hedge book (76 tonnes) is expected in the fourth quarter of this year, said GFMS, UK-based precious metals consultancy in its November Global Hedge Book analysis.
Gold de-hedging slowed in third quarter 2006 with the hedge book falling by 2 million ounces (or 62 tonnes) in delta-adjusted terms on the back of a hefty decline of 1.7 million ounces in forward sales.
GFMS said that this return to “more sustainable” levels of de-hedging had been widely anticipated for the quarter.
Scheduled deliveries accounted for the bulk of the 53 tonnes decrease in forward sales, although AngloGold Ashanti contributed with a reduction in its longer dated forward contracts.
Newcrest, holder of the third largest producer hedge book, continued to deliver into its commitments as scheduled, reducing its forward sales by 352,000 ounces (11 tonnes) and its gold loans by 35,000 ounces (1 tonne).
The net nominal options book fell about 16,000 ounces (0.5 tonnes) quarter-on-quarter as the global vanilla options position increased by a marginal 5,000 ounces (0.1 tonnes) and non-vanilla options diminished further by a comparatively insignificant 21,000 ounces (0.6 tonnes).
“Coupled with the drop in forwards, the third quarter decline in the global hedge book amounted to 1.7 million ounces in nominal terms,” said GFMS.
AngloGold Ashanti led the pack of de-hedgers, topping the table with a reported 0.6 million ounces (20 tonnes) cut to its delta-adjusted position, while Barrick’s activity took a back seat after two quarters of significant book reductions.
Barrick reported a 0.3 million ounce (9 tonnes) cut to its corporate gold sales contracts and a rise of similar magnitude to its floating forwarding position – which had a combined effect of zero net change to the book volume.
Fresh hedging was limited in the third quarter, with only a handful producers such as PT Antam and Boliden reporting an increase in their hedge books.
Antam sought to “protect revenues and budget” by locking in price protection via the forward sale of a modest 3,000 ounces and Boliden added a reserved volume of cover to its 2008 production, amounting to 20% of anticipated gold production.
In light of the strong gold price of recent months, a number of producers chose to defer deliveries and sell gold into the market at spot prices during the quarter.
HEDGE BOOK COMPOSITION
The composition of the hedge book changed little quarter-on-quarter with 64% of the book comprised of forwards and gold loans, 36% by vanilla options and less than 1 % by non-vanilla products.
Changes were more striking on a year-to-year basis; with non-vanilla products “nearing extinction” after a 90 % drop in its share of the hedge book and forwards and gold loans’ stake falling by 9%.
In contrast, vanilla options have seen their share of the nominal book increase by over 30% year-on-year.
“Forwards fell back to less than 1,000 tonnes in the third quarter – a level not seen since the early 1990s,” said the analysis.