Kinross: Hedging cut by 3 tons
Miners Pare Their Hedging Positions As Gold Soars (djones)
NEW YORK (Dow Jones)--Gold producers continued to head for the exits in the metals markets last year, bowing to pressure from investors who want to reap the full benefits of soaring prices.
During the last three months of 2010, gold miners cut their combined hedge position by almost a quarter, according to a report by metals consultancy GFMS Ltd. and Societe Generale.
At the end of the year, miners held contracts to sell 151 short tons of gold on the forward and options markets, down 24% from the previous quarter. The contracts represent only 6% of worldwide production in 2010.
Producers of raw materials typically enter contracts to sell part or all of their future production to guard against volatility in commodity prices and guarantee some of their cash flow. But with gold's rise to record highs above $ 1,500 an ounce, investors have pressured mining companies to unwind their hedges and tie their profits more closely to the commodity price.
"Very few major mining companies hedge now," said David Wilson, a metals analyst with Societe Generale in London. "That's really driven by shareholder demand. You'll probably continue to see pressure from investors who want complete exposure to rising gold prices."
Large gold producers began hedging in earnest in the 1980s, hoping to mitigate the effect of commodity price swings on their bottom line. But gold's sustained rise during the last decade forced companies to rethink their strategy, as investors punished miners holding years-old hedges that forced them to sell gold for less than current market prices.
This shift by producers has supported gold's historic rally, as mining companies competed with other market participants in buying futures and options.
But the pace of producers' repurchasing previously sold contracts will likely slow this year, the report said, as most major gold companies have already eliminated their hedge books.
The largest repurchase in the fourth quarter came when South Africa-based miner AngloGold Ashanti Ltd. (AU) announced in October that it had cut 41 tons of hedges. Resolute Mining Ltd. (RSG.AU) cut its hedges by four tons, and Kinross Gold (KGC) cut its positions by three tons.
The purchases by the three companies eliminated their open hedge positions.
However, while established mines have no incentive to hedge, companies looking to build new mining projects will likely continue to, Wilson said.
The largest sale of future production in the quarter was by EnviroGold Ltd. ( EVG.AU), which sold four tons of production to help fund its Las Lagunas project in the Dominican Republic.
-By Matt Day, Dow Jones Newswires; 212-416-4986; matt.day@dowjones.com