Derivative backlogs rise despite banks'' efforts


From Mining Weekly Online
Thursday, January 12, 2006

South Africa's AngloGold Ashanti is bullish enough about a strong
gold price that it does not expect to resume most hedging for at
least a couple of years, a top official said yesterday.

AngloGold, the world's second biggest gold producer, is the only
major South African gold miner that has not rejected the practice of
hedging -- selling bullion in advance to lock in current prices.

"We don't believe in this current market that there's any need to
hedge again or add to our hedges," Marketing Director Kelvin
Williams told Reuters in an interview.

Hedging is controversial and hotly opposed by certain investors who
argue that gold firms should get direct exposure to the current gold

Williams said AngloGold still believes a certain amount of hedging
is necessary to protect revenue flows against price declines so it
can pay dividends and fund capital expenditure.

But prices should remain firm for the next few years, making hedging
unnecessary, he said.

"Our view of the gold price is a sufficiently positive one for the
immediate future and the near-term and the middle future that the
need for capital expenditure and dividend payment should be
adequately catered for by the spot price."

He said middle future could be taken to mean a couple of years.

The only exception might be for new mines, he added.

"If we were to look at a new project, where there was perhaps a high
technical risk or geological risk or some other risk, we may wish to
moderate the revenue risk by getting certainty about pricing,"
Williams said.

Gold surged to a 25-year peak this week after gaining 18% last year
and another 5% in the past 10 days.

Williams said he was watching with interest whether certain central
banks, such as China or Russia, might start buying gold to diversify
their reserves from dependence on the US dollar.

Although many speculative investors have said their buying was
linked to bullish views on possible central bank purchases, Williams
noted that European banks were still selling gold under a five-year
agreement and no major buying move apart from Argentina has emerged.

"One has to be cautious, we haven't seen any major reserve holder
following that diversification path yet," he said.

"One suspects that when they do the diversification, they will be
attracted also by euro assets, possibly by higher interest-bearing
instruments as well as by gold. So I don't think it's necessarily a
one-way move into gold."

Russia is a good candidate for diversification into gold since it is
a gold producer, Williams added.

With gold's rally fueled by investors, prices would eventually be
affected by a sell-off by short-term speculators, Williams said.

But this negative effect could be partially dampened by longer-term
investors who see the value of holding gold to diversify their
portfolios, he added.

"There's good reason that some of the buying has been taken on a
portfolio basis that might have a longer-term view than simply a
commodity speculation from quarter to quarter."

Mergers and acquisitions in the gold sector have been slower than
other industries due skewed valuations, Williams said.

Junior firms with new projects which are attractive to major
producers are often listed on North American stock exchanges where
valuations are pushed up by speculators.

Firms like AngloGold seek out companies where valuations have been
hit and are more reasonable.

"In this kind of valuation environment, the companies that are
easiest to merge with or consolidate or acquire are always those
companies that have a problem, companies that have hit a rough
patch, the markets mark them down, punish them," Williams said.

AngloGold bought Ghana's Ashanti Goldfields in 2004 for $1,44-


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