'Remarkable' speedup in gold miners' dehedging


By Devon Maylie
Dow Jones Newswires
via CNNMoney.com
Thursday, August 2, 2007


LONDON -- Gold miners accelerated their de-hedging programs during the second quarter, drawing down hedges by another 5.4 million troy ounces to 31.2 million ounces, metals consultancy Virtual Metals said Thursday in a joint report with Mitsui & Co. Precious Metals.

This cut, a record 15% decline, was the 21st successive quarterly reduction, and means gold hedging worldwide is now 70% lower than its peak in the third quarter, 2001.

In terms of committed ounces the decline is estimated to be a slightly smaller 4.4 million ounces, taking that measure to 34.4 million ounces.

Virtual Metals said the decline was "remarkable" because Barrick Gold Corp., the company that has been predominant in dehedging over the last two years, made no reduction.

The bulk of the decline came from two companies closing out their entire books. U.S. gold miner Newmont Mining Corp. removed their hedge book totaling 2.0 million ounces, while Australian Lihir Gold Ltd. closed out their hedge book of 1.4 million ounces.

Five other companies made reductions of over 100,000 ounces. These were AngloGold Ashanti Ltd. at 800,000 ounces, Peru's Compania de Minas Buenaventura SA at 500,000 ounces, Harmony Gold Mining Ltd. at 200,000 ounces, which was the entire book, Emperor Mines Ltd. at 150,000 ounces, also the entire book, and Newcrest Mining Ltd. at 150,000 ounces.

Thirty-one other companies cut their positions, collectively reducing the global book by 700,000 ounces, the report said.

Four companies added new hedges, but only Western Goldfields Inc. did so substantially with a project-finance hedge of 400,000 ounces.

"The largest quarter yet in percentage terms shows the momentum behind gold market dehedging, and when we consider the significant central bank sales over this period, it must have given the gold price a major boost in Q2," said Edel Tully, Head of Precious Metals Research at Mitsui Global Precious Metals.

"Looking ahead to the rest of the year, however, most of the major companies have little dehedging planned and this support could consequently falter," she added.

A slowdown in the second half of 2007 in dehedging seems inevitable from the first-half rate of 9.3 million ounces, the report said.

The delivery schedule, which indicates when the mining companies need to deliver into their hedges, suggests just another 1.5 million ounces is due to be delivered in the second half of the year, or 700,000 ounces a quarter. This calculation doesn't, however, take into account any additional hedge buy-backs or new hedges, though both are likely to be relatively low, the report added.

"Buybacks have been responsible for much of the decline in hedging in recent years, but the potential for these is falling," the report said.

Of the remaining 31.2 million ounces of hedging, Barrick are responsible for over 9 million ounces, and they have completed their stated dehedging program, the report said. AngloGold Ashanti account for 8.5 million ounces, and at present are expected to reduce their hedge book broadly in line with their delivery schedule, as are Newcrest, who have 4 million ounces.

At present there is no indication of any major companies looking to place price-protection hedges of the size other companies are dehedging, the report said but added new hedging hasn't completely "vanished."

Over 2007 as a whole, dehedging is likely to be between 11 million and 13 million ounces, lower than last year's 13.2 million ounces but an increase on earlier estimates of between 8 million and 11 million ounces.

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