Miners pare their hedging positions as gold soars

Section:

By Matt Day
Dow Jones Newswires
via The Wall Street Journal

http://online.wsj.com/article/BT-CO-20110513-716995.html

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.

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf



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. announced in October that it had cut 41 tons of hedges. Resolute Mining Ltd. cut its hedges by four tons, and Kinross Gold 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., which sold four tons of production to help fund its Las Lagunas project in the Dominican Republic.

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Wall Street Journal Publishes Lewis Lehrman's Call for the Gold Standard

In its April 26 edition The Wall Street Journal published an important essay by the Lehrman Institute's chairman, Lewis E. Lehrman, explaining why a gold-convertible dollar is critical to eliminating the shocking federal deficit.

"Experience and the operations of the Federal Reserve System compel me to predict that U.S. Rep. Paul Ryan's heroic efforts to balance the budget by 2015 without raising taxes will not end in success -- even with a Republican majority in both Houses and a Republican president in 2012. ...

"What persistent debtor could resist permanent credit financing? For a government, an individual, or an enterprise, 'a deficit without tears' leads to the corrupt euphoria of limitless spending. For example, with new credit the Fed will have bought $600 billion of U.S. Treasuries between November 2010 and June 2011, a rate of purchase that approximates the annualized budget deficit. Commodity, equity, and emerging-market inflation are only a few of the volatile consequences of this Fed credit policy."

To read more, and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:

http://www.thegoldstandardnow.org/gata