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Is it gold or just paper? Only their bullion banker knows for sure
Sons Of Gwalia De-Hedging
Already Started, Analysts Say
By Gavin McGuire
Dow Jones Newswires
Monday, August 30, 2004
http://www.thebulliondesk.com/NewsProvider.aspx?NewsID=20975918
NEW YORK -- The voluntary fall into administration by
Australia's second-largest gold miner, Sons of Gwalia
Ltd., has prompted gold-market watchers to speculate
that the miner's 81-metric-ton, or around 2.6-million-
ounce, hedge position has been in the process of being
unwound over the past week.
The Perth-based company said Monday that it appointed
voluntary administrators over the weekend after identifying
a "serious deterioration" in the status of its gold reserves,
which meant the company lacked the resources to meet
its hedge book commitments.
Gold dealers agreed that the company's bankers likely will
have pushed for a squaring of holdings ahead of bankruptcy
filings, which would have included an unwinding of its hedge
book.
Last week market participants reported regular spurts of gold
buying through several investment banks that market
participants say may well have been intermediaries of Sons
of Gwalia unwinding the company's hedge exposure.
"You'd have to hope that the management was smart enough
to unwind the hedge before going into bankruptcy, and
certainly its bankers would have pushed for that to happen,"
said the head of precious metals trading at a New York-based
European investment bank who declined to speak on the
record.
Tim Gardiner, head of precious metals trading at Mitsui
Precious Metals Ltd in New York, agreed. "I'd assume most
of it has already been done by now. The numbers (of ounces)
we saw being bought last week add up to around the amount
Gwalia is talking about," he said.
However, other market observers have stressed that the
company may not have been able to successfully complete
all those purchases and that further de-hedging may be yet
to come.
Further, one metals and mining analyst observed that part of
the company's hedge structure was "toxic" in that it increased
in exposure as prices rose, thereby making it very difficult to
unwind completely within a short period.
To make matters potentially worse, with the Republican
National Convention taking place this week in New York City,
heightened terrorism concerns have made active sellers of
gold likely to remain fairly scarce this week.
"If they have a lot of buying still to so, it could be painful for
them this week as the market is quieter than usual this
week, anyway, with holidays in London and the United
States, and the convention in New York adds a terrorism
threat as well," said the European investment bank dealer.
Sons of Gwalia officials could not be reached for comment.
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