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Treating U.S. after stock bubble, Fed helped create new threats
By Nicole Mordant
Reuters
Thursday, June 9, 2005
http://www.reuters.com/newsArticle.jhtml?
type=electionsNews&storyID=8744437
NEW YORK -- Hedging is no longer the black mark against a gold
producer's name that it was a year or two ago as hedged companies
have not gone bankrupt and investors have shifted their gaze to other
pressing industry concerns, two prominent gold industry participants
said.
Hedging, in which producers fix prices for their metal using forward
sales and/or options, has come in for stinging criticism from gold
stock investors eager to participate in a long-awaited bullion price
rally that began late in 2001.
Although hedging protects producers in times of low gold prices as
they lock in better prices for their metal, it has prevented several
firms from fully enjoying the recent rally if contracted prices are
below the $400-plus price per ounce of gold in the spot market for
much of the past two years.
"For the most part hedging has become much more of a benign issue in
the minds of investors," said Greg Wilkins, the chief executive of
Barrick Gold Corp. , the world's third-biggest gold producer and the
owner of the industry's biggest gold hedge book.
"We've seen the companies with hedge books in place go through
periods of high gold prices. There haven't been smoking guns,
calamities or disasters," he told the Reuters Mining Summit in New
York.
Fresh in the minds of some investors was the near collapse in 1999 of
Ghana's Ashanti Goldfields and Canada's Cambior, mid-tier producers
that were nearly sunk when their hedging bets caught them at the
wrong end of the gold price.
"The gold price went up to $450 (an ounce) and no one blew up. The
doom and gloom has not proven true," said HSBC mining analyst Victor
Flores, who was also speaking at summit.
Flores said the irony was that the best gold stock performers in 2003
were the heavily hedged miners -- Australia's Newcrest, Ashanti and
Peru's Buenaventura.
Last year Barrick's stock outperformed that of Newmont Mining Corp. ,
the world's biggest gold producer and an arch-opponent of hedging.
"Investors are today much more focused on the fundamentals of the
business. I think the biggest concern that I hear in the market place
is that higher gold prices are not generating higher profits,"
Barrick's Wilkins said.
"I think that's a bigger issue in the minds of investors (than
hedging), and I think that companies that are better able to manage
their costs are the ones that are going to emerge as the favorites,"
he said.
Wilkins said Barrick remains committed to the policy he instituted in
2003 to gradually whittle down the firm's hedge book, which stands at
about 13 million ounces of gold, or 15 percent of the company's
unmined gold reserves.
Under pressure from disgruntled investors, gold miners have heavily
reduced their hedge books over the past four years, but a recent
report sponsored by Mitsui Precious Metals shows that miners appear
to be slowing their dehedging activities.
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Ted Butler silver commentary archive:
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