AngloGold Ashanti leaving more of its production unhedged

From Engineering News, South Africa
Monday, August 7, 2006

http://www.engineeringnews.co.za/eng/news/today/?show=91270

World No. 3 gold miner AngloGold Ashanti Ltd. said on Monday it was leaving an increasing amount of its production unhedged to take advantage of soaring gold prices.

The company had left 87% of this year's production unhedged, up from 75% the previous year, said Richard Duffy, executive officer of business development.

AngloGold has been one of the world's most prolific hedgers -- selling tens of millions of ounces of yet-to-be-mined nuggets at fixed prices to lock in revenue.

"Our approach on hedging has always been to view it as a risk management tool," Duffy said on the side of the Diggers and Dealers mining conference.

"In the current market we see less need for protection than in the past. We will look to reduce our hedge book in a value-accretive way," he said.

Hedging has divided the world's mining companies, with rivals such as Newmont Mining Corp. and Rio Tinto Ltd./Plc. refusing to hedge a single ounce.

Startup mining companies are sometimes forced by lenders to hedge at least part of their projected gold yield to cover loans.

Spot market gold prices have risen as much as 40% at their peaks this year on the back of growing investment demand tied to expectations of rising inflation and weakness in the value of the U.S. dollar.

AngloGold Ashanti, which cited reduced hedging as helping to drive a 63% rise in second quarter profits to $140-million, dug 1,42-million ounces of gold over the period.

"Our price received for the quarter, at $600 an ounce, represents an increase of 10% over the previous quarter," Duffy said.

AngloGold acquired Ashanti in 2004 after Ashanti faced financial ruin after its hedging programme backfired in the face of a rising gold price, effectively forcing it to buy gold high and sell low to meet its sales obligations.

The company is 41.8% owned by mining giant Anglo American Plc.