Record gold dehedging set to slow

Dehedging by gold companies gained momentum in the second quarter of the year, but a slowdown is inevitable in the second half of 2007.

JOHANNESBURG - 

Dehedging by global gold mining companies cut the global hedge book by a record 15% or 5.4 million ounces to only 31.2 million ounces in the second quarter of 2007.

This brings the "rate of dehedging" for the first half of the year to 9.3 million ounces, but a slowdown is expected in the second half as only 1.5 million hedged ounces is scheduled for delivery in this period, said the Mitsui Gold Hedging Report.

Dehedging gained momentum in the second quarter as US miner Newmont and Australian Lihir Gold closed out their entire hedge books of respectively 2 million ounces and 1.4 million ounces.

Barrick, which dominated global dehedging with large reductions to its hedge book over the last two years, did not make any cuts in this quarter.

But gold miners AngloGold Ashanti (0.8m oz), Buenventura (0.5m oz), Harmony (0.2m oz), Emperor Mines (0.15m oz) and Newcrest (0.15m oz) contributed to the hedge book decline by making significant cuts.

Harmony and Emperor closed out their entire hedge books with the reductions.

Only one company, Western Goldfields, added substantially to its hedge during this period with a project-finance hedge of 0.4 million ounces.

A slowdown is expected in the second half as additional hedge buy-backs or new hedges are expected to be low over this period.

The potential for buybacks - responsible for the majority of de-hedging in recent years - is falling as only 31.2 million ounces remain on the hedge book.

Barrick is responsible for over 9 million ounces of the remaining ounces, but has completed its de-hedging programme. And AngloGold Ashanti and Newcrest, which respectively account for 8.5 million ounces and 4 million ounces, are expected to reduce their hedge books in line with delivery schedules.  

Although new hedging does still occur, there is no indication yet of majors putting price protection hedges in place that compare to the size of ongoing dehedging.

Mitsui's full year forecast for dehedging is between 11 and 13 million ounces as hedge buybacks are likely to offset new hedging.

"But the higher end of this forecast still implies a sharp slowdown in the second half of 2007 compared to the first half."

Head of Precious Metals Research at Mitsui Global Precious Metals Edel Tully added that strong gold market dehedging in the second quarter must have given the gold price a major boost.

But as most companies have little de-hedging planned for the rest of the year support for the price could falter.

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