Global Gold Hedge book falls 4Moz in Q4

According to a report by the VM Group, the Global hedge book now sits at 7.9Mo and is likely to continue to get smaller

GRONINGEN - 

Outstanding global gold hedges fell by 4.0Moz in the fourth quarter, bringing the total decline in gold hedges for 2009 to 8Moz.

This is according to the VM Group/Fortis Bank Nederland Gold Hedging Report, which says that at the end of 2009, the total global hedge book stood at 7.9Moz.

According to the report, the fall, the biggest single quarter decline since the first half of 2008 was largely the fault of Barrick Gold (which closed out the remaining 2.9Moz of its hedge book) and AngoGold Ashanti, which is now the largest hedger of gold in global mining.

During the quarter, AngloGold cut 407,963oz, which brings its total dehedging activity for the year to 2.1Moz. Over the full year, Barrick closed out its hedge book of 5.4Moz.

However, the report does note that, "At 8.0 Moz, the level of dehedging in 2009 (on a delta-adjusted basis) was the lowest since 2005 (a similar trend applies to the committed-ounces measure). Yet while this slowdown is important to note in terms of the market-impact of dehedging, it reflects simply the fact that at the beginning of 2009 there was 15.9 Moz of hedging outstanding, whereas at the beginning of (say) 2006 there was 53.6 Moz.

It adds, "In percentage terms 2009 saw just more than half of outstanding hedging closed out, the highest ever, beating 2008's 41%, showing that the ardour for dehedging has never been stronger."

So where to from here?

According to the VM Group, it is unlikely that 2010 will see another large scale dehedging because a similar close out in 2010 as that which occurred in 2009 would see the entire gold hedge book closed out.

"Although of course this is possible," the group says, "it is not very likely as a large proportion of the remaining hedging has been put on for project-finance reasons, and while this does not mean it cannot be closed out, it does make it less likely than if the hedging was there purely for price-protection reasons. For example it would be somewhat surprising if Sumitomo Metal Mining, who put in place a 1.1 Moz collar in Q3 09, suddenly decided to close it out in 2010

It does say, however, that this does not mean that dehedging is going to stop. Rather, it is likely to continue because, by their nature hedge positions mature and thus the global book will decline.

To look at what might happen in 2010, the VM Group says, one has to start with AngloGold Ashanti, who account for 49% of the remaining book with 3.9 Moz.

"They have publicly stated that they will reduce this by 0.8 Moz a year for the next five years, which means by the end of 2014 their hedgebook will be closed out. This schedule is similar to when their hedges are due for delivery, albeit at a slightly faster pace."

"If we repeat this exercise for all the other companies in our survey we get what is called the ‘delivery schedule', It tells us that we can expect about 2.5 Moz of dehedging this year, just over 2.0 Moz next year, 1.6 Moz in 2012 and then the remainder - just over 2.0 Moz, from 2013 onwards."

And, while it notes that this delivery schedule cannot take account of pro-active dehedging (like the sort that has driven the dehedging process over recent years,) it is likely that such activity will continue, albeit at a lower rate.

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