JOHANNESBURG (miningweekly.com) – Gold mining companies increased their global producer hedge book by 0.50-million ounces during the third quarter of 2015 – a modest expansion according to Thomson Reuters GFMS and Societe Generale.
The duo’s Global Gold Hedge Book Analysis Q3 2015 reports that the fresh hedging that brought about the switch back to net hedging was overwhelmingly concentrated in an expansion of the forward-sales portion of the hedge book, where mining companies collectively added 0.61-million ounces of cover – an increase of 19% quarter-on-quarter.
Thomson Reuters GFMS precious metals mining analyst Dante Aranda believed that this also came on the back of a handful of Australian producers continuing to lock in favourable Australian-dollar-denominated gold prices.
“However, given the price and FX (foreign exchange) moves during the fourth quarter, we expect the broader trend in the rundown in the hedge book to continue. So, with 32 t of scheduled deliveries in the fourth quarter and unfavourable conditions for fresh hedging, we expect modest net dehedging for 2015 as a whole,” he added.
Meanwhile, despite a marginal rise in the volume of delta-adjusted “vanilla” options, the volume of gold hedged against the option book as a whole reduced by 4%, or 0.10-million ounces, mostly owing to a quarter-on-quarter reduction in barrier option exposure.
Looking at activity from a corporate perspective, the greatest changes occurred as a result of new hedges being entered into by Evolution Mining and Metals X, which accounted for roughly two-thirds of gross hedging.
“We estimate that Polyus Gold, which delisted from the LSE in November, was the largest dehedger for the period, with a modelled rundown of hedges in-line with its earlier schedule,” the report pointed out.
When marked-to-market at the end of the third quarter, the value of the aggregate global hedge book stood at $337-million, a 16% increase quarter-on-quarter.
Since late 2014, the continued strengthening of the US dollar and meaningful devaluation of the Australian dollar brought about a divergent trend between Australian-dollar-priced gold and US-dollar-priced gold. The currency shifts amounted to a 25% weakening of the Australian dollar (AUD) against the greenback over a twelve-month period to end-September.
As a consequence, over the course of 2015, AUD gold traded at only 10% to 20% below the all-time high set in August 2011, compared with 2015 US dollar prices, which traded at 30% to 44% below the September 2011 price peak.
“It is interesting to note, though, that these recent small bouts of tactical hedging have recently been so concentrated in AUD terms, and similar trends have not yet become evident in the case of, for example, South African rand-denominated production, given [that] the rand/gold price has recently rallied to fresh all-time highs,” highlighted the report.
Barring any large fourth-quarter hedge that remains unannounced, activity for the fourth quarter pointed to a likely reversal to dehedging.
The delivery into hedge contracts that were due to mature by end-December stood at 1.04-million ounces and a relative lack of announcements of new hedge positions so far would suggest ongoing deliveries as the dominant theme.
The GFMS team estimated that net dehedging would fall within the 5 t to 15 t range for the fourth quarter.