LONDON (Commodity Online): A new report from BNP Paribas Fortis has forecast full year 2009 gold dehedging to be between 1 Moz and 3 Moz.
Here is an excerpt from the report:
After the pause in Q1 09, global gold miners returned to dehedging in Q2 09, with the delta-adjusted total declining by 1.2 Moz to 14.7 Moz. On a committed basis the fall was a similar 1.3 Moz taking that measure to 15.3 Moz.
The reduction was primarily down to a large dehedge from AngloGold Ashanti. However 31 other companies made reductions and only one made an increase, confirming, as we noted in the last issue of the BNP Paribas Fortis Financial
Gold and Hedging Report, that the momentum remains with dehedging.
Nevertheless the pace of dehedging has slowed due to the much smaller size of the global book nowadays -- on a year-on-year basis the delta-adjusted book fell by 4.0 Moz, the slowest rate of annual decline since our records began.
In terms of products, the quarterly reduction was concentrated in the net forwards category, which fell by 1.3 Moz to 9.7 Moz, with smaller reductions in other products (which are now at zero) and net puts. The net calls category increased by 0.2 Moz, to 4.7 Moz, primarily a reflection of the impact a higher end-quarter gold price ($934.50/oz compared with $916.50/oz at end Q1 09) has on the delta of sold call options2.
Although some companies did add some sold calls, collectively when measured in committed ounces the net calls were
unchanged.
A sold call option gives the buyer the right, but not the obligation, to purchase gold at a set price. He is more likely to exercise this option if the gold price rises, as his profit will be larger.
Looking ahead, last quarter we forecast full year 2009 dehedging to be between 1 Moz and 3 Moz. That was based on just 0.9 Moz from AngloGold Ashanti, but given their dehedging in H1 09 (0.8 Moz) and their guidance for H2 09 (1.1 Moz), this forecast might be a little on the low side. So far from all companies in two quarters we have seen 1.2 Moz of dehedging, adding in AngloGold's remaining 1.1 Moz gives 2.3 Moz.
The delivery schedule that hedging which is due for delivery in the remainder of 2009 – suggests there is another 0.9 Moz to come (excluding AngloGold Ashanti's) and taking this at face value, and assuming new hedging offsets any pro-active dehedging, gives us a best estimate of just over 3 Moz for the whole of 2009, with a range of say 2.0 Moz to 4.0 Moz.
The major uncertainty is what Barrick, now the largest hedger again with 5.4 Moz, does an accurate prediction is difficult given the company has in quarters both reduced and increased its hedge commitments in the last year.
The mark-to-market valuation of the global book (the cost to mining companies of closing out their hedge books at end Q2 09) improved to a negative $6.6bn compared with end-Q1 09's revised negative $6.7bn, despite the gold price rising to $934.50/oz from $916.50/oz at the end of Q1 09.
