Outstanding global gold hedging (delta-adjusted) fell sharply by 4.0 Moz (126t) to 7.9 Moz (245t) in Q4 2009 as Barrick Gold closed out the remaining 2.9 Moz (90t) of their hedge book, once the industry’s largest. The decline brought the full-year 2009 fall to 8.0 Moz (250t) and left global hedging more than 90% lower than its peak of 102.8 Moz (3,198t) in Q3 01.

The quarterly decline in hedging of 4.0 Moz on a delta-adjusted basis was a slightly larger 4.1 Moz when measured using committed ounces. On both measures, it was the largest quarterly change since the first half of 2008 and in percentage terms the largest ever. In terms of product the fall was concentrated in the net forwards category (unsurprisingly given that the majority of the dehedging was due to Barrick, which had only forwards), which saw a reduction of 3.8 Moz (on a delta-adjusted basis), while net calls shed 0.1 Moz and net puts 0.2 Moz.

Unsurprisingly the hefty cuts in hedge positions meant the mark-to-market valuation of the global book, the cost to mining companies of closing out their hedge positions today, improved to a negative $3.0bn at the end of 2009 from negative $5.1bn in Q3 09. This was despite an increase in the gold price of $91/oz to $1087.50/oz. The global book would now break even at a gold price of $720/oz, up from $553/oz in Q3 09; this improvement reflects largely the removal of all of Barrick’s contracts, which on average obtained prices far below the spot price.

Company roundup

Barrick Gold were by far the largest dehedger in Q4 2009, knocking 2.9 Moz off their book and in so doing closing out one of the longest-running and largest hedge books in the business. The company announced on 1 December 2009 that it had removed the final 1.9 Moz (59t) of its hedge book.

Barrick began Q4 09 with 2.9 Moz but revealed when releasing its 3rd quarter results in early November that it had already closed out 1.0 Moz by 28 October. Barrick’s actions brought the curtain down on a hedging programme that at its peak in Q4 01 totaled 24.1 Moz (750t). The company had steadily reduced the size of the book since then, accelerating the process in 2007 as the high gold price made the hedges increasingly unprofitable.

There were three other large hedgebook reductions during the period under review. AngloGold Ashanti, now the largest hedger in the world by far, cut 407,963 oz as Q4 09 positions matured and the company carried out some minor restructuring to their 2010 positions.

Russian miner Polymetallic, who acquired a hedge of 315,000 oz when on 2 November 2009 it purchased the Varvarinskoye gold-copper mine in Northern Kazakhstan from Orsu Metals Corporation, the London-based company, announced on 9 November it had closed out the positions, crystallizing the losses on the hedge book of $166m. Kinross Gold announced that it had entered into 109,500 oz of forward contracts in Q4 09 to offset part of the 612,735 oz of forward sales it already had (and in 2010 has already reduced its net position a further 198,470 oz).

Sumitomo Metals and Mining who put in place a large collar in Q3 09 saw their position decline by 67,000 oz. Twenty-four other companies made reductions, including a large nine who reduced their positions to zero.

There were three companies who put on positions, two of which are worth noting. Saracen Mineral Holdings, an Australia producer whose Carouse Dam project began in Q1 2010, announced on 21 December 2009 that they had purchased 175,908 of put options at A$1,250/oz, financed by $7.5m of cash and – which shows up in our committed numbers – 103,494 oz of call options at A$1,250/oz. The company said these covered 12% of their ore reserves.

Century Mining announced on 24 December that they had signed a $33m prepaid gold forward facility as part of the financing of their Lamaque Gold Project in Val d’Or, Quebec, Canada. The deal was first announced on 30 July 2009.

Courtesy: Fortis/VM Group

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