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Hedging benefits OZ gold miners in Sept quarter

The average Australian dollar gold price remained steady as the US dollar gold price dropped $100/oz in the September quarter.

Despite a declining US dollar gold price, Dr. Sandra Close, director of mining consultants Surbiton Associates, found the Australia dollar gold price was more stable during the September quarter 2014, as it benefitted from the lower Australia dollar exchange rate.

The average gold price for the September quarter was A$1,385 per ounce, Close said, a little higher than the current price in the Australian currency. By comparison, US dollar gold prices fell about US$100 per ounce.

“Results this September quarter clearly show the benefit of hedging,” said Close, “Several producers delivering some of their production into forward positions or using put options achieved well over A$100 per ounce more than the average spot price.”

“Hedging, be it via the various forms of forward selling or by way of options, is a form of price production or even, dare I say, insurance,” Close advised. “Essentially, it is risk management.”
“Used wisely, hedging mechanisms provide certainty and reduce risk,” she stressed. “It strikes me as being quite inconsistent for a company to insure its plant and equipment and even its senior personnel, but not to insure the minimum price it receives for its product.”

At 71 tonnes, Australian gold production for the September quarter 2014 was about 1.5 tonnes higher than the September quarter 2013. Several operations increased gold production, including – Evolution Mining’s Mt Carlton Mine, up 16,700 ounces; AngloGold Ashanti’s Sunrise Dam, up 16,000 ounces; and Regis Resources Rosemont Mine, with an increase of 15,500 ounces.

Producers with lower output during the quarter included Newmont’s Tanani operation, down 23,000 ounces; Jundee, down 19,700 ounces; and St Barbara’s Gwalia mine, down 14,000 ounces.

Top gold producing operations for the September quarter 2014 were – Newmont’s Boddington, at 165,000 ounces; Newmont and Barrick’s Super Pit JV, at 164,000 ounces; Newcrest’s Telfer Mine, at 143,771 ounces; AngloGold Ashanti and Independent Group’s Tropic Canada Mine, at 119,593 ounces; and Gold Fields’ St Ives Mine, at 88,700 ounces.

“It’s not surprising that gold production remains steady, despite the lack of market support,” Close observed. “There are several contributing factors, including operational parameters such as grade and throughput, the effect of exchange rate movements and the impact of hedging activities.”

“Gold is not a bulk commodity like iron ore or coal,” she noted. “Many gold miners have greater operational flexibility, such as the ability to increase grade of ore treated, for example, which enables them to reduce costs and remain in business.”

“The gold sector is maintaining production but low gold exploration expenditure is still a real concern,” Close advised. “However, with reduced share prices and a shortage of new capital, we are seeing some rationalization of exploration tenements and projects among the junior companies. Hopefully, this will provide some much needed stimulation.”

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