Gold producers limited their hedging during the first quarter according to the latest data about forward selling in the gold mining industry from metals research firm GFMS Thomson Reuters.
The global producer hedge book contracted in the first quarter by 800,000 ounces (2.6 tonnes) compared to 1.44 million ounces or 45 tonnes of net hedging in the final quarter last year.
In 2014 as a whole, hedging contributed 3.33 million ounces (103 tonnes) to gold supply, largely on account of two large hedges by Russia’s Polyus Gold and Mexico’s Fresnillo.
During the first quarter, 29 companies were net de-hedgers, with 16 companies adding to their delta-adjusted hedge positions.
The largest de-hedger was Polyus Gold, the world’s eight largest gold miner in terms of output, through deliveries against the large hedge position entered into last year. The rouble strengthened by 39% in the first quarter compared to the final quarter of 2014.
The largest individual hedge was undertaken by Saracen Mineral Holdings, which sold 120,000 ounces forward in as part of plans to re-start its mothballed Thunderbox mine.
The marked-to-market value of the aggregate producer hedge book fell by only $5 million to $295 million.
The volume of the global producer hedge book stood at 6.21 million ounces (193 tonnes) at the end of Q1 2015, a far cry from levels in the region of 3,000 tonnes seen before gold began its 12-year upward climb.
Locking in prices and steady cash flow made sense for gold miners when gold was around the $300-level with little prospect of any substantial move higher.
But as gold’s bull run gained momentum producers lost out on billions of dollars under contracts signed for future delivery well below the ruling price – and often below cost.
With gold trading in a downtrend – averaging $1,201 during the first quarter nearly 40% below its peak – there was an expectation that hedging may make a comeback, but so far this has not panned out.
GFMS said in the report that since the end of the first quarter, relatively little new hedging has been announced:
“We expect this trend of small-scale hedging, often in relation to project financing, together with expansions of existing programs, to persist through 2015.
“If hedging activity remains at the level seen throughout the first half of this year, net de-hedging may be the eventual outcome for the year as new activity will scarcely balance the scheduled unwinding of existing hedge contracts.
“However, it would take only one or two new hedges of the magnitude undertaken by Polyus or Fresnillo during 2014 to tip the balance firmly back into net hedging, and we take the view that 2015 is likely to see at least one large new hedge from a gold producer.”
GFMS expects net hedging of approximately 1.93 million ounces (60 tonnes) during 2015.