Gold miners expand hedge book by another 50 tonnes in first quarter: report

The KCD open pit gold mine, operated by Randgold, at the Kibali mining site in northeast Democratic Republic of Congo, May 1, 2014. REUTERS/Pete Jones/File Photo

LONDON (Reuters) - Gold miners expanded the global hedge book by another 50 tonnes in the first quarter after hedging on a net basis for a second straight year in 2015, an industry report showed on Monday.

Miners use hedging, usually by selling future production forward, to guarantee returns for their output.

In their quarterly Global Hedge Book Analysis, Societe Generale and GFMS analysts at Thomson Reuters said the global hedge book total stood at 270 tonnes at the end of March.

Australia-based operators accounted for half of gross hedging in the first quarter, with the majority coming from Newcrest, followed by a fourth tranche undertaken by Russia’s Polyus Gold, the report showed.

GFMS said that during the first quarter, producers opted to shorten their delivery schedule and enter contracts with shorter tenors than it would have previously considered normal.

GFMS analyst Dante Aranda predicted that increased volatility and uncertainty around gold prices in a number of currencies, and a more positive attitude among investors toward hedging, “will lead to more producers joining the ‘hedging club’ over the remainder of 2016”.

“With gold prices briefly reaching new highs following the UK’s decision to leave the EU and risk reversals comfortably above 2014 levels, we believe the trend of net hedging will extend into the second quarter,” the group said.

The mining industry returned to net hedging in 2014 for only the second time in 15 years as prices fell.

Hedging became unfashionable during gold’s 12-year bull run, which took prices to a record $1,920.30 an ounce in 2011. While it can protect producers when prices are falling, it can also stop them capitalizing on a rising market.

Reporting by Jan Harvey; Editing by Dale Hudson