Bobby Godsell

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AngloGold Ashanti said it would continue to drive down its hedge book after slicing more than 4 million oz in 2004.

ANGLOGOLD Ashanti, the world’s second largest gold producer, said it would continue to reduce the size of its hedge book amid market conditions it judged “better than anytime in the last 25 years”.

“Going forward, you can expect us to continue to actively manage this [hedge] book, so as to continue to reduce it, whilst deriving the best value from it that we can,” said CEO, Bobby Godsell, speaking at a conference earlier this week.

Gold producers hedge a portion of their gold production in order to guarantee a certain price for the product. When they de-hedge, it suggests the companies want a greater portion of their production exposed to the spot price of gold and are, by implication, more optimistic about the gold price.

Godsell said gold prices would trade between $400 to $500/oz and were expected to test the upper range of this estimation during the year. “I conclude that the market outlook for the foreseeable future is better than anytime in the last 25 years,” Godsell said.

Falling mine production, continued dollar weakness, buying appetite for jewellery at $410/oz, and a decline in hedging were some of the factors driving the gold price, Godsell said.

Following the consolidation of AngloGold’s hedge book with Ashanti Goldfields, the Ghanaian company it bought last year, the combined company reduced the net delta of its hedge book 27% in 2004 to 10.7m oz, a 4.2m oz reduction. “This equates to around 30% of the next five years forecast production, spread over a 10-year period,” Godsell said.

In comparison, Barrick Gold and Placer Dome, the world’s other major gold hedging company, reduced their hedge books by 13% and 14% respectively. Of the three companies, AngloGold Ashanti has the lowest hedge to production ratio of 1.7 years compared to the 2.7 and 2.46 years for Barrick Gold and Placer Dome respectively.

The pace of dehedging has been slowing, according to a report by Virtual Metals/Halliburton and Mitsui Precious Metals. Dehedging announced by the four largest hedgers, AngloGold Ashanti, Barrick, Newcrest and Placer Dome was just 500,000 oz on a committed basis, the report said. These companies account for 70% of the world's global hedge book, the report said.

"For the 'Big Four', this is the lowest level of dehedging since Q3 '03, and compares to a more 'normal' level in recent quarters of about 2 million oz," the report said.

"If other companies yet to report just maintain their dehedging policies, this would imply total dehedging in Q1 05 falling to well under 2 million oz; around half of the average quarterly dehedging rate in 2004," the report said.