High quality global journalism requires investment.

Please share this article with

others using the link below, do not cut & paste the article. See
our Ts&s and opyright Policy !or more detail. "mail !tsales.support#!t.com to buy
additional rights. http$%%www.!t.com%cms%s%&%'(&&)!*&+&(b'+,,e*+a-.d+
&&,**!eab)de.html/i0112.324Hmc
5ast updated$ 6uly 2, (&,* -$(, pm
Big Russia producer
strikes gold hedging
deal
7y 8eil Hume
Polyus Gold International, a London-listed miner that is Russias top producer of
gold, has announced the industrys biggest hedging transaction in six years, raising
the prospect of an increase in forard selling as producers attempt to lock in prices!
"he company, #$ per cent oned by %uleiman &erimo', said the programme as
aimed at (increasing the certainty) of its cash flo as it ploughs billions into
de'eloping *atalka, one of the orld largest untapped gold deposits, in Russias far
east!

More
ON THIS TOPIC
Time called on the 5ondon gold !i0
9old and silver hit three+month highs
9old bulls deeply suspicious o! hedging
all !or probe into gold price !i0 claims
IN COMMODITIES
5:" hands copper traders a ;standing< order
Speculators cut bets on higher oil prices
9lobal oil prices rise a!ter plane crash
=S gas drops below >* on cool summer
+illiam "ankard, head of precious metals mining at "homson Reuters G,-%, a
consultancy, said the deal as the biggest corporate hedging transaction
since .ngloGold .shanti and Barrick unound their hedge books in /$$0-$1!
("his is larger than any acti'ity e ha'e seen for years! In terms of putting a fresh
position in place, its the biggest hedge e ha'e seen since the first central bank gold
agreement as announced in 2111!)
"he gold mining industry has had an on-off relationship ith hedging!
%elling future production at fixed prices as a idespread practice in the late 211$s,
before the metal began a decade-long bull run! 3edging as then shunned ith
miners spending billions of dollars to unind positions!
By the time gold peaked in /$22, the industry had cut its hedges to almost nothing!
In'estors in large gold companies are generally opposed to hedging because they
ant exposure to the gold price!
.ttitudes changed last year hen se'eral small and medium-si4ed producers started
to hedge, unsettled by a 5$ per cent drop in the gold price! 3oe'er, the total amount
of future gold production hedged, knon as the global (hedge book), ended the year
at 67 tonnes, according to G,-%, don from 1/ tonnes in the third 8uarter!
.nalysts said the deal structured by Polyus, hich in'ol'es forard sales contracts
and deri'ati'es to guarantee re'enue, could find fa'our ith small and medium-si4ed
miners!
(I dont sense e are going to see any turn in hedging beha'iour from the big guys,)
said "om &endall, head of global commodities research at 9redit %uisse!
(But there is an incenti'e for the smaller guys that are looking for pro:ect finance or
de'elopment capital to use the recent bounce in the price to lock in financing!)
Gold rose to a three-month high of ;2,55/!2$ per troy ounce this eek and is up 2$
per cent this year!
"he hedging programme is split into to parts and co'ers /!05m ounces of
production o'er four years! <nder the forard sale component, Polyus has agreed to
forard sell 52$,$$$ ounces o'er to years at a fixed price of ;2,5/2!
In the second part, Polyus has hedged /!7/m ounces through options contracts,
hich protect it if the price falls belo ;2,567!
("his programme is beneficial to Polyus Gold in that it gi'es greater certainty to
in'estors about re'enue ranges and the ability to finance the next phase of the Polyus
Gold expansion programme,) said analysts at 9iti! (+e think it is likely that more and
more gold groups ill find this approach beneficial!)
3oe'er, -r "ankard said the deal might not mark the start of a hedging trend! (=n
balance hedge conditions remain unattracti'e! 9ontango is not there, so theres no
scope for forard premium,) he said! (But, for the situation that Polyus find itself
in ! ! ! I am sure management ill feel happy knoing that, ithin reasonable bounds,
they are going to be selling at a good le'el!)
%hares in Polyus Gold rose /!0 per cent to 212!67p!