Gold Producer Hedge Book Is at Its Lowest Since 1992

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Société Générale's latest analysis of the global gold mine producer hedge book, compiled by GFMS Ltd, concludes that the hedge book stands at just 835 tonnes, which is the lowest level since 1992, and is equivalent to 34% of 2007 production levels.

Société Générale's latest analysis of the global gold mine producer hedge book, compiled by GFMS Ltd, concludes that the hedge book stands at just 835 tonnes, which is the lowest level since 1992, and is equivalent to 34% of 2007 production levels. De-hedging in the fourth quarter was 72 tonnes. For the year as a whole, dehedging in 2007 was a record at 446 tonnes, which meant that mine supply last year was 2,030 tonnes, compared with 2,076 tonnes in 2006. Despite the reduction in the volume of the book, price movements mean that the marked-to market value of the combined book deteriorated to negative $9.4 billion, while producers' average realised prices increased by 15% in US dollar term to $767/ounce, compared with an average spot gold price of $786.25/ounce.

Over the year as a whole, some two-thirds of dehedging took place in the first half of the year, with just 16% of the annual figures attributable to events in the fourth quarter, driven by a small number of producers. The study makes the point that there was a "conspicuous" lack of fresh hedging during the quarter, with the most substantial addition to nominal contract volumes coming from a 14,000-ounce (0.45 tonnes) addition to existing hedge contracts by Equigold.

The top de-hedgers in the quarter were Newcrest Mining, with a decline of 0.73 million ounces (22.7 tonnes) or 31%, followed by Red Back Mining with 0.25 million ounces (7.8 tonnes) and Highlands Pacific, with 0.24 million ounces (7.5 tonnes). Newcrest eliminated the last of its Australian dollar-denominated Gold Bullion Sales Contracts, amounting to 0.51 million ounces in October and then removing 0.23 million ounces of its US dollar denominated Gold Bullion Sales Contracts. As of 31st December 2007, Newcrest did not have any deliveries due before 2012.

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