 |
 |
 |
 |
 |
 |
|
AngloGold says hedging unlikely for few years Jan 12, 2006
|
| South
Africa's AngloGold Ashanti is bullish enough about a strong gold
price that it does not expect to resume most hedging for at least a
couple of years, a top official said yesterday. AngloGold, the world's second biggest gold producer, is the only major South African gold miner that has not rejected the practice of hedging - selling bullion in advance to lock in current prices. "We don't believe in this current market that there's any need to hedge again or add to our hedges," Marketing Director Kelvin Williams told Reuters in an interview. Hedging is controversial and hotly opposed by certain investors who argue that gold firms should get direct exposure to the current gold price. Williams said AngloGold still believes a certain amount of hedging is necessary to protect revenue flows against price declines so it can pay dividends and fund capital expenditure. But prices should remain firm for the next few years, making hedging unnecessary, he said. "Our view of the gold price is a sufficiently positive one for the immediate future and the near-term and the middle future that the need for capital expenditure and dividend payment should be adequately catered for by the spot price." He said middle future could be taken to mean a couple of years. The only exception might be for new mines, he added. "If we were to look at a new project, where there was perhaps a high technical risk or geological risk or some other risk, we may wish to moderate the revenue risk by getting certainty about pricing," Williams said. Gold surged to a 25-year peak this week after gaining 18% last year and another 5% in the past 10 days. Williams said he was watching with interest whether certain central banks, such as China or Russia, might start buying gold to diversify their reserves from dependence on the US dollar. Although many speculative investors have said their buying was linked to bullish views on possible central bank purchases, Williams noted that European banks were still selling gold under a five-year agreement and no major buying move apart from Argentina has emerged. "One has to be cautious, we haven't seen any major reserve holder following that diversification path yet," he said. "One suspects that when they do the diversification, they will be attracted also by euro assets, possibly by higher interest-bearing instruments as well as by gold. So I don't think it's necessarily a one-way move into gold." Russia is a good candidate for diversification into gold since it is a gold producer, Williams added. With gold's rally fuelled by investors, prices would eventually be affected by a sell-off by short-term speculators, Williams said. But this negative effect could be partially dampened by longer-term investors who see the value of holding gold to diversify their porfolios, he added. "There's good reason that some of the buying has been taken on a portfolio basis that might have a longer-term view than simply a commodity speculation from quarter to quarter." Mergers and acquisitions in the gold sector have been slower than other industries due skewed valuations, Williams said. Junior firms with new projects which are attractive to major producers are often listed on North American stock exchanges where valuations are pushed up by speculators. Firms like AngloGold seek out companies where valuations have been hit and are more reasonable. "In this kind of valuation environment, the companies that are easiest to merge with or consolidate or acquire are always those companies that have a problem, companies that have hit a rough patch, the markets mark them down, punish them," Williams said. AngloGold bought Ghana's Ashanti Goldfields in 2004 for $1,44-billion. |
- END -
