N.American gold miners not threatened by hedging
Thursday October 7, 12:40 pm Eastern Time
By Patrick Chalmers
LONDON, Oct 7 (Reuters) - North American gold miners do not face the margin call threats overhanging Ghana's Ashanti Goldfields Co. because they are less heavily hedged, less in debt, with lower country risk, equity analysts say.
Ashanti (quote from Yahoo! UK & Ireland: ASHGq.L) said on Wednesday it had secured a temporary standstill arrangement with hedging counterparties who have agreed to not make margin calls in relation to a mark-to-market loss of $450 million on the miner's hedge book.
''It is not reasonable to extrapolate the Ashanti situation to all other producers that hedge production,'' Canada's Toronto-Dominion Securities said in a report dated October 5.
The Canadian bank said Ashanti combined a relatively leveraged balanced sheet, a large and long-term hedge book and developing country credit risk.
''In addition, Ashanti may have been using derivative structures that leveraged its exposures to lease rates and other variables. Among North American producers, we do not see this same combination of factors,'' TD Securities added.
Gold rocketed from near $270 about two weeks ago after 15 European central banks pledged to cap gold reserve sales, gold lending and derivatives activities, easing long-held fears about official gold sales which had overhung the market.
Spot gold peaked near $340 last Monday in a run which put a rocket under gold equity indices in North America (^XAU - news), South Africa (^JGOL - news) and Australia .
Ashanti hedged part of its production using a combination of forward sales and options built on the assumption of a continuing slide in gold prices, a tactic which backfired when gold surged to leave the company exposed to call options it had written to finance put buying.
Options give holders the right but not the obligation to trade metal at an agreed price and date, something for which a premium is payable based on market conditions, time to execution and the option strike price.
Ashanti said the margin call freeze would give it ''time to work out a more permanent arrangement with its counterparties.''
CAMBIOR A SIGNIFICANT HEDGER
Bankers Merrill Lynch said in a report dated October 6 that among the North Americans only mid-sized Cambior Inc (Toronto:CBJ.TO - news) hedged more than 30 percent of its mineable reserves.
The Canadian miner's shares dropped on Wednesday after it revealed hedges including 1.9 million ounces of call options sold at an average price of $315 per ounce through to 2002.
''For the most part, the North American gold industry is underhedged compared to other regions in the world.''
''Of the companies who hedge, the average percentage of reserves covered by hedging range between 10 percent and 25 percent,'' Merrill said.
''Investors seeking upside exposure to gold prices should not overly focus on hedge books,'' TD Securities said.
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