Gold Fields slams industry hedge addiction
Reuters Story - February 03, 2000 13:11
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By Darren Schuettler
JOHANNESBURG, Feb 3 (Reuters) - Gold Fields Ltd, the world's second biggest gold producer, said on Thursday it was insane for companies to keep major hedge books that had depressed gold prices and made new projects uneconomic.
Gold Fields, which bought back the bulk of its hedges last year, also urged institutional investors to pressure companies to ween themselves off hedging.
"I don't think hedging is appropriate at the level and the scale it has developed in the mining industry," Thompson told analysts after releasing the company's quarterly results.
"To sell ounces in the ground at $270-$280 (an ounce) when the price of replacing them is $350 (an ounce) or better is just insane."
Thompson has publicly criticised the industry's hedging practices since Gold Fields repurchased most of the 1.8 million ounces committed to forward sales and call options.
The company still has about 200,000 ounces of forward sales required for its Tarkwa gold project in Ghana.
Thompson said he was not opposed to hedging to protect particular assets or if it was required by lenders to fund a project. But the industry's level of hedging was out of control.
"When it gets to a scale where the top 10 mining companies in the world have over 70 million ounces hedged...it has led to a lower and lower gold price.
"If we collectively continue to do that, we're going to ensure that no new mines are developed and...you actually have to write down reserves."
Gold Fields had seen its mineral reserves fall to about 74 million ounces from more than 90 million due to the lower gold price, he said.
"I think it's time the institutional investment community point that out to the mines, that they shouldn't do it. It's not in our interest."
Thompson said the industry should take a broader view of the market. "It involves looking at overall industry and community attitudes to gold and the image of gold."
He said it was still very difficult for the public to buy gold, noting that the recent UK gold auction was largely restricted to institutions.
"There is a lot we need to do as an industry to start to look at making gold available to the public and create a market for it," he said.
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