INTERVIEW-Gold firms take hedge lesson from Ashanti
By Tara FitzGerald
DUBAI, Feb 21 (Reuters) - The experience of Ghana's Ashanti Goldfields <AGC.GH> will remind producers hedging is a financial tool, and not a price bet -- but firms will continue hedging to manage revenues, a senior industry official said on Monday.
"And as a financial tool it should be appropriate in all regards -- the size of the company, the balance sheet, the liquidity of the company, its creditworthiness etc," AngloGold <ANGJ.J> Marketing Director Kelvin Williams told Reuters.
"Just as one should not be over-borrowed, one should not be over-hedged," he added. Williams was speaking on the sidelines of a London Bullion Market Association conference in Dubai.
Ashanti Goldfields, Africa's third largest gold company, faced financial crisis after it was caught out by a spike higher in gold prices last year, resulting in severe reverses in its complex hedge book.
Gold producers have traditionally been active hedgers, protecting themselves against possible falls in prices by selling future production forward at a fixed price. This can backfire if prices rise.
In recent weeks some major mining companies, including world number one producer AngloGold, have announced they are reducing their hedging programmes.
That was likely to continue, Williams said.
"Under the circumstances of rising prices and more robust spot prices, producers who have hedged as a part of management of revenue risks are certainly likely to review their levels of hedging," Williams said.
"But this doesn't change the philosophy (of hedging), it changes the level we do it at," he added.
AngloGold has said it will continue to deliver into its hedge in 2000, signalling lower levels of hedge cover going forward. Williams said those levels would be reviewed from quarter to quarter.
Producers say gold marketing and promotion will also be important concerns for the industry going forward into the 21st century.
"We (producers) are the one part of the gold industry that is big enough to undertake intiatives in marketing...so it is a matter of deep disappointment and concern that many major producers do nothing for their product," Williams said.
He told the conference marketing efforts by the World Gold Council, a group funded by miners to promote consumption, was supported by only 30 percent of producers worldwide.
"Producers need to be aware that in a modern consumer environment products do not sell themselves," Williams said.
Wayne Murdy, president of North America's largest gold producer, Mewmont Mining Corp <NEM.N>, told the conference jewellery accounted for 75 percent of total demand for gold and so was in direct competition with other luxury goods such as designer clothes or diamonds and platinum.
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