goofy idea from ABX gets panned by FN and G
Gold miners split on proposed ads to push jewellery
By ALLAN ROBINSON
MINING REPORTER
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Saturday, November 10, 2001 – Page B9
The gold mining industry is bitterly divided over a proposed $200-million (U.S.) advertising campaign to increase worldwide demand for jewellery.
What at first looked like a proposal with universal appeal has turned into a sore point in an ideological brawl between miners who hedge against price swings on their gold production and those who do not.
The non-hedgers, including Franco-Nevada Mining Corp. Ltd., and Goldcorp Inc., both of Toronto, are refusing to contribute money to the campaign.
Hedging involves strategies used by gold mining companies to effectively increase the prices they receive on their bullion sales.
The hedgers borrow gold from the world's major banks and reinvest the proceeds obtained when the gold is sold to take advantage of the spread between the gold lease rate (the cost of borrowing the gold) and the higher prevailing interest rates. The strategies are also tied to the use of put and call options in the gold futures market.
Non-hedgers complain the practice of selling gold as a part of hedging strategies is one of the factors that has seriously depressed the price of the commodity.
"If the hedgers want to spend some of their ill-gotten gains on marketing, God bless them," said Seymour Schulich, chairman and co-chief executive officer of Toronto-based Franco-Nevada. But, he said, Franco-Nevada will not be contributing.
Mr. Schulich believes that, over the years, gold hedging has cost the industry $25 (U.S.) an ounce by pushing down the price of gold. Gold traded yesterday at $277.40 an ounce.
"To hedge gold and try to market gold is the equivalent of sucking and blowing at the same time, which is hard to do," Mr. Schulich said.
The gold marketing initiative steering committee includessome of the largest gold mining companies in the world, including the leading gold hedger, Barrick Gold Corp. of Toronto. Barrick estimates its gold hedging has generated more than $1.5-billion of extra profit over 12 years.
Gold producers currently representing about 70 per cent of worldwide production support the marketing initiative. They want participants to contribute an escalating amount to the campaign -- $4 per ounce of production by 2004.
The members include large and small companies and hedgers and non-hedgers from all parts of the world, said Vince Borg, a spokesman for the committee. "The committee wants to focus most of its attention, energy and resources on the primary use of gold in jewellery," he said.
"Most of the people who are behind the initiative are hedgers that are looking for a small increase in the price of gold, and as soon as they see that they will hedge again," said Robert McEwen, the chairman and chief executive officer of Goldcorp. "So from the perspective of a non-hedger, such as ourselves, putting money in to support a small increase in the price of gold -- so that someone can hedge again -- is ludicrous."
Gold should be promoted as a form of money and an asset class that is undervalued and out of favour, Mr. McEwen said. "I think it is very flawed thinking," he said of the proposed campaign.
"We don't want gold marketed as a Gucci item," said Murray Pollitt, chairman of Toronto-based River Gold Mines Ltd.
"Gold is the world's oldest form of money," Mr. Pollitt said, explaining that his principal objection to the campaign is its inference that gold is only good for jewellery. "The group [hedgers] have given up on gold as being a superior form of money."
The industry should promote gold mainly as a form of savings, Mr. Pollitt contends. Although 80 per cent of gold is used in jewellery, most jewellery in countries such as India, China and Indonesia is "a low mark-up investment under the guise of jewellery," Mr. Pollitt said. "The real market for gold is as savings."
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