Another gold company closing it's hedge book.
Kinross Finds Religion
The news release on May 2nd, 2002 was a surprise. "Kinross Gold Corporation (TSE-K; Amex-KGC) announces the intent to deliver into its relatively small gold forward sales and not replace these hedges due to the improving environment for the gold sector and for Kinross in particular." CEO Robert Buchan went on to describe Kinross’s hedging history and show its current hedge position numbers. His closing remarks were…"We are now in a new environment requiring a fresh look at our approach to gold hedging and we have concluded that delivering into our modest gold book is appropriate."
Two days prior, on April 30th, Kinross released its annual financial statements, and there was no indication that the company was planning this kind of action anytime in the near future. But somewhere in the not-to-distant past, the top officers (and/or the Board of Directors) of the company must have "seen the light", or had "chapter and verse" read to them outlining in no uncertain terms what their corporate liabilities might be (in terms of their hedge book) in any melt-up of the gold price.
The part of this I find strange is that I had been in contact with Kinross by surface mail and e-mail in the prior six weeks about this very thing. Nothing in their correspondence with me gave any indication that anything like this was in the works. But on sober second thought, I guess if I were Kinross, I wouldn’t be divulging this kind of information ahead of time.
Still, their actions in the light of what’s going on in the gold world today should not be surprising. And it is a further sign that despite the calm (or apparent lack of interest) that we see on the surface, gold companies large and small are paddling like hell under the water where we can’t see what’s going on. Companies such as Durban, Anglogold, Newmont, etc, are out in the open about it; with the likes of Barrick Gold making a pathetic stab to placate its shareholders. There is nothing but silence from the likes of Placer Dome.
But Kinross is my case in point here.
First of all, I am not a disinterested bystander. I (plus my wife and kids) are shareholders in this company, so their goings-on are of more than passing interest. Also, as a member of GATA since early 2000, I had been in contact by phone and e-mail (several years ago) with various employees of the company regarding their hedge position and the ongoing manipulation of the gold price.
It should be no surprise that the words "gold price manipulation" or GATA would never cross their lips, even though they were certainly aware of both. At the time, I had requested a donation on behalf of GATA, but the request was respectfully declined.
There’s been a lot of water pass under the bridges of all the world’s gold companies since then, and I had long since given up trying to convince hedged companies such as Kinross that they were on the wrong path.
But in March an article was posted on the Toulouse-Lautrec Table at LeMetropoleCafe that changed my mind. Once more I felt compelled to sit down at the keyboard and write to the three hedged gold companies whose shares I currently own.
The article was the March 18th memo to Bill Murphy from Jim Sinclair regarding the latest Harry Schultz letter. In Harry’s letter #623 dated March 10th, Harry had this to say. "GOLD SHAREHOLDERS should send the letter below to the chairman of every gold mine that hedges its gold production forward, in which you own stock. A Chairman is legally responsible to shareholders for managing his management. After receiving this letter, the board chairman can never claim to not have known that derivatives carried extreme legal and structural risks."
On my list of gold companies I own, and that have any kind of hedge position are Kinross, Durban, and Newmont Mining (who picked up their hedge position courtesy of Normandy during the buy-out earlier this year). So I took Harry’s letter, reworded and customized it slightly, and sent them off by registered mail to each of them. Here is the letter that I sent Robert Buchan at Kinoss.
Robert M. Buchan
Chairman and C.E.O.
Kinross Gold Corporation
52nd Floor, Scotia Plaza
40 King Street West
Toronto, Ontario M5H 3Y2 |
