SYDNEY, March 24 (Reuters) - Newcrest Mining NCM.AX , one
of the world's biggest gold producers, will hedge more than
half-a-million ounces of gold over the next two years,
abandoning a long-held opposition to cap its exposure to market
bullion prices.
The decision breaks ranks with peers and its own non-hedge
stance to avoid locking in fixed prices on future production and
benefit from any increase in gold prices.
With the Australian dollar gold prices XAUAUD=R this year
nearing record highs as the U.S. dollar strengthens, Newcrest
said this was as an "appropriate moment to lock in" gold output
from its Telfer mine in the west Australian outback.
Gold XAUAUD=R averaged around A$1,540 ($1,156) per ounce in
2015, but jumped as high as A$1,778 since January. It has since
retreated to stand around A$1,620 an ounce.
Newcrest said it has locked in gold sales of 530,749 ounces
in varying amounts year-on-year at an overall average price of
A$1,737 an ounce until June 30, 2018, and wouldn't rule
increasing forward sales further.
Many high-rated firms such as Randgold Resources RRS.L ,
Newmont Mining (NYSE:NEM) NEM.N and Goldcorp G.TO do not hedge.
Newcrest sold A$2 billion of stock in 2007 to close its
mostly out-of-the-money hedge book, vowing at the time to steer
clear of the practice.
Once happy to sell the lion's share of future production
forward at fixed prices and guarantee revenue streams, hedging
all but dried up by the second half of the last decade as mining
companies scrambled to gain full exposure to rising bullion
prices.
Hedging guarantees that miners get a minimum price for their
products, and essentially involves the producer agreeing to sell
some or all of its output at a set price over a period of years.
While hedging can protect a mining company against price
falls, it also means hedgers can miss out when the market rises.
Production at Newcrest's other Australian mines, including
the larger Cadia mine, is not hedged.
Newcrest in January said its Telfer mine would yield between
470,000 and 520,000 ounces of gold in 2016, against the total
company production guidance of 2.4 million and 2.6 million
ounces.
($1 = 1.3314 Australian dollars)