Rising dollar holds no fears for gold

THE rising gold price may have dragged the Australian dollar up but gold producers appear unconcerned that a price correction in the currency could leave them stranded. In a recent economic update, HBOS Australia economist Alan Langford said the US dollar gold price had jumped from a recent low of $US414 an ounce on May 31 to $US437 an ounce, which had done nothing to dampen the Australian dollar’s recent run. However, Western Australian gold producers spoken to by WA Business News are largely protected against further increases in the Aussie dollar, with hedge books well placed to cope with the fluctuating market. The Australian dollar has recently been trading at around 77 US cents, as the gold price pushed through the $US430 an ounce mark for the first time since April. But local gold miner Croesus Mining, with gold operations near Norseman and Kalgoorlie, is prepared to tackle any unfavourable price movements, according to company secretary John Sobolewski. Croesus tends to keep total hedges below 30 per cent of reserves, he said. “Generally our policy is not to get in too deep,” Mr Sobolewski told WA Business News. Currently Croesus’ hedge book sits at 20 per cent of reserves, using forward contracts hedged at $580 an ounce and call options at around $600 an ounce, giving the company an overall hedge position at $590 an ounce, enough to offset any major increase in the Aussie dollar over the short term, according to Mr Sobolewski. Hedging has become a major issue this year after Sons of Gwalia creditors saw their investment in the company become worthless overnight when it was revealed SoG could not meet its hedging obligations. Given the company holds gold contracts in Australian dollars, it uses commodity hedges in the local currency to protect against changes in the Australian dollar price of gold price, Mr Sobolewski said. Agincourt Resources’ hedge position currently sits at around 50 to 60 per cent of its reserves at $601 an ounce in forward contracts sold, according to company secretary Greg Barrett. In 2002 Agincourt bought from Newmont Australia the Wiluna gold mine north of Kalgoorlie, which is estimated to contain up to contain 3.2 million tonnes at 4.85 grams a tonne of gold. “The last six months has seen the spot price at around $550 an ounce, so our hedge has performed very well for us over that time,” Mr Barrett said. He said the company’s hedging position was reviewed quarterly and was based on a margin over costs. “As far as adjusting goes, we haven’t adjusted it in the last six month period,” Mr Barrett said. While the HBOSA report highlighted the importance of gold in pushing the Australian dollar higher, it also predicted a loss of momentum in the US dollar in the shorter term.