Wednesday, August 4, 2010

Hedging Now A Dirty Word

A Wall Street Journal article covering the annual Diggers & Dealers forum in Kalgoorlie, Australia points to the current unpopularity of hedging. The reason behind the shunning is angry shareholders, who saw some earning slip away due to hedging earlier in the decade.
"Hedging is a four-letter word around here," said Darren Klinck, vice-president for investor relations at Oceanagold Corporation (OGC.AU), an unhedged gold producer that estimates it will produce more than 270,000 ounces in the fiscal year that began July 1 from its mines in New Zealand.

Klinck, who was attending the annual Diggers & Dealers mining forum in Western Australia's gold-mining capital Kalgoorlie, said major shareholders would not support the company if it was hedged, as their typical investment objective is leveraged exposure to the gold price.

Virtually all the small and mid-size miners at Diggers & Dealers gave the same message.
Another participant quoted, Sean Russo, said the aversion to hedging has become irrational.

The article itself intimates that the current anti-hedging tilt could be a contrary indicator. For the record, Barrick bought back its hedge book on the same day of gold's 2009 peak.


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