Avocet Mining Plc (AVM), a gold producer in Burkina Faso, said it would rather sell its output at market prices than fixed rates and may consider closing the hedge book it inherited in 2009.
“If there was a way that we could close it out in some fashion, in the right market conditions, we would consider it, but it’s a big number,” Chief Executive Officer Brett Richards said in an interview in London. “If I had my way we would be unhedged. I would like full exposure to the gold price.”
Gold producers can sell future output at fixed prices to lock in profit or secure loans, and can reduce hedges by buying back contracts. Avocet was among gold miners to buy back part of its hedged production last year as prices for the precious metal headed toward an 11th annual gain.
The London-based company spent about $40 million reducing its forward sales by 20 percent in July and extended the delivery of its remaining hedged production by four years. It now has 8,250 ounces of hedged output per quarter, compared with 25,000 ounces previously.
Avocet inherited the hedge book when it bought Wega Mining ASA for 53 million pounds ($83 million) in 2009, gaining control of the Inata gold mine in Burkina Faso. The company’s hedge lasts until June 2018 with gold sold at $950 an ounce.
“If there is optionality where we could close it out, or close part of it out, on the back of some other corporate activity then I see value in that,” Richards said yesterday. “On its own it would be very hard to crystallize a $130 million liability today.”
Barrick Gold Corp. (ABX), the biggest producer of the metal, and AngloGold Ashanti Ltd. (AU) have also cut forward sales after the hedges forced them to sell their output below market rates. Barrick spent almost $5 billion to eliminate such contracts.
Avocet is targeting annual gold production of about 160,000 ounces at Inata this year at a cost of $800 to $850 an ounce. The company plans an expansion of the mine, which will be completed in 2013 and boost annual output to 240,000 ounces.
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