Polyus Gold International Ltd., Russia’s largest producer of the metal, agreed to forward contracts and hedging deals to sell 2.83 million ounces of gold by the end of June 2018, helping it cope with swings in prices.
The producer will use zero-cost collars on Asian gold as a revenue stabilizer and gold forward contracts in two tranches, it said today in a regulatory filing. The first tranche of the program will be held from April 2014 through March 30, 2018, and the second will be from July 1, 2014, through June 29, 2018.
Gold prices gained 6 percent in the past month to $1,319 an ounce after falling to a three-year low of $1,188 in December. Polyus rose 2.7 percent to 191.50 pence by 1:57 p.m. in London.
The weighted average strike price for put options in the the first three years of the program under both tranches will be $1,375 an ounce and the call option $1,491. For the fourth year, the prices will be $1,055 and $1,542 an ounce, respectively. The average gold price may reach $1,103 per ounce in 2018, according to the median estimate of six analysts in Bloomberg survey.
“This hedge deal means that Polyus doesn’t believe that the price will go down significantly but it also doesn’t expect huge jumps,” BCS Financial Group analyst Kirill Chuyko said.
Polyus had already sold some gold under the first tranche by June 30 and will report on the effect of the transactions in its first-half income statement. For the forwards component, it agreed to financing contracts to sell a total of 310,000 ounces from July 1, 2014, through June 30, 2016, in equal quantities of 155,000 ounces a year at a fixed price of $1,321 an ounce.