- Harmony hedges rand while Acacia takes contracts on gold price
- Move is partial return to strategy that cost industry in 2000s
Harmony Gold Mining Co. and Acacia Mining Plc agreed to lock in profit margins at some of their African operations in a return to hedging strategies that undermined the industry during the metal’s bull run in the 2000s.
Harmony, which gets 95 percent of its production from South Africa, hedged its local currency at between 15.59 rand ($1.03) and 18.60 rand per dollar for a third of its annual production, it said in a statement Tuesday. Acacia took out contracts known as zero-cost collars on 136,000 ounces of gold from Buzwagi, a Tanzanian mine, at $1,150 an ounce to $1,290 an ounce, it said in a separate statement.
Harmony and Acacia, among the world’s highest-cost major gold miners a year ago, are trying to secure current profits linked to higher bullion prices and weak local currencies. Miners largely got out of hedges in bullion’s decade-long bull run to 2011 as the rising spot price made many of the contracts unprofitable.
Barrick Gold Corp., the biggest producer of the metal, spent at least $5 billion in 2009 canceling contracts against the risk of prices declining. Other operators such as AngloGold Ashanti Ltd. also spent at least $2.6 billion getting out of such arrangements.
“We are taking a prudent step in locking in a gold price in excess of our planning price at Buzwagi, our shortest life asset, which is in harvest mode,” Acacia Chief Executive Officer Brad Gordon said in the statement.
Acacia said it has permission from its board to extend its 2016 hedge to next year, for about 120,000 ounces of production at Buzwagi, which has a lifespan of five years including two years of processing stockpiles.
Harmony has experienced a major turnaround in fortunes as the rand weakened 24 percent against the dollar in the past 12 months. Its shares are up 167 percent in 2016.
Like all gold miners in South Africa, Harmony’s profit margins benefit from a weak rand because it gets revenue in dollars while costs are in the local currency. The company is earning about 150,000 rand for every kilogram of gold it produces this quarter, compared to a loss of 14,000 rand a kilogram in the three months to March 31 last year.
“The weakness in and volatility of the rand presented an opportunity to Harmony to establish a very attractive minimum exchange rate on the U.S. dollars we receive when we sell our gold, while leaving our shareholders fully exposed to the upside in the U.S. dollar gold price,” Harmony Finance Director Frank Abbott said in the statement.