Wednesday, September 15, 2010

AngloGold Ashanti Throws In The Towel On Its Massive Gold Hedge

AngloGold Ashanit (AU) announced this morning that it will raise $1.2 billion, which will be used in conjunction with cash on hand plus credit lines, in order to eliminate its gold hedges, thereby indicating that its management obviously sees much higher gold prices ahead.

Recall that Barrick Gold last September at the Denver Gold Show announced a similar move to remove its massive hedges.  At the time gold was just below $1000/oz and the Einsteins on Wall Street criticized this decision.  CNBC reported that it likely marked the top of the gold market.  With gold at $1270, now how does this decision look?

I applaud this move by AU because those hedges were one of the factors which prevented me from investing in the Company.  As one of the world's largest gold producers, AU has an enormous resource base - and therefore substantial leverage to the price of gold as well as the benefits of economies of scale - all of which were severely limited by its large, value-destroying gold hedge.

And I will reiterate the same comment that I made when ABX implemented its move de-hedge.  ABX and AU are not creating short term shareholder dilution and spending billions to de-hedge because they think gold has maybe another 10-20% of upside. After all, these hedges were put on a decade ago when gold had been stagnating around $300/oz. Both companies have already suffered the damage incurred by a 400% rise in the price of gold. Make no mistake in your interpretation, this decision to spend the capital needed to remove these hedges is no doubt based on industry-insider conviction that the price of gold will eventually increase by several multiples.

“What we see here is one of the greatest, least loved, and least recognized primary bull markets in history…. This great gold bull market is something that one sees maybe once or twice in a lifetime.”
                                                          - Richard Russell, September 2010


  1. Oh boy Dave...I lol when people get all huffy and puffy when we talk of Arming ourselves for protection purposes for our familys. Without getting all tin foiled up I lol that your not.

  2. Can you give a link for this news?

  3. AU news link:

  4. spot on.

    and as if you need more to do -- if you hear/come across anything related to the most recent under-the-radar GLD news, i would love to hear it...or just your recent thoughts.

    i can't help but think that proverbial bow is about to break there.

    i know they added 6 tonnes yesterday but it sure seems there is a growing disconnect in the growth rate in the actual physical investment market and how quickly toilet paper like GLD is growing. this implies that while GLD still adds it is masking heavy outflow.

    GLD is only part of the story but one of the more interesting pieces, imho.

    the volcano is rumbling, that is for sure.

  5. Dave-

    I'm guessing you know these guys up in Golden, CO?

    AUMN is the ticker.

    Sky rocketing the past 2 days.

    Can you give me your favorite gold and silver miners again?

  6. JH,

    I am only vaguely familiar with AUMN.

    My best ideas are EMX.V/EMNSF, VIT.V/VITFF, SDRG, OSK.TO/OSKFF

    Eurasian Minerals is the best idea I've seen in this sector in the 9 years that I've been doing this.