Resolute Mining Limited’s (ASX:RSG) (LON:RSG) gold hedging position has been rated positively in a Canaccord Genuity report on ASX-list gold producer hedge books.
The analysis compares the hedge books of Canaccord’s ASX gold producer coverage.
This shows that while Resolute has the largest percentage of production hedged, the company also has the highest weighted average A$ hedge price and among the smallest out-of-the-money positions among peers.
“Responsible” hedging position
Commenting on the report, Resolute’s managing director and CEO John Welborn said: “Resolute has responsibly locked in a guaranteed above-budget gold price for a significant portion of our budget period gold production while preserving exposure to higher gold prices and avoiding negative P&L impacts.”
Resolute, which has gold projects in West Africa and Queensland, Australia, has today traded up to A$2.01.5 after reaching a new high of A$2.12.
Canaccord said the average proportion of production hedged by the producers was 31%. “DCN and RSG have the largest percentage of production hedged at +45% (weighted over term of current hedge profile).
“While RSG is the highest at circa 48% (over 1 year), the position represents only circa 8% of market cap, is short-dated (circa 1 year) and at a high price (+A$1,925/ounce).”
Hedge price average above costs
Canaccord said the average hedge price of the producers of A$1,821 was 18% less than the A$ spot price with averages “comfortably” above the highest cost producer of the company’s covered.
Welborn said Resolute’s positive hedging position was the result of locking in hedging opportunistically on spikes in the gold price.
This hedging was also all short-dated, he said, and held against near-term production.
Key Canaccord conclusions
“With hedge books currently well out of the money, we note the likelihood of P&L impacts in upcoming FY19 reporting.
“Looking further out, we see potential for increased hedging from some producers to lock in high prices and ‘average up’.
“From an equity standpoint, we note that a rising gold price could see investors prefer higher torque to gold prices through companies with lower hedging.
“In this instance, our preferred names are RSG, NST and WGX.”