I have not really followed the mining industry until this year, but it seems like miners are selling quite a bit of stock to the public lately. Is this normal? If they believe we're in a bull market for gold, why do they keep issuing shares? Wouldn't it make more sense to take on low-interest debt than to sell part of your company if they did think their assets were about to appreciate? This along with low insider ownership in many miners has me concerned.
Hi Tim, Although I did a brief looksee many months ago, I'm sorry to say that Cambior is not one I follow. Should I? I seem to remember something that caused me to look elsewhere and I'm thinking it might have been their hedgebook or something equally onerus. Are they hedged? ==============================================================
Hi again Tim, As luck would have it, I just found a blurb that indicates that CBJ is hedged and that is prolly the negative factor that turned me off about them when I was checking them out last year. ============================================================== From the Afternoon gold report. (excerpted)
DEHEDGING CONTINUES:
"External factors, economic and political, will continue to favour de-hedging and investment over the rest of 2003 while fabrication demand is price-sensitive and could, along with the supply from scrap, limit the upside," said Tim Spencer, metals analyst at the UK-based Gold Fields Mineral Services (GFMS). "Gold prices will move higher from the current levels subject to further growth in investment demand, continuation of the historically high level of net long positions, continued producer de-hedging and steady fabrication demand," he said. "Globally, mine production went down by 1.4 per cent to 2,587 tonnes last year against 2,623 tonnes in 2001. Total demand increased by 1.5 per cent to 3,978 tonnes last year against 3,920 tonnes in 2001. This trend might continue this year as well."
"There is no doubt that hedging is falling among the mining companies," JP Morgan Securities Australia analyst Geoff Breen said. Australia's WMC Resources Ltd said on Wednesday it had closed out hedge positions covering 370,200 ounces of gold in the half year to June 30, joining a legion of mining houses seeking greater exposure to world bullion prices. However, unlike some other miners that have abandoned hedging outright, WMC continues to hold 40,000 ounces of gold hedges. Cambior Inc. said on Tuesday it will all but wipe out its gold hedging program by the end of 2004. The mid-tier producer, whose hedging program nearly pushed the company into bankruptcy when gold prices surged in 2000, said it will slash its hedging to 50,000 ounces by the end of 2004 by accelerating deliveries and buying back positions. In a conference call with analysts, the Montreal-based company said it has a new policy of not allowing additional gold hedging, unless funds are needed to be earmarked for future project financing. World number two gold miner AngloGold Ltd removed about 800,000 ounces of gold from its hedge book in the last quarter, but still holds 8.3 million ounces pre-sold, although it continues to unwind its positions. Larger rival Newmont Mining Corp has unwound some 10 million ounces of gold hedges tied to its takeover last year of Australia's Normandy Mining, leaving it almost completely unhedged.
Gold regained it composure after getting trampled by Fund and speculator selling yesterday prior to the Federal Reserve interest rate decision and economic bias statement. The selling continued overnight into the Asian and European trading sessions but cooler heads ultimately prevailed and both gold and silver rebounded nicely by mid-session in New York. Some analysts even suggested that silver surged and dragged gold along for the ride. It is possible that the sell off in gold and silver was well overdone given that the FOMC statement was far from optimistic about U.S. economic recovery once the statement was translated from “Fed Speak”. The FOMC is apparently very concerned about the threat of deflation. Regardless, the knee jerk reaction was a strengthening in the U.S. dollar along with Japanese currency market intervention and that accelerated the push to sell gold. While some Funds and speculators reaped quick profits it appeared that some weak hands lost their resolve, panicked and bailed out only to see gold and silver rebound in today’s trading session on weakening dollar and a tanking bond market leaving precious metals as the “safe haven” investment choice.
Also pressuring gold in early trade were good economic data on U.S. retail sales, however, that was followed by a report that U.S. consumer demand for new mortgage loans and refinancings fell sharply for the month of July as rates began to rise bringing up uncomfortable questions about consumer spending going forward. Strong housing demand has boosted consumer spending and construction jobs while rising home prices have spurred homeowners to borrow against, or "cash out," the value of their homes to spend more or to pay off more expensive personal debt like car loans and credit card bills. Even so, retail sales have also been strong last month as July and August are months when retailers discount prices to clear inventory and “back to school” season sales temporarily boost sales. Whether consumer spending, which is two thirds of the economy can hold up as interest rates rise and “cash out” refinancing declines is highly debatable. With additional concerns such as relatively high unemployment and corporate earnings coming on the back of “cost-cutting” (read firing workers) one has to wonder if the consumer will buy into the “jobless recovery” spin much longer.
Meanwhile, more gold producers joined the growing list of miners to unwind hedgebooks as over the last 24 hours Cambior and WMC announced that they too were slashing their forward sales programs. They are the two newest additions joining a growing pack of miners seeking greater exposure to the rising gold price. It is encouraging to see the “insiders” finally demonstrating to the world that they have confidence in the product that they produce. Physical demand continues to underpin the market with buying interest noted in Asia and the Middle East despite the seasonal “summer doldrums” that tend to plague the precious metals. Physical strength should improve further as buyers reenter the market to gear up for seasonal demand on central Asian festival demand and western holiday season demand, while investment interest grows on a weaker U.S. dollar and uncertain U.S. economy.
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