S.A. Gold Miners "Hedge" - But With A Difference

There is no dirtier, 'four-letter word' in the vocabulary of the world's gold miners than "hedging". With those readers for whom this term is no longer familiar, an introduction from Bloomberg:

Harmony Gold Mining Co.  (HMY) and Acacia Mining Plc (ABGLF) 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.

Yes, 20 years ago, the One Bank coerced most if not all of the world's largest gold miners to "hedge" their gold production, meaning hedging the (U.S. dollar) PRICE OF GOLD. By "hedging", those miners agreed to FORWARD SELL a portion of their production onto the market, at guaranteed price parameters.

In other words, no matter how much the price changes during the term of the hedging arrangement, the miner is locked in at that price. Doing this, shortly before a ten-year bull run, cost these miners $BILLIONS and $BILLIONS -- in either lost profits, or penaltiesfor buying their way out of those contracts.

Because of that reality, I've warned readers that due to the current, extended price-suppression of gold, that we would see the banksters trying to goad the big gold miners into returning to that form of financial suicide and financial slavery. But note that there is a key difference in the nature of this hedging.

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.

Two gold miners. Two slightly different hedges. Harmony Gold is actually not hedging its gold production at all. It is hedging its currency, versus a decline in the value of that currency versus the USD. Because this is a currency hedge, and not a gold hedge, there is no "forward selling" of gold taking place. Furthermore...

“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.

Yes, if the price of gold rises (denominated in USD's), this gold miner fully benefits from that rising price, and because the banksters don't get to forward-sell any gold here, there is no material harm to either this gold miner, or the gold mining industry in general. Then we have the "hedge" by Acacia.

This is, in fact, a "gold hedge" -- meaning that it is evil, because it does result in gold being forward-sold onto the market, it does lock-in the price this miner receives for its gold, and thus it does serve the banksters. Here, however, it is important to note that this miner is only hedging production for one of its mining operations, and for a very specific reason:

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.

Translation: this is an OLD mine, with very little gold left to mine (five years supply), and nearly half of that is simply processing old tailings -- the waste product from the original mining process, which contains low concentrations of gold. Thus what we see here is a company making a small, short-term gamble that it can make slightly more money in the last years of this mine by hedging its production at "$1150 to $1290" per ounce, USD. Note that if the value of the U.S. dollar falls significantly versus other currencies (and thus versus gold), then this hedging contract can still be profitable, even if the price of gold (in general terms) is rising.

Because the USD has been manipulated to a particularly outrageous/absurd/insane level versus other currencies, this is a very strong possibility, assuming that the USD isn't simply removed from circulation altogether (also a strong possibility). Note that in the latter scenario, if there is no more USD, then the hedging contract ceases to exist, because you can't hedge the price of gold versus a currency which is no longer in circulation. Thus this is "gold hedging" (by one miner, at one old mine). However, at this point we are still NOT seeing any indication that this is a return to the general hedging insanity and financial slavery of 20 years ago. Stay tuned...

Three Reasons Why The USD Is Already Worthless
When The U.S. Dollar No Longer Exists
The World of Currency Manipulation

P.S. Note how the article discusses how Acacia has "taken contracts" on its gold. This explains how the hedge operates. Each time one of these contracts comes due (as part of the total hedging), the miner is required to deliver a specific quantity of "gold" -- even if it has not yet been mined out of the ground -- at a specific price, and then the bank on the other side of the contract immediately dumps this "gold" onto the market.

This is another reason why hedging is so evil. The banksters are legally allowed to "sell gold" which hasn't even been mined, it's still just ore in the ground. There is real gold here, so it's not like the Big Banks' totally fraudulent paper-called-gold scams, but it does artificially increase the supply of gold -- by pretending that gold ore is already mined-and-refined metal.

Paper Gold Isn’t Real Gold

Gold Hedging Returns as Harmony, Acacia Lock In Profit Margins

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...

Disclosure: None.

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