gold

It is naïve to think that the loss of production that is going to continue for years to come is the only factor at play. It is important to remember how much gold is hedged with miners such as AnglogoldAshanti. The threat of force majeure is looming large. They must not only think about the loss of production but what this will do to the gold price and then they must think what that will do to their hedge books. They must then start thinking about an accelerated plan to cover the hedge book. AnglogoldAshanti has over 300 tonnes of gold sold forward. The expected production loss of 12.5 tonnes over the next year at Anglo alone could well trigger a panic to cover 300 tonnes. This is the potential leverage that the threat of force majeure could bring into play. Although ESKOM is promising 90% of normal power supply there is absolutely no guarantee that is achievable. The miners are playing a game of Russian Roulette. It would be foolish to bet that there will not be more force majeure shut downs as occurred last week. It would be foolish to bet that 90% uninterrupted power supply will be accomplished. It would therefore be prudent to start to buy back hedges. The potential lost production then starts to have a multiplying effect on gold supply reduction. The SA miners are at borderline profitability. They can not afford to gamble. They have to play it safe. This will have huge repercussions.
Very few people have grasped how important this development really is.
Cheers
Adrian
More on the same:
Bill
http://www.miningweekly.co.za/article.php?a_id=125932
QUOTE
Gold Fields, South Africa’s second-largest gold producer, said it would be reviewing all its capital expansions in South Africa in light of the current power crisis, and might have to close a number of less-profitable shafts. "Nothing is going to be sacred," CEO Ian Cockerill said at a presentation, in Johannesburg, last week.
Operations had to be cut back even at its prized South Deep mine, near Johannesburg, said to be the largest remaining gold orebody in the world.
The company also warned that production at its South African mines would plunge by between 20% and 25% in the March quarter, because of the recent load-shedding and the Christmas break. The company would continue losing 15% to 20% of its normal production as long as Eskom could only provide it with 90% of its power requirements.