GOLD may have closed at $US922 an ounce on Friday but that doesn't bullet-proof smaller producers, as the View calamity shows.
Two things must always be kept in mind when buying into gold stocks. One is hedging, which is not always avoidable if a company needs to raise money. But the best thing in the present climate is to be fully exposed to the spot, our most recent example being North Queensland Metals at its Pajingo mine. Subsequent to our report on this last week, NQM has raised $7.5 million through a share placement.
Its 40 per cent partner, Heemskirk Consolidated, has chosen caution and has entered into a put option deal that sets a floor of $900/oz under 14,000oz of its share from Pajingo, about $100 below the present Australian dollar price.
But hedging is very much out of favour. Peru's Cia de Minas Buenaventura has decided to spend $US434 million to unwind 2010 and 2012 forward sales covering 782,000oz at an average hedge price of just $US380/oz.
The other thing to watch is cost. Reed Resources, which is in joint venture with Kingrose Mining at the Sand Queen mine north of Kalgoorlie, reported on Friday that its cash costs were a modest $311/oz. It sold 608oz in its latest deal for $1011/oz.
