Sons Of Gwalia De-Hedging Already Started, Analysts Say
By Gavin McGuire Dow Jones Newswires Monday, August 30, 2004
http://www.thebulliondesk.com/NewsProvider.aspx?NewsID=20975918 NEW YORK -- The voluntary fall into administration by Australia's second-largest gold miner, Sons of Gwalia Ltd., has prompted gold-market watchers to speculate that the miner's 81-metric-ton, or around 2.6-million- ounce, hedge position has been in the process of being unwound over the past week.
The Perth-based company said Monday that it appointed voluntary administrators over the weekend after identifying a "serious deterioration" in the status of its gold reserves, which meant the company lacked the resources to meet its hedge book commitments.
Gold dealers agreed that the company's bankers likely will have pushed for a squaring of holdings ahead of bankruptcy filings, which would have included an unwinding of its hedge book.
Last week market participants reported regular spurts of gold buying through several investment banks that market participants say may well have been intermediaries of Sons of Gwalia unwinding the company's hedge exposure.
"You'd have to hope that the management was smart enough to unwind the hedge before going into bankruptcy, and certainly its bankers would have pushed for that to happen," said the head of precious metals trading at a New York-based European investment bank who declined to speak on the record.
Tim Gardiner, head of precious metals trading at Mitsui Precious Metals Ltd in New York, agreed. "I'd assume most of it has already been done by now. The numbers (of ounces) we saw being bought last week add up to around the amount Gwalia is talking about," he said.
However, other market observers have stressed that the company may not have been able to successfully complete all those purchases and that further de-hedging may be yet to come.
Further, one metals and mining analyst observed that part of the company's hedge structure was "toxic" in that it increased in exposure as prices rose, thereby making it very difficult to unwind completely within a short period.
To make matters potentially worse, with the Republican National Convention taking place this week in New York City, heightened terrorism concerns have made active sellers of gold likely to remain fairly scarce this week.
"If they have a lot of buying still to so, it could be painful for them this week as the market is quieter than usual this week, anyway, with holidays in London and the United States, and the convention in New York adds a terrorism threat as well," said the European investment bank dealer.
Sons of Gwalia officials could not be reached for comment.
