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AngloGold Scrambling To Unwind Its $2.4 Billion Underwater Gold Hedge Book, Issuing $1.4 Billion In New Securities
One would have thought AngloGold would have learned from Newmont's hedging mistakes. Alas, who is to say that corporate officers are any better at predicting the future than the cadre of CNBC and Wall Street "analysts" who persist in seeing gold crash and burn "eventually" only to be proven wrong again and again. Today, AngloGold has announced that it is issuing just under $1.4 billion to stem the damage arising from its massively underwater hedge book which is estimated to be at around $2.4 billion. So as a result of management's bullheadedness, it is the shareholders who have to suffer: WSJ reports that AngloGold "expects to raise gross proceeds of about $686 million by issuing 15.7
million new ordinary shares and expects to raise about $686 million by
issuing a three-year mandatory convertible subordinated bond with a 6%
annual coupon. The bond will be listed on the New York Stock Exchange
and will convert to a similar number of shares." End result: dilution and shareholder value loss (stock down 5%+) when the firm should be benefiting from gold's all time record price.
More from the WSJ:
The equity offering, including the exercise of an overallotment of 2,366,086 additional shares to the underwriters, will equate to about 5% of the gold miner's issued share capital.
AngloGold Ashanti, the world's third-largest gold producer behind Barrick Gold Corp. and Newmont Mining Corp., will use the net proceeds from the equity and convertible-bond offerings, along with its own cash reserves and existing credit facilities, to eliminate its gold hedge book, which had a negative marked-to-market value of around $2.4 billion as of June 30.
AngloGold Ashanti's hedge book locked the miner into forward gold sales at an average price of less than $450 a troy ounce, resulting in substantially discounted sales compared with the spot gold price. Spot gold hit a record high of nearly $1,275 a troy ounce on Tuesday, as investors piled out of the U.S. dollar and into commodities.
AngloGold wants to use the proceeds from its capital raising to buy back or unwind the hedge, thereby giving the company full exposure to record high gold prices.
"Removing the hedge book represents the last phase of the balance sheet restructuring and once completed, is expected to give us full exposure to the gold price, widening profit margins and improving cash flow," Chief Executive Mark Cutifani said. The move would also boost the company's capacity to fund new organic expansion projects. he added.
AngloGold has already taken steps to reduce its hedge book to 2.72 million ounces as of Wednesday, from 3.22 million ounces at the end of the second quarter and 11.3 million ounces at the end of 2007.
AngloGold estimates that its current residual hedging position would likely result in an effective price discount to spot gold of about 6% to 11% until 2014 and a discount of less than 1% in 2015 if the hedge book weren't restructured, assuming annual output of five million ounces and a spot price of between $950 and $1,450 a troy ounce.
And as underwater book unwinds tend to be underlying-commodity price supportive, expect some additional upward price pressure in gold imminently.
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This a JP holding?
Paper is paper...
To me the most important news today is that the US want a weaker dollar as confirmed by statements made by Republican Sander Levin which said that today's BOJ intervention is "deeply disturbing".
AngloGold knows what he does (thanks to Paulson) and as such those betting that we are at an intermediate top (like it was the case when Barrick closed its hedges) are likely to get killed....
To me the most important news today is that the US want a weaker dollar as confirmed by statements made by Republican Sander Levin which said that today's BOJ intervention is "deeply disturbing".
AngloGold knows what he does (thanks to Paulson) and as such those betting that we are at an intermediate top (like it was the case when Barrick closed its hedges) are likely to get killed....
I remember an old Cramer episode where he was recommending AngloGold Ashanti as a miner to own...did not realize they were hedged but he probably did.
Mastercard is rocketing today.
While Anglo Gold is crashing.
More evidence that gold mining companies are still choking on a cesspool of "OTC Derivatives".
It is impossible for gold mining companies to make any money.
Mastercard, on the other hand, has no such problems.
"Paper" once again trumps "Things".
By the way, any wonder why there are no gold stocks trading for over $200/share?
Or even $100/share?
Don't you mean paper trumps paper? Miner stock not being gold, of course. Tell us again how smart you were to sell your yellow rocks a while back.
Robo, are we looking at the same Mastercard and Anglogold? I may be confused...
Robos charts span the equivlant of a few days. Long-term prospect for him is a full week of being invested.
A few days is generous...he only looks on the minute by minute timeframe that suits his case. But as we know he's always all in on the up minutes and all out on the down minutes...of course
It is impossible for gold mining companies to make any money.
why let facts get in the way? NEM p/e = 16. dividend yield = 1.0% oh, and yesterday new 52 week hi.
It is impossible for gold mining companies to make any money.
Mastercard, on the other hand, has no such problems.
"Paper" once again trumps "Things".
By the way, any wonder why there are no gold stocks trading for over $200/share?
um... yeah, whatever. I've had shares of this one since early 09 (April/May time frame I bought in).
http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximize...
Tyler, dont' be so obtuse.
The charts clearly show how the medium-term trends of 5-minute intervals and the short term trends of 1-second intervals prove that you should invest in MasterCard and short Gold like Robo has so astutely demonstrated.
[/sarcasm]
No excuse to junk this, just his opinion, nothing offensive. Personally, I hate stocks that get above $30. It's more fun to buy more shares at around 5, 10, 15 bucks, then watch them double or triple. I know some people love penny stocks, the Vancouver Exchange was built on them. But they are like lottery tickets. Small outfits with working mines and good exploration crews turn me on. The big guys always seen to get too clever by half. Barrick and Anglo, for example.
Don't worry. The Fed will covertly buy all their bonds so that they can continue their gold manipulation at the behest of Corpgov.
Should have invested in "NegroGold"
Its true, rappers will rule the world soon due to the weights of their chains and grills. Bernanke, step aside, Wu Tang Financial be takin over da FED!!
Can't believe Anglo gold are still hedging. Barrick stopped hedging about a year ago. CEO should be sacked.
As if Anglo's shareholders didn't see this dilutive event coming? I don't own Barrick, never have, and I don't own Anglogold for the same reason.
"Buy our shares because we are stupid"
Is it just me or is it obvious that the boards of all these "gold" companies are just part of the GS mega-mafia trying to keep Toto from pulling back the curtain? Is there a gold mining company out there I can buy where the stock actually f***ing goes up when bullion skyrockets? The worst of them all of course is Barrick (I know, they're not a miner, just saying), which has always been populated by revolving door ex-USpresidents and assorted mafiosi.
How about trying to make money in your core business for chrissakes?! It's like whenever I go to a store these days they're trying to stuff a credit card down my throat instead of sell quality products a low prices, because the only game in town is loansharking now.
Try ANV, Allied Nevada. It has been a winner for me since Dec. '08. They all run in cycles, sluggish some days, hot the next. But over all the good ones rise sometimes even when the metal is dropping. Analysts have marked some nice small miners as underperform when they are actually pretty good. Some good ones like SA, Seabridge, run hot for a long time then become dogs. I guess the insiders know something we peons don't. Or maybe it's the damn computers messing with our heads.
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These hedge books are all a part of the Fed/dollar gold fightinmg machine.
The UK gold dump had something to do with it. It is also why Brian Molroney (former PM of Canada) was on Barricks board of directors.
And Bush 41. Complete rogues gallery.
And didn't Mulroney preside over Canada's Central Bank gold hoard decreasing from 500 tons to 5 tons? Wow, some bullion banks owe him big time for that. Isn't Mulroney based in Montreal? Are there any big bullion banks in Montreal? Beginning with the letter K?
Tyler (or whoever posted),
I disagree with the statement; "..only to be proven wrong again and again."
You should have said; "...again and again and again and again and again."
Gold denial(in the last decade) has been going on at least since 2003.
Accidental repeat.
again and again?
I wish I was other counterparty on the contract of buying at $450/oz. I would already own my own island stocked with plenty of "aspiring" models.
Moin from Germany,
here via FT Alphaville the "history" of the Global GOLD Mining Hedgebook
http://av.r.ftdata.co.uk/files/2010/09/gold-hedging.jpg
According to Erste Bank
AngloGold and Ashanti account for the majority (i.e. close to 45%) of the existing positions.
From numismaster,
In another interesting development, a buyer of a COMEX gold contract for delivery in September 2009 just received confirmation that the physical gold has finally been posted to his account.
1 year backlog at the COMEX.
Since August 2nd one watershed event after another unfolds in the Gold market driving prices higher. To see a discussion of these events check out:
Precious Metals Outlook: Another Watershed Event, Once Again Ignored by Traditional Media Outlets, Propels Gold & Silver Prices Higher.
http://tinyurl.com/2b9su77
(Greenspan) The former central banker noted that gold, the price of which has been surging, still represents the "ultimate means of payment." What is happening in that market "is a signal there is a problem with respect to currency markets." He reckons the problem is not a large one, but the jump in gold prices could be "the canary in the coal mine to keep an eye on."
I reckon the problem IS a large one.
http://online.wsj.com/article/BT-CO-20100915-705956.html
He can't be a moron, so he must be a liar. Why else would he change his tune every week?
His truth book is hedged...
I got an idea...lets take our hedge off........just as gold peaks.
Peaks? It's just getting started now. The shackles of the London Gold Pool Mk II are just now being shaken off. That, I think is what Anglo is anticipating.
The same arguments were made when ABX decided to cover their book...about $200 ago.
However, a very nice gold price correction/buying opportunity occurred after ABX covered. Will be interesting to see if history repeats with AU.
Aside from mgmt making the great decision to hedge into a bull market, they further shine (both ABX and AU) by taking off hedges in what is usually a seasonally strong time frame for pm's. This are mgmt teams to avoid.
Just never understood owning hedged mining companies anyway if your reasons for buying are because you expect the price for their product to rise.
And gold peaked at 1226.40 a day ahead of ABX announcing...
http://www.businessweek.com/investor/content/dec2009/pi2009122_451239.htm
http://stockcharts.com/charts/gallery.html?s=%24gold
Get back in your tiny car with the 12 other clowns in it and pedal away, clown.
Or replace Ben's face with his own...
No excuse for these guys, I really feel for their poor shareholders. I mean even Barrick was smart enough to get out of their hedges- - last year! And one can see the effect that had on Barrick's pps.
Nice businessmen at Anglo...Case study on how to seize defeat from the jaws of victory.
Adrian or someone from LeMetropole please confirm that Barrick is still hedged for billions and they constantly prevaricate about the state of their hedgebook...
Second that !
If I had more time today would go back and research Adrian's and Bill's research on ABX and the fact that they only "SAY" that their hedges are off.
Trust the word of a Bush or a Mullroney?
Not on your life!
Come on Bill... Post the link to ABX bullshit in the open.
As a practical matter, I understand the need to hedge some future production. Just as a farmer or rancher might sell forward to lock in profits for a season, a metals producer can and should do some forward selling.
If you are a CEO of a mining and exploration company, you have to attempt to level out the fluctuations in your revenues that are due to movements in the underlying price. If you want Wall Street to hold and promote your equity, you need forecasting stability. I get it. However, how do you end up $2.4B underwater? This wreaks of speculation at best, outright attempts at manipulation at worst. Manipulation not by AU per se but by The Evil Empire as they conspire to get others to do their price-capping. If the EE is uncomfortable providing all of the paper gold to cover buyer demand, why not lay off some of the responsibility upon others?
The fact that ABX, and now AU, are no longer playing this game leaves us several steps closer to the end of the bullion bank control/suppression of gold.
Capitulation by another major physical short. JB and others ignore these signs at their peril.
Thanks for the solid points on hedging Turd. The best news is that this is another signpost on the road back to real money.
The background to this is pretty murky and lies prior to the acquisition of Ashanti by Anglogold. The old Ashanti had hedged production back in the 90s, when prices were far lower than today. Unfortunately, after Brown's bottom, gold prices started to rise and Ashanti did not have sufficient cash on hand to meet margin calls. The bank c'parties called default and they forced a restructuring of the book - extend and blend and the end result was it was sold to Anglogold for a knockdown price. It was a ugly situation as the banks were able to sell the assets for a cheap price and they basically closed the derivatives market for years. So anyway, these "hedges" are the legacy of a bad situation in the past.
The joke in the markets was the CFO won an award as the "corporate hedger of the year" or some shit like that and then the next year, the hedges caused the company to default...
Awesome to see Erin Burnett and the rest have to bend over and take it up the kornhole over constant calls for gold to crash.
I watched CNBC late in the day. They got very loud arguing about gold. Then some trader on Kudlow was fiercely for gold, PMs the only bull market.
Corporate management wants exposure to gold? The bell is ringing!
Looks like everyone is fed up with AU, and they are now piling into laggards like KGC and AUY.
Sold my AU shares back in June at 44, but I'll buy back should the stock fall below 40.
Same thing happened to Barrick when the unwound their hedges last year.
If AU falls below 35 it's a no-brainer buy.
Here is a novel idea. Just mine the gold and deliver it as promised. That goes really far in reducing a hedgebook. Then you can stop hedging. Oh but wait...you were never planning on having to deliver any gold. You were daytrading gold futures and lost huge.
meh
Heh heh....still hedged. Dumbass Gold Bitchez.
I would rather buy oil producers than gold producers. Compare and contrast the average PE and dividend yield in both sectors. Yes there are exceptions, such as NEM.
I would rather trade the bullion. There is something about the leverage involved in owning miners that triggers my greed.
Mark Twain defined 'Gold Mine' as a hole in the ground with a liar standing next to it.
whoever takes deliver of this gold will probably be selling asap; buy $450, sell at $1250
plus $800 an ounce. yikes. dat real money.
He who hedgies will soon get wedgies.
I found lots of interesting information here. I love zerohedge.
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