Should gold miners hedge their bets?

When and if gold miners should hedge against the risk of a falling gold price is still a topic of much debate in the industry, and speakers at the Mining Journal Select conference in London took opposite sides of the issue.

Gold price hedging is of particular focus at the moment, given the recent strength in the market.

Speaking on a panel on gold, Oliver Dachsel of Aris Mining said that price hedging was usually the wrong move for gold miners.

"We are not hedged at all and have no intention to be hedged; investors buy us for the gold upside," he told the audience.

"Why would we give up the upside."

Dachsel said that he would use hedging, "only in very unique circumstances". Specifically, when hedging was needed to attract bank funding.

"The gold industry would be best served not to hedge," Dachsel said.

Still a role for hedging

But Pim Kalisvaart from Hawke's Point Capital argued that "hedging has a role to play in certain circumstances".

"If you are going through ramp and commissioning of a project, you have a certain amount of risk if you then take on debt."

"I see it more about protecting your top line," Kalisvaart said.

"Prudent dynamic hedging is something we would strongly be in favour of."

Diverging physical and equities

Rick Rule, chief executive of Rule Investment Media, was similarly keen on hedging even though he dubbed himself an "unconstrained gold bug".

"I understand investors want the unbridled upside," he said. "But you can take away some of my upside if you take away most of my downside."

"The idea that you hedge until you can secure your cash and pay off your debt, it just makes sense."

Speaking on the divergence of physical gold prices and gold mining equities, Rule noted that the recent strength in gold has been driven by central bank buying, which directly supports the metal but not equities.

"The delta between buying gold and gold stocks is entirely explicable because they are different asset classes."