UPDATE 1-Detour Gold could hedge if bullion price falls further -CEO

Tue Jan 28, 2014 5:09pm EST
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By Euan Rocha

TORONTO Jan 28 (Reuters) - Detour Gold Corp would consider using a hedging strategy if the price of gold drops from current levels, the Canadian gold miner's interim Chief Executive Paul Martin said on Tuesday.

The board of directors has given approval for management to hedge up to 50 percent of the output from its Detour Lake gold mine in northern Ontario, if circumstances require such action, said Martin, speaking from the sidelines of the TD Securities Mining Conference in Toronto.

Martin, who was named interim chief executive in November, said Detour does not have a set gold price at which it would deploy such a strategy. He said that the company is constantly assessing the situation, but stressed that any hedging strategy, if used, would be very short term in nature.

Hedging, or selling production forward, is sometimes used to shield mining companies from falling prices, but it also stops them benefiting from gains.

The strategy was a staple in the gold industry during the 1990s and over the turn of the century, when gold prices were in the doldrums. Following a decade-long bull run in the price of gold, the strategy fell out of favor with miners and investors, who punished miners that stuck with gold hedges.

The world's largest gold producer, Barrick Gold, which once had an extensive hedging strategy in place, unwound its gold hedges in 2009 and raised more than $5 billion to do so, just so that it could benefit as the price of gold rose.

But with the price of spot gold falling more than 35 percent since peaking at more than $1,900 an ounce in 2011, miners are once again considering hedging strategies that were not long ago deemed taboo in the industry.   Continued...