Shanta Gold hedges half of its forecast 2013 output

Mon Apr 29, 2013 5:22am EDT
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LONDON, April 29 (Reuters) - Shanta Gold, the East Africa-focused miner, said it hedged almost half of its forecast 2013 production, joining a growing list of smaller gold producers who have locked-in future output to protect against volatile prices.

Small single-commodity producers are particularly on edge with gold down 13 percent so far this year. The precious metal plunged to a two-year low earlier this month, experiencing the biggest single-day price drop in thirty years.

London AIM-listed Shanta said it sold 30,000 ounces at $1,429 per ounce in a statement on Monday, slightly below current spot prices but above the $1,321 low touched just two weeks ago.

Russian-focused miner Petropavlovsk said in February it would hedge almost half its output until March 2014. Avocet , the West Africa-focused gold producer, is also signed into forward sale deals.

Hedging through selling production forward was a popular way for miners to lock in prices in the late 1990s and early 2000s but as gold prices soared hedged miners such as Barrick Gold and AngloGold Ashanti lost a fortune in potential profits.

Mike Houston, chief executive of Shanta Gold, said hedging was not usually a preferred option.

"Shanta in principle does not favour hedging/forward sales unless, as in this particular situation, it is put in place to provide stability during an important period in the company's development".

Shanta is ramping up output having started producing from its flagship New Luika Gold Mine in Tanzania last year and targeting 430,000 ounce output over the next five years.

Kate Craig, analyst at Liberum, said in a note the hedge would support the company's cash flow as it increases production to full capacity. She expected the forward sales to hit earnings for the year by around seven percent.