Gold prices have been going gangbusters in recent months with futures briefly breaking $US1,800 an ounce (about $2,600 in Aussie dollar terms) last week and analysts predicting that $US2,000 an ounce is likely by the end of this year.

Ongoing market uncertainty due to the COVID-19 pandemic also means that this bullish outlook is expected to continue for some time yet.

This means that it is not a particularly large risk for gold producers to remain exposed to potential gains in the price by selling onto the spot market rather than hedging their future production.

Hedging involves a gold producer forward selling future gold production at a fixed price rather than taking chances with any potential fall in the spot price.

Despite this, Aeris Resources (ASX:AIS) has moved to lock 36,000 ounces, or about half its targeted gold production from the Cracow gold operations in Queensland, at a forward price of $2,536.25 per ounce.

The hedges will mature over the next 12 months in scheduled monthly deliveries of 3,000 ounces each.

“Given our commitments in the next 12 months to funding exploration activities and debt repayments, we believe it was prudent to put these hedges in place to underpin a portion of our operating cashflows whilst still providing exposure to future upside in the A$ gold price,” executive chairman Andre Labuschagne said.

Aeris has just acquired the Cracow mine from Evolution Mining (ASX:EVN) which is forecast to deliver $100m in cash flow over its first two years of ownership.


The miners hedging their gold

Newcrest Mining (ASX:NCM) has hedging in place for more than 200,000 ounces of gold per annum in FY2021 and FY2022 at a price of $1,864 an ounce and $1,902 an ounce respectively.

This drops to 137,919 ounces at $1,942 an ounce in FY2023.

While this is substantially lower than current gold prices, 200,000 ounces per annum is less than 10 per cent of Newcrest’s expected FY2020 production of between 2.1 million and 2.2 million ounces.

Meanwhile, Saracen Mineral Holdings (ASX:SAR) has hedged 542,000 ounces at an average price of $2,056 an ounce over the next three years.

Again, this compares with its FY2020 guidance of more than 500,000 ounces of gold production.

Regis Resources (ASX:RRL) has a combined hedge of 419,000 ounces at an average of $1,620 an ounce that ends on July 2023.

It expects to produce between 340,000 and 370,000 ounces of gold in FY2020.

Silver Lake Resources (ASX:SLR) has more than 155,000 ounces of its future gold production hedged at an average forward price of $2,100 an ounce over the next two years.

The company expects to produce 240,000 to 250,000 ounces of gold in FY2020.

Separately, Northern Star (ASX:NST) has deferred its calendar year 2020 hedges to next year, though the company is still delivering gold into its hedge book, which is locked in at prices ranging from $2,035 an ounce to $2,180 an ounce.