G-Resources not using derivatives to hedge gold price: CEO Peter Albert
Metal's price down 14 per cent since October but no need to protect against further falls: CEO
G-Resources Group, the Hong Kong-listed company that owns a gold mine in Indonesia, is confident the price of gold will continue to increase despite recent falls, and it has not entered into derivative contracts to hedge price risks on its inventory, its chief executive said.
"Our view is that gold will continue to be under pressure to move upwards, and as such we remain completely unhedged on our gold and silver [inventory]," chief executive Peter Albert told the South China Morning Post on the sidelines of last month's Mines and Money conference in Hong Kong. "We remain gold bulls."
That confidence was despite the fact that gold has fallen 13.7 per cent since early October, when it was fetching about US$1,790 an ounce.
Gold hit an all-time high of US$1,888 in September 2011.
The price traded fell to as low as US$1,550 an ounce yesterday, close to a 10-month low, driven by investors' withdrawal of money from gold-linked exchange-traded funds.
"Now that the price of gold has fallen below key technical support levels, we may well see further selling-off by investors," said a research report by Germany-based Commerzbank this week. Its analysts noted that Japan's announcement of a policy to boost money supply and stoke inflation, a move that was more aggressive than expected, had failed to ignite a rebound in the gold price. Such a policy would normally push the price higher, as gold is often held as a hedge against inflation.
Albert said that fundamental factors supporting the gold price had not changed. They included a lack of major discoveries of mines with quality resources, sustained demand from Asian and Middle Eastern nations for gold jewellery, central bank gold purchases, and bond-buying programmes by some developed nations to boost money supply and lower interest rates.
The company's Martabe mine in western Sumatra began commercial production last year, in July, three years after it was bought. By the end of last year, total gold output had hit 47,858 ounces and that of silver 218,361 ounces.
This calendar year, the mine is expected to produce 250,000 ounces of gold and 2.2 million ounces of silver. The gold is extracted for a cash-production cost of US$450 an ounce, which Albert said ranked it in the lowest quartile for global gold miners.
Albert declined to give a cost target that included fixed costs like depreciation and administration.
The group posted a net loss of US$8 million on revenue of US$41.9 million in the six months to December 31. That was mainly due to the US$7.2 million lost after a six-week production suspension during community concerns relating to the discharge of water into a local river.
Albert said a "misunderstanding" with local residents about the quality of water being discharged had been resolved.
The reserves of the three deposits at the Martabe mine are estimated to contain three million ounces of gold and 33.7 million ounces of silver. The average ore grade of the deposits is 2.1 grams of gold per tonne of ore, high by international standards. The ore grade of the Zijinshan mine, owned by Zijin Mining Group, China's largest gold miner, averages just over 0.4 grams per tonne of ore.
Albert said G-Resources, backed by Blackrock, had budgeted US$20 million this year on exploration to prove more reserve in areas near the existing mining area. The group aims to quadruple its annual gold output to one million ounces by 2016, primarily by developing resources at or near Martabe.
"As we start generating a lot more cash and get a revaluation of our share price, then those sorts of things [acquisitions] could possibly get back on to the agenda," he said.