August 30, 2013 / 4:47 AM / 5 years ago

Australia's Norton Gold hedges prices on 30 pct of expected annual output

* Firm hedges 30 pct of projected annual output of up to 167,000 ounces

* Sets 12-month delivery at A$1,601.40 an ounce

* Spot gold down 16 pct for the year

* Bigger miners haven’t shown any interest in hedging

By A. Ananthalakshmi

SINGAPORE, Aug 30 (Reuters) - Australia’s Norton Gold Fields Ltd is hedging the price risk on nearly a third of its projected 2013 gold output, becoming one of few producers to adopt such a strategy amid this year’s tumble in bullion prices.

Norton, controlled by China’s biggest gold producer Zijin Mining Group, said it has entered into a hedging program with Macquarie Bank comprising 50,000 ounces of gold for delivery over the next 12 months at a flat forward price of A$1,601.40 ($1,400) per ounce - lower than current spot prices.

The pricing indicates Norton does not expect a recent recovery in gold prices to have legs. That is in contrast to most producers, who expect gold prices to rebound and have thus been reluctant to initiate a hedging strategy.

Spot gold prices have fallen 16 percent this year after 12 consecutive annual gains. They hit an all-time high of over $1,900 an ounce in 2011, helped by easy central bank money and a weak global economy.

But with the possibility of the United States winding down its stimulus, the metal fell to a three-year low of $1,180 in June this year before rebounding to trade at around $1,409 on Friday. Several brokerages, including Goldman Sachs, have forecast prices to weaken by the end of the year and even more next year.

“We want to protect ourselves from the volatility in gold prices,” Dianmin Chen, chief executive of Norton, told Reuters. “This is going to give us good security in cash flow.”

Norton is expected to incur A$900-A$980 per ounce as cost of production, according to the company’s forecast provided earlier this year.

“So that (the A$1,600) offers us a very good margin,” Chen said.

With mines in the Kalgoorlie region in western Australia’s outback, Norton expects to produce 163,000 to 167,000 ounces of gold this year and double it over the next three to five years.

Hedging, once a popular practice among gold miners, all but dried up in the mid-2000s, as they spent billions to unwind forward sales and regain full exposure to rising bullion prices.

“The commencement of hedging program at the sector at large has been slow and much of that is a function of the fact that they haven’t done it for so long,” said Mark Keenan, a cross-commodity research strategist at Societe Generale in Singapore.

“Companies are struggling with the actual mechanics of how they would hedge,” he said, adding that while he has seen more interest among producers to hedge, there isn’t a huge rush.

Top U.S. gold miner Newmont Mining Corp has taken billions in charges due to the drop in gold prices but its chief executive Gary Goldberg said the company was not currently contemplating hedging.

Other big producers such as Barrick Gold Corp and Newcrest Mining have also not expressed any interest in hedging.

Russian-focused miner Petropavlovsk said earlier this year it would hedge almost half its output to March 2014.

$1 = 1.1203 Australian dollars Editing by Muralikumar Anantharaman

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