Harmony hedges exchange rate on third of gold sales
Gold mining company Harmony Gold announced last week that it had entered into foreign exchange rand-dollar hedging contracts that fixed the exchange rate on $400-million (R6.2-billion) of gold sales.
The company said that the hedging contracts were spread over 12 months at an average minimum price of R15.59 to the dollar and an average maximum price of R18.60 to the dollar.
To date, $400-million, or R6.2-billion, has been hedged, amounting to one-third of Harmony’s expected dollar gold sale proceeds over 12 months.
The contracts had a zero cost collar format that established a minimum exchange rate for Harmony’s future dollar gold sale proceeds and a maximum exchange rate at which its future dollar gold sale proceeds could be exchanged into rands.
A zero cost collar, the company explained in a footnote, was made up of a purchased put option and a sold call option, where the premium paid and the premium received offset one another.
Long-serving Harmony FD Frank Abbott said that the current rand weakness and volatility presented an opportunity for Harmony to establish a “very attractive” minimum exchange rate on the dollars it received on its gold sales.
At the same time, shareholders remained fully exposed to the upside of the dollar gold price.
“This provides more certainty on our margins and cash flows, enabling us to reduce our debt, strengthen our balance sheet and provide us with further confidence that we can fund the Golpu project,” Abbott added in a media release to Creamer Media’s Mining Weekly.
Since December 31, Harmony has repaid a further $20-million on the $250-million revolving credit facility leaving the balance at a utilised $180-million.
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