THE BOURSE WHISPERER: Southern Gold (ASX: SAU) has put a gold hedge in place with Japan’s Sumitomo Corporation Global Commodities (SCGC).
Southern Gold described the hedge as a fixed forward contract to sell 2,500 troy ounces (Toz) of gold at $1,621 per Toz, representing a contract value of $4,052,500.
The company explained the forward sale is to be cash settled on 30 June, 2017, however, the contract is also able to be cash settled early at any time prior to that date.
Arrangements are also in place with SCGC to enable additional hedging should Southern Gold look to do so.
The hedge covers less than Southern Gold’s 50 per cent share of gold currently in stockpile, which the company said represents a low delivery risk and as such has been executed on an unsecured basis.
“It is prudent that the company locks in a portion of its future cash flow at current gold prices north of $1,600 per ounce and take some of the volatility out of projected earnings, especially given how material they are compared to Southern Gold’s market capitalisation,” Southern Gold managing director Simon Mitchell said in the company’s announcement to the Australian Securities Exchange.
“I acknowledge the good work undertaken by the hedge counterparty, Sumitomo Corporation Global Commodities Ltd, which was assisted locally by Royalty Stream Investments, to put this hedge in place.
“It is an excellent outcome for a company of our size and points to their confidence in Southern Gold’s immediate future.
“I look forward to working with them again on our new projects currently in the pipeline.”