(Kitco News) - Hedging of gold-mining production increased in the second quarter, with 190,000 ounces, or six tons, of net hedging added to the global hedge book, said a London-based consultancy on Tuesday.

That rise increased the total hedge book to 5.07 million ounces, or 158 tons, at the end of June, according to Thomson Reuters GFMS, which is a 4% increase quarter-over-quarter. This is the second consecutive quarter of net hedging. The last time that happened was in 2001, the consultancy said.

The amount of gold hedged in the second quarter is roughly similar to what was done in the first quarter, they said, noting the bulk of the increase came from additions to the options portion of the book and changes in the volume of gold delta-hedged against existing options positions. The total options book grew 12% quarter-over-quarter.  A delta hedge seeks to reduce the risk associated with price movements in the metals by offsetting long and short positions.

The largest hedger was Alkane Resources, which added 90,000 ounces, or three tons. Four companies in total actively increased their hedge positions. Thomson Reuters GFMS said the marked-to-market liability of the global hedge book fell to a negative $1.09 billion as of the end of June.

Alkane’s hedge was related to the Tomingley Gold Project and the forward sale was done at AUD$1,600 an ounce.

The consultancy said while there was net hedging in the second quarter, they noted that 25 firms are continuing to run down their hedge positions. By the year end, 860,000 ounces, 27 tons, of de-hedging is due and should offset somewhat the delta hedging of options positions and new hedges.

For the second half of 2011, the consultancy said net hedging should continue, and it estimates total net additions to the global book at around 1 million ounces, 32 tons, for the full year.  “This forecast is based both on our expectations on the interplay of hedging/de-hedging and the additional delta-hedging against option contracts, based on our price outlook for the remainder of the year,” they said.

Some hedging is already seen in the third quarter, they said. At least five firms have added to their hedge positions in the third quarter, with Yukon-Nevada Gold Corp. the largest. That firm entered in a prepaid forward sale agreement to deliver 170,000 ounces of gold in four years in order to repay issued notes and for capital expenditure relating to the Jerritt Canyon property, Thomson Reuters GFMS said.

Although this is the second quarter where producers are net hedgers, analysts warned against jumping to conclusions. “It would be wrong to assume, however, that general attitudes to hedging amongst the major gold-mining companies have changed; in the face of a strongly rising gold price, the pressure is currently still on company management from investors to retain full exposure to rising prices,” they said.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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