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ArticleName Risk-management system for gold mining companies
DOI 10.17580/gzh.2019.08.08
ArticleAuthor Nazarova V. V., Bakharev V. V., Kapustina I. V., Chargazia G. G.

National Research University Higher School of Economics, Saint-Petersburg, Russia:

V. V. Nazarova, Associate Professor, Candidate of Economic Sciences,


Peter the Great Saint-Petersburg Polytechnic University, Saint-Petersburg, Russia:

V. V. Bakharev, Associate Professor, Candidate of Economic Sciences
I. V. Kapustina, Associate Professor, Candidate of Economic Sciences
G. G. Chargazia, Associate Professor, Candidate of Economic Sciences


Russian gold mining industry is one of the world’s top gold producers. Under conditions of globalization, gold mining has stepped out of the country limits. The Russian market of gold follows the global trends. This article completes a quantitative assessment of risks in the gold mining industry, and proposes a risk management system capable to minimize after-effects of the key risks. The theoretical relevance of this study is governed by the fact that risk assessment in mining and, in particular, in gold mining is carried out through the analysis of individual risks while this article suggest an integrated risk management system. The study has revealed that the major influence on the finance result of gold mining companies in Russia is exerted by the U.S. dollar to Russian ruble rates (major risk), market spot price per ounce of gold in terms of the U.S. dollar and the refinance rate set by the Central Bank. The research finds that the gold price development has greatly and proportionally influences earnings before interests and taxes and amortization. The rise of the average annual dollar rate has positive effect on the earnings of a god mining company before interests and taxes and amortization. The calculations show that the currency risk is the basis risk of gold mining companies, even outrunning risk of fall in gold prices. The analysis of the risk management philosophy in the gold mining industry yields a conclusion on the required currency risk hedging. It is proved that the effect of gold price hedging by means of forward contracts is overestimated; this strategy has the inverse effect on risks of a gold mining company by increasing influence of gold price fluctuations on profit return. The most effective risk management strategy is assumed to use gold options and to set limit prices for asset sales. Sometimes, it is possible to reduce risks by using cross currency and interest rate option. The latter financial instrument can mitigate adverse effect of the interest rate risk but can increase the currency risk at the same time.

keywords Risk management, gold mining industry, gold market, derivatives, non-financial companies

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