This is a general misconception of what hedging is. Hedging is...

This is a general misconception of what hedging is.

Hedging is not gambling, its not an attempt to maximise profits.

Its designed for 2 reasons.

1 - To protect against short term volatility in commodity prices - This is particularly important for smaller companies
2 - To protect and provide time to reassess mine operations (restructure etc) in the event of a more prolonged commodity price decrease. Ie. it provides time to make decisions)

Hedging is a defensive act, its not gambling and its not profiteering. Far from it. Its why most hedges actually don't end up in the money, they aren't supposed to as companies want a strong price market, but in the event of either short term volatility in prices or a longer term downtime in prices, it provides security of pricing.