re: why - ncm down ?
Miners like to quote their hedge position as % of their reserves. This can mislead investors as to the risk to the financial stability of the company that may happen when hedges go wrong.
When the hedge position such as spot deferred sales moves against the miner when the gold price increases the miner has an immediate mark to market loss on that hedge.
The miner can have cash problems when it is time to roll over a hedge or parties may have the right to break the hedge which will then crystallise the loss.
My reading indicates that LHG is short around 2 million ounces and NCM around 5 million ounces. The US miner Newmont is short around 5.5 million ounces.
An interesting read is the Newmont Yandal [NYY] ASX report- the old Great Central/Bronzewing deal acquired in the Normandy deal - to see a really ugly hedge position.
All Normandy shareholders should thank their lucky stars that Newmont came along.
The indicator for financial stress to the company with a rising gold price is hedged ounces / annual production. The time the miner will need to produce ounces from the reserves to close the hedges.
My proximate calcs are - errors and omissions excepted:
Newmont - 9 months LHG - 3 years Newcrest 5 years
A rising price is a positive in that it increases the asset value of gold in the ground and thus the NAV of the miner and the receipts from any unhedged production. The sting in the tail is the financial pressure from the increased mark to market loss in the hedge book.
In the US there are two indices XAU for hedged producers and HUI for unhedged producers. HUI is winning the race.
Take informed advice on the impact of hedges when playing the gold stocks. These miners - PAS has failed, Mt. Selwyn has failed, Sons of Gwalia marked down point out the need for caution.
LHG Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
