Ann: Dividend/Distribution - FEX, page-58

Not sure I follow.

This is how I am seeing it. At a hedge price of $230, they are guaranteed margin of $230 - costs (cost of production + cost of hedge) for 50,000 tonnes per month. For anything else they produce it will be the current market price - costs.

Prices are now substantially lower than the hedge price so anything that is not hedged will attract a lower margin. The more prices fall the less attractive it becomes for the company to produce non-hedged ore, especially if they expect prices to recover at some point in the future which they inevitably will.

I guess the determining factor here is their breakeven price and whether they can curtail production without increasing their cost to produce on whatever remains.

P.s. This is similar to oil. When prices go south a lot of WTI producers simply close up shop and wait for prices to recover.