Options cost $money but there is no additional ongoing cost or risks. Crunch the numbers for a POG of $3k or $3.5k per ounce- that is when we see a significant variance between the realised and actual POG that RRL would earn when delivering ounces into hedges. The hedging decisions were poor management decisions but no action has been taken to mitigate the losses as gold has gone on a tear. I hardly call increasing the delivered hedged ounces as the POG is rising a great decision either.
Gold miners are notoriously bad at explaining hedging decisions. I was a large RMS shareholder and although that company was very kind to me as an investment I was concerned that they kept unnecessarily adding to their hedging position. I asked them to explain why they thought the gold price was not in an uptrend (which frankly anyone could see) and I got no response. The out of the money hedging position moved from $50m to $100m and $150m. The amount of revenue that RMS has lost in hedging is material and my personal belief was that money would be better off in the shareholders hands as fully franked dividends. I believe that RMS’s hedge book will take years to be in the money as gold is almost certainly going to continue rising due to the macroeconomic fundamentals.
RRL Price at posting:
$3.64 Sentiment: Buy Disclosure: Held
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