On the subject of hedging, I appreciate that in an accounting sense we are seriously out of the money and reflecting a massive loss. If we are/were out and out traders, then we are massively unsuccessful as some posters have pointed out.
In hindsight perhaps we beat the gun, but it's pretty hard to throw rocks because the future is the greatest of unknowns.
Let ye amongst us who can pick the exact highs and lows of the market cast the first stone.
From a producers perspective I think it is a very defensible business decision and one which is executed every day by retailers who offer "loss-leaders" and literally every new business opon opening. You know the glitz and glamour of "Bargins, bargains, bargains" just t0 get you into the shop to try them out so that you will return.
Even fisherman do it!
Yep, when you burly the water you are spending money (pilchards, chicken heads whatever) in the expectation of catching something larger.
Now, when you are an aspiring near-term producer with the ability to deliver physical metal to market, and you execute a hedge which is now "out of the money", is the loss a "loss" or a "cost of transforming the business from a "gunna prospector" to a "doer producer"?
I'd argue the latter and particularly so when cash is crucial.
From memory (don't hold me to the exact figures) we effectively sold around a years production for around $3.30 a pound. Sure, at $3.90 and as straight out traders, we have made a massive boo-boo.
But the way I look at it is that as producers we have forward sold at a discount in order to get the cash so that we can further grow the business. Not only that, we forward sold at a profit ($3.30 less costs of $1.61).
Nothing wrong with that and surely this is a perfectly legitimate business procedure PROVIDED that the constant offering of a discount doesn't become the norm!
What's more, a strong hedging policy from here on in gives us certainty of both revenue flows and profits because we can lock in our revenue and the costs are constant.
My very strong tip is that just as surely as the tides alternate between low tide and high tide, a strong HGO hedging policy will recoup the present theoretical book loss when the price of Cu suddenly plunges.
HGO Price at posting:
25.5¢ Sentiment: Buy Disclosure: Held
