On 2 August 2007, ALD announced hedging of 170,000 ounces at US$700 in order to "allow initial drawdown of funds from its US$25 million Finance Facility." I won't go into full details here - you can check the ASX announcement - but basically 110,000 ounces were committed at US$700.
This hedging was yet another ugly, costly exercise in financing during a gold bull market which has cost the company and its shareholders big time - millions and millions and millions of dollars.
The ALD share price was over $1.00 in October 2007. Issuing equity at the time and NO HEDGING would have been far preferable.
Have a read of the following. Let's hope other Australian junior mining hopefuls have learned from it and don't put in place something also potentially very damaging that ends up costing their company and shareholders many, many millions of dollars.
From the announcement:
"Allied Gold Limited has extinguished the last 30,000 ounces of a gold hedging programme giving the Company full price participation in the 75,000-??]80,000 ounces it expects to produce in 2010 from the Simberi gold mine in Papua New Guinea.
In February 2008, Allied Gold put in place 170,000 ounces as part of its Simberi project financing. The majority of the hedging has been utilised or repaid over the past 18 months.
The unwinding of the remaining hedges nine (9) months earlier than planned, at a cost of A$20 million, will now see the Company receive gold sales revenue at spot (currently US$1100/oz) compared to US$700/oz hedges.
The payback for the retirement of the hedge book will take around 6 months based on current gold prices."
ALD Price at posting:
28.0¢ Sentiment: None Disclosure: Not Held
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