THE HEDGEBOOK (or shouldn't we talk about it),
As at 30/6/05, a total of 87500 ounces of gold remained forward sold for delivery by Aug.'06.
Up until the end of Oct. there had been 34670 oz of gold produced at Challenger in the first 4 months of the current year. Assuming that all of this had been sold into the hedgebook, then there remained a commitment for 52830 oz to be delivered by Aug. next year at a price of A$584 /oz.
Over the current 10 month Nov. to Aug. period, at an achievable production rate of 8000 oz per month, DOM should produce at least 80000 oz of gold which would wipe the hedging slate clean while at the same time provide approx. 2700 oz/month for sale on the spot market.
However, as a consequence of the rapidly escalating POG, up until next Sept. we are faced with substantial foregone revenues while the hedgebook is unwound. Dominion are currently sacrificing more than A$0.5 mil. per month to the hedgebook. The problem is that the book is sinking underwater at an alarming rate and I have no doubt that this situation has put a cap on the SP in the medium term.
What a lot of people fail to realise is that although this situation exists, there is a brighter side. Due entirely to the outstanding performance of the mine, the extra 27000 oz of gold is available for spot sale over the currency of the hedging program. At a mean spot price of say A$650 /oz, this would realise additional revenue of $17.5 mil. for the 10 month period from very profitable mining.
Cheers _
THE HEDGEBOOK (or shouldn't we talk about it),As at 30/6/05, a...
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