Below is LLM take on VAU Hedging Analysis
1. Impact of Hedged Position:
VAULT Minerals locked in A$2,821/oz for delivery through to September 2026.
At current prices of A$4,100/oz, the company forfeits A$1,279/oz in potential revenue on these ounces
2. Aggregate Loss on Hedging:
Total hedged ounces: 240,519 oz.
Lost revenue: 240,519 oz × A$1,279 = A$307.5 million in potential unrealized revenue compared to market prices.
3. Proportion of Hedged Production:
With FY25 gold sales guidance of 390,000–430,000 oz, the hedge represents ~56–62% of annual production.
While this provides some stability in cash flow, it greatly reduces the company’s ability to capitalize on the ongoing gold price rally.
---
Evaluation of the Hedging Strategy
1. Rationale for the Hedge:
Companies typically hedge to protect against downside risk, especially during periods of high capital expenditure or when leverage is high. However, VAULT has zero debt and a strong cash position, reducing the need for aggressive hedging.
The decision may reflect a cautious approach to managing financial stability, but it is overly conservative in hindsight.
2. Opportunity Cost:
The hedge locks the company out of significant upside potential in a favorable gold price environment.
With its AISC guidance at A$2,250–A$2,450/oz, the unhedged ounces could have generated ~A$1,650/oz in margin at current prices, compared to the ~A$371/oz margin for hedged ounces.
3. Strategic Implications:
This highlights a potential misjudgment of market dynamics, as the gold price has been trending upward due to macroeconomic factors like inflation concerns and geopolitical instability.
---
What Could Have Been Done Better
Partial Hedging:
Limiting the hedge to 20–30% of production would have allowed the company to benefit from rising prices while securing a safety net for some production.
Rolling Hedges:
Implementing shorter-duration rolling hedges would have allowed flexibility to adjust to market conditions.
(20min delay)