Just about everyone who posts seems to think that RRL is losing money when they deliver into their hedges. Fact is that the hedge prices have now been fixed at $1571/oz. Hence, the determinant of the profit comes down to the cost of producing an ounce of gold. I could reasonably use the C1 cost but I will use the AISC which is higher. With Tropicana on board the average AISC across all mines is now $1225/oz (as per recent RRL announcements). Hence, the operating margin on an ounce of gold sold into a hedge is $346/oz. I will run with the 25Koz of hedge per quarter (even though RRL can now vary how much they contribute at any time) and so obtain a nominal $8.65M per quarter or an annual figure of $34.6M. In other words, the operating "profit" from the hedges is in the order of 4.59c/share pa. However, selling into the spot at $2400/oz would mean an extra 11.0c/share. Must admit that I would appreciate an extra 11c/share by way of dividend but what gold company would give me that on top of what they already give?
RRL Price at posting:
$2.62 Sentiment: None Disclosure: Held
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