put options, page-3

As I understand it, they've bought 1.3m oz of put options with a strike price of $A700, expiring progressively over the next 8 years and 170k oz of puts with a strike of $A760 for the 2008 year. Total cost was $11m, giving an average strike price of $A707/oz over the total 1.47m oz.

So, if the $A gold price does not decline below those levels over the next 8 years, it's $11m down the toilet. The difference between hedges and put options is that, with hedges, you must deliver into them at the strike price, whereas with put options, if you don't want to deliver into them, you can let them expire worthless.

Cost of the options was $11m divided by 1.47m oz = $7.50/oz. Therefore, as long as the gold price remains above $A707 + $7.50 = $A714.5 (current price is $A825), the fact that the options might expire worthless is miniscule, in the overall scheme of things.