Change of managment needed now, page-5

If I managed a gold miner I would always hedge a small amount of production at a cost I knew was profitable. And I would have my operations such that they can 'scale back' and survive on fulfiling the hedge. Of course, the price can go up and down, but if you can guarantee survival by hedging some of your output, then you do that.

So, let us say BDR know they can survive over the next two years, on producing 50k a year, of high grade ore, at 3700 BRL. They should then immediately forward sell or hedge or how you do it 100k at 3700 BRL.

Let us say POG goes down. Well, you survive on your hedge. Let us say POG rockets - say to 4500 BRL. Well, you still provide the 100k at 3700 - as you contracted. AND you produce all you can to obtain 4500 on the oz above 100k

Now, the killer would be, as you say Ivan, if the production cannot fulfil the hedge.... let us say production has all sorts of trouble, and you cannot produce even the 50k a year. And let us say the POG rockets to that 4500 BRL. Now you need to buy gold at 4500 and sell it at 3700 to fulfil the hedge. And you go broke. That is why I always would only hedge a small, guaranteed part of production.

The problem BDR would have is this sort of management requires thinking and planning and what if scenarios. This is beyond the grasp of BDR management. They go whichever way the wind blows them. And they pay themselves handsomely for being incompetent and wind blown.