Gold & hedging - FWIW, page-14

re: Gold - KCN - for Watso Hello Watso,

Sorry to have upset with my remarks on KCN, but I did point out at the time they were just my personal views FWIW.

My real problem is with hedging. Of the 4 stocks I said that I was comfortable with I understand that:

1.DRD has no hedging at all (but have taken on aconsiderable debt in clearing it).

2.SBM was totally clear of hedging in September just gone, but has recently taken on some more of necessity - however this is no more than 1% of reserves.

3. TRK's present policy involves hedging 50% to <70% of production - but improtantly on only a 12 month rolling basis. Given their cash position, they could close this out at any time should they so wish (ie. if the POG was to rocket).

4. LSG - due to the nature of the beast hedging is not a problem .

I like KCN as a goldy. But again, I have problems with their hedging levels. I sent myseslf the following mail so as to keep some record of my reading into the gold companies. (Sorry that the charts are all FU in the posting).

"This is a real pity, because the company seems very good.

From June 2002's quarterly report:-

HEDGE POSITION AS AT 30th of JUNE 2002
The Kingsgate Group had no foreign exchange hedging in place at the 30th of June.

The gold hedge position at the 30th of June is detailed in the following table. Kingsgate’s policy is to cover a majority of the group corporate costs, debt repayments and mine operating costs with gold hedging. At the 30th of June, 65 % of the recoverable gold reserve was committed to hedge. For the 2 years to 30th of June 2004, 47% of the projected production is committed to hedge.

Gold Hedge Disclosure Year to

June 2003
June 2004
June 2005
June 2006
After June 2006
Total
Forward Sales






USD denominated (2)
oz
66,800
66,800
66,800
66,800
76,800
344,000

ENRP (1)
USD/oz
306.5
306.5
306.5
306.5
306.5
306.5










Spot Deferred








USD denominated
oz
16,713




16,713

ENRP minimum
USD/oz
306.5




306.5










Put Options Purchased







USD denominated(4) oz




50,000
50,000

ENRP minimum
USD/oz




320.0
320.0










Call Options Sold







USD denominated oz




50,000
50,000

ENRP minimum
USD/oz




346.1
346.1










Total Committed oz
83,513
66,800
66,800
66,800
126,800
410,713

ENRP USD/oz
306.5
306.5
306.5
306.5
322.1
311.3

Total Hedged (2,3)
oz
83,513
66,800
66,800
66,800
126,800
410,713

ENRP USD/oz
306.5
306.5
306.5
306.5
311.8
308.1


(1) ENRP (Estimate Net Realised Price) is after allowing for gold lease fees of 1.5% over the life of the forward sales. Gold lease fees are currently fixed at a weighted average of 0.60% over various quantities until 11 Mar 2003 .

(2) Margin calls do not apply.

(3) Mark to market of negative USD10.2 million, spot price USD313.85 on 30 June 2002 .

(4) Put options are not committed ounces and do not form part of the Total Committed number."

bye.dub