hedges gone!!! , page-10

Loki, I called the company.

By the time this is finalised (in 2 weeks time approximately) there will be 120-something-thousand ounces left of the hedge book (forward sales).

Most of the $40m will be used to buy back ~50k oz, which would have otherwise been delivered into the hedge book over the next ~4 months, leaving 70-80k oz outstanding to be delivered over say the 8-12 months following.

To monetise this remaining commitment (let's assume 75k oz), RSG will also enter into a forward-purchase agreement to buy this 75k at whatever the $A gold is in 2 weeks time (currently $A 1355).

So instead of delivering the 75k ounces, RSG will make a total cash payment of 75k x ($1355 - $755) = $A45m spread across the contractual settlement dates.

This leaves the company exposed to a rising $A gold price. This deal has been pushed my major shareholders believing the $A gold price will rise over the next year.

Regarding the convertible notes, these will almost certainly be converted into shares. RSG has the option of redeeming them at the end of 2011, one-year before maturity. This seems likely because 1) their balance sheet will be largely ungeared with most debt repaid by then, and 2) they save 12% interest and any needed debt-financing in 2012 could be funded for <12% due to the squeaky-clean balance sheet.

The next 12 months will still be relatively tight financially because approximately half the $US 38m Barclays debt facility needs to be repaid.

Rowingboat