hedging .. irj., page-7

Xerxces,

It is a significant weight however it is probabbly no worse than most others. It's just a pity it was not hedged in AUD as that removes one variable from the equation.

However the hedge position was at least partly inherited.

To show the significance of the hedged portion the following equation may be of some help.

P(a)=1/T(prod){(T(prod)-120000)xP(s) + 120000xP(h)}


T(prod) = Total yearly production in ounces.
P(a) = Average price. AUD (USD as long as all same)
P(s) = Spot price. AUD
P(h) = Hedged price AUD.

At present the AUD pog is about 612.

gives, 1/400000{280000x612 + 120000x500}
or 578 AUD/oz.

Looking at the equation the P(h) will be less significant if production increases. The converse will apply if production falls.