Interesting that this article mentions the following:‘At the end...

Interesting that this article mentions the following:

‘At the end of last year the company put together a funding package for mine development and AIM raised A$24million in equity as part of that. Standard Bank has been mandated to raise project finance and Cartesian Capital was tasked with raising further funds through a convertible loan issue. Negotiation on these deals is continuing and Marc will be in London in a few weeks time to progress these discussions and he expects further progress very shortly. A sticking point with all such financings of this type is the level of hedging that is put in place. The banks want lots but the miners and shareholders don’t want too much. So it may well be that further equity will be raised to keep AIM's options open on how the mine is financed’.

I can understand to a degree the rationale behind banks looking for a very high degree of hedging (establishing concrete parameters from which discounted cash flow (DCF) analysis can be used to work out rates of return and serviceability of the debt). I can also understand that producers are not overly keen to hedge too much of production as:

1) If production or delivery of product falls short of what you have hedged (ie: you are overhedged) then you will either have to unwind your hedge (which can result in fairly substantial losses) or you have to buy zinc at prevailing market prices to deliver under the hedge (if spot zinc is higher than the hedge price this can result in substantial losses);
2) Mining companies as a general rule have not done well lately where they have hedged too much of their production as their participation in strong metal prices is minimised. This would worry a lot of senior management given that at some stage they have to front up to shareholders and explain why company profits are lower than expected.

The hedging decision is a pretty difficult one … and as frustrating as the wait has been I would rather have delays and know that the hedging arrangements are correct (ie: not over or under hedged). A bad decision on this front can bring a company to it’s knees very quickly (there are a few examples of this in the gold markets).

I can’t say that I am especially excited at the prospect of any form of equity raising as I think we have a truckload of securities on issue at the moment … I guess one possible upside (if equity raising is being seriously considered) is that MF should be looking to push a slew of good exploration results to pump the share price as much as possible to minimise dilution.

I guess this is a game of wait and see. I hold and am fairly confident that we should see some decent benefits flowing through in the short term.