misinformation & scaremongering

There has been some myths thrown around regarding Lihr lately by a few posters who are scaremongering, not just posting useful information.

Myth 1: LHG is in the same position as SGW.
SGW went under because they realised they had hedged more gold than they actually had underground- so they called in the administrators themselves. This had been coming for some time- gold reserves where slowly being revised down, eventually reaching inadequite reserves for the hedge book.

Myth 2: LHG's hedge book is excessive.

Lihr's hedge book is actually conservative to industry standard - which is based on reserves, not revenue and cashflow. Lihr was quite prudent in their hedging as their profit margin was tight,therefore if gold fell and they were recieving only spot price, they would not be able to produce at a profit, and would go under.

Myth 3: Lihr's negative hedging is taken off profit.

Lihr's hedging is a balance sheet item. It's negative 200 mil hedge value is largely the opportunity cost of selling gold at $330 instead of current spot price, ie. what they could gained in profit, not a cost to be taken off gold available to sell at spot price. Lihr still has half of production available for sale at spot, therefore they do in fact benfit from a rising gild price- justnot as much if they didn't have the hedge exposure.

If gold goes up, Lihr can sell the 350,000oz/pa available at a higher price. If gold falls in value, they sell that 350,000oz at a lower cost. The other 350k is not affected by price, only costs of extraction, and it's geothermal plant to be commissioned in first half 2005 will significantly reduce that.
Hedging has been used as the scapegoat for Lihr's poor profit results, which is most attributable to tight margins, something that would change with soaring giold prices.
In the future, if gold rises, I think we will Lihr releasing announcements increasing profit by multiples (due to the current tight margins), and this, combined with its massive resources, will give LHG its day in the sun.