PEM have revenue protection strategies in place against currency and metals.
Forward sales of Zinc are about 50% higher than current spot prices.
The following was copied from their last quarterly. Sorry the chart is difficult to read.
von.
Revenue Protection Currency Protection Revenues in the September quarter were protected through call options that were exercised at US$0.8325 compared to the average spot rate of US$0.8474. As at 30 September 2007, the company had further call options over A$371 million of projected receipts for the 2008 to 2010 financial year at a strike price of US$0.8263 (refer Table 4 on page 10). It is important to note that whilst the use of options protects the company against an increase in the AUD relative to the USD, it still maintains exposure to the benefits of a decrease in the AUD/USD exchange rate. At the current spot exchange rate of US$0.90 this equates to an unrealised gain of A$25.8 million in pre tax earnings and cash flow. Importantly, A$17.5 million of this benefit relates to the balance of the 2008 financial year. Metal Forward Sales Perilya has entered into Australian dollar denominated forward sales contracts for approximately 25% of forecast zinc sales to December 2008 and 45% of forecast lead sales out to August 2009. This represents less than 10% of the current ore reserves at Broken Hill and no hedging has been instituted for Flinders zinc production. Metal Put Options The company has acquired put options over approximately 50% of forecast lead sales to June 2009. These put options provide the right, but not the obligation, to sell lead at an agreed strike price at a future date (refer to Table 4 on page 10).
The overall effect of these USD lead put options and the AUD call options is a minimum gross achievable price of A$3,316 per tonne on the 30,221 tonnes hedged for the balance of FY08, and A$2,666 per tonne on the 38,701 tonnes hedged in FY09, whilst maintaining upside exposure to a rising lead price and/or a weakening AUD.
A summary of the company’s forward sales, including QP hedging, is shown in Table 4 on page 10.
