Thanks for the update on the in-the-money hedge, bboff. It is...

Thanks for the update on the in-the-money hedge, bboff. It is now worth over $80m to the company (more than half its market cap), as you say, and with the Aussie dollar continuing its decline relative to the $US, that decision looks smarter by the day. PAN's PE ratio is now just 2.9 against historical averages of almost 4 times that amount. You'd reckon that pendulum must be building considerable momentum for an upward swing in the share price.

The company's market cap has shrunk to just A$159m largely - I suspect - because the average investor has simply lumped PAN in with the broader nickel sector, which has been adversely affected by a steep decline in the nickel price, rather than examining closely its insulation strategy.

Here are a few reasons for optimism, taken from the recent shareholder update:
· Record quarterly production of 4,182t Ni (100% basis)
· Strong cash & receivables of $94 million
· Hedge book approximately $80 million in the money (based on 13 October 2008 spot nickel price & A$/US$)
· Cash, receivable & hedge book backing of approximately $0.90 per share (pre tax)
· Savannah Resources increased 44% to 70,300t Ni, Lanfranchi Resources total125,360t Ni
· Group Resources increased to 164,300t Ni (equity basis)
· Savannah Reserves increased to 37,750t Ni & Lanfranchi Reserves increased to 66,260t Ni
· Group Reserves increased to 87,450t Ni (equity basis)
· Excellent exploration results at Savannah in the Upper Zone, 500 Fault Zone & Lower Zone
· Deacon down-plunge drilling confirms extensions

Mineweb predicts nickel demand to double over the next 20 years at exactly the time when many smaller or less profitable producers will be sent to the wall. PAN is not the lowest cost producer going round, but that hedge provides an excellent buffer in this period of extreme volatility.

My only concern regarding the hedge is the longer term as I cannot see the $US remaining at these artificially inflated levels. It has achieved this ludicrous position solely because of its status as the de facto international currency in my opinion and we may see a rapid and drastic desertion of dollar-denominated assets once the parlous state of the US economy is more universally acknowledged.

With any luck, we'll have Obama in the hot seat by then instead of a lame-duck president with no credibility in the international marketplace.

Overall, PAN's management has done a pretty good job in my view in insulating the company from the many forces buffeting other nickel producers. The question is when the market will once again start to put fundamentals - not fear - first.

Good luck all holders.

Gupper