Hi Blythefan,You would intuitively think this would be the case...

Hi Blythefan,

You would intuitively think this would be the case but PEM's costs have not been influenced by the increase in the dollar to 0.95ish over the June 30 08 year due to the fact that they had all their USD revenue hedged at $0.82ish anyway.

ie As at June 30 2007 (look at the June07 quarterly) they had $280m hedged at $0.8325. At September 30 07 they had $260m at $0.8282. When you consider their $AUD revenue for the first 6 months (to 31 December 2007) was $133m, you can tell that PEM basically had all its 07/08 revenue hedged at $0.82ish.

So the AUD would need to come back to around 0.82 just for PEM to be getting what they received for the whole of the 07/08 year. (if it doesn't they're worse off)

So to reply to your suggestion, no the currency drop will have no real impact until it goes below $0.82 (as that's what they've been getting from their hedging anyway) In fact if it stays above $0.82 for a while, considering they have only $155m of cover at 0.82 they could run out and have to start converting at a much higher rate.

Your point about the reduced oil price reducing costs is a valid one, but it will be only small change compared to the impact of the price of Lead, Zinc, and the AUD/USD rate.

So no positive impact from falling on their costs at the moment. (my model still stands!)

Cheers

J.