*** some gold companies in trouble??

I don't think too many people are aware of how the new international accounting standards may affect some gold miners.

On my understanding, if a gold company has borrowed a substantial amount of money from a finance lender and has out of money hedging positions, the company could be at risk.

As an example, suppose at 30th. June next year a gold company has 400,000 ounces of future production hedged at an average of US$500. But the gold price has jumped to US$700 by 30th. June.

Each 100,000 ounces will be showing a paper loss of US$20,000,000. This totals US$80,000,000 for 400,000 ounces. The company will have to include this loss of US$80,000,000 in their annual results.

It won't matter that they are cash flow positive. It won't matter that they are producing at US$250.

Because the company's balance sheet will reveal a massive loss and deterioration of the rating of the company’s debt, the result will be that the lenders of finance may end up getting control of the company.
They will be entitled to call in their debt and the company won't have the money to pay.

Shareholders may be in big trouble.

I suggest it may pay to thoroughly check the hedging and debt positions of gold companies you invest in. If they owe substantial money to a bank PLUS have hedging, in the event of a big jump in the price of gold they could be in trouble.