the joys of hedging

OK we have heard ad nauseum about the evils of hedging

in summary your goose is cooked if

(a) you sell forward , you cant deliver the physical AND the price has risen from your hedged price, thus requiring you to cough up the diff with cash

now sadly this happens to wheat famers quite a bit and destroys 100 years of hard work. Its not that common amongst miners

(b) you have a loan covenant which says if your balance sheet goes into negative equiy you are in breach of the loan and you default. As a result of taking up the liability for the book loss on the hedge this happens and banker pulls the plug.

Solution: tell the banker if he wants the deal forget about negative equity covenants

I should say the accounting standards here are crazy. You can't book the increased value of your non hedged proven reserve as a gain to offset the book loss. Wacko stuff.


Now the fun part

CCU are about to sign the loan off. Silver is in a huge move, a once in 30 year move. They are hedging the move. There is no better time to sell than selling a move like this. I have sold all my bullion excepts for the 10 oz'ers, and next week I start selling all my mates bullion . I told a lot of people to buy bullion years ago and I am telling them to sell. I know someone with $250k in bullion . They are selling this move.

So CCU lock in at $50. Price keep rising for a while and then the short covering finishes, the hedgies having made bucketloads going long pile on the shorts and the prices collapses back to $30 in a week.

puffball AYN goes back to 5c, CCU back to the 70's, SVL to 20

are you ready for that?

And what do the directors of CCU do. The close out the hedge and pocket a cheque for $40million cash.

There is no better feeling. Its been done before. Many miners have profited enormously from hedging high.

Anyoine buying silver equities now are taking big risks, whether its the puffball, CCU or SVL. You need a stoploss. I am not telling anyone to buy silver equites

Time to be very carfeul