With regard to hedging the bullion bank ensures that the loan amount is covered by profits from production.
Thus the profit margin after all costs of production + overheads is the applicable number that the bank calculates. The metal price may be $30 but the margin can be $10.
Over the three year period to repay the loan the spot may be $40 but the one year forward may be $35 and the two year $30 if there is backwardation - say in a delivery squeeze scenario.
The bank matches the forward price curve to the production profile and calculates free cash flows based on profit margin and the number of ounces required to be hedged each year can then be calculated.
I am sure that CCU are getting the best advice to optimise the deal.
CCU Price at posting:
$1.10 Sentiment: Hold Disclosure: Held
