You are right smart, over the longer term, the hedging price will increase, however... its actually a fair slog for RRL to actually see the price increase.
Hopefully the numbers tell the true picture.
As of Dec 30, RRL still had 360,000 hedged at an average price of AUD $1617.
(These numbers are from the June 30), so you can remove 40,000 ounces at what I assume was the lowest price ounces.., leaving 117,000 @1400-1500)
As I read it (happy to be advised otherwise), they must either have to reduce their hedging to 200,000 ounces by the end of this year OR at the least, fill 260,000 ounces by the end of 2022.
So... short term negative could be:
RRL have to burn through 160,000 ounces in 2021. Of those, 75% are at $1450 approx, which is just over the break even for the AISC, and well out of the money if you include non-sustaining capex (AIC). The rest will be around $1600.
Whilst RRL has been at pains to point out that the overall profitability of RRL, is not affected by the hedging, I believe, 2021 will be different, which is perhaps another reason why the cut the dividend. RRL is potentially going to have to use over 40% of their production to fill the hedges this year.
McPhil looks to be a good project, but the blow out of capex to around $400m. Yes, RRL can fund it, but... their other 3 plants are going to need quite a lot spent on making sure they have reserves to fill them.
I guess I just view RRL as being quite mature, yet, having lots of heavy capex coming up, unlike other producers, which have just finished their heave capex phase. RRLs recent share price weakness, compared to other producers that have shown some strength, says to me that the market is at the least, wary of what RRLs short term outlook looks like.
Good luck to all holders.
(20min delay)