wilsons valuation 53 and target 64 cents, page-4

GDelaney, good question.

HEDGING: From that same Wilson's report, HGO is "is hedged for 50-55% of Cu production @ A$8,320/t for 40 months from July 2012. There is no FX exposure on the hedges."

> So, not only are the hedges locked in at above current commodity prices, but also less than 50% of the production is exposed to downward (or upward) movements in the copper price. A higher price is always better, of course.

COPPER IS JUST NOW IN A TROUGH: Until very recently, the copper price wasn't below Wilson's copper price assumptions. Recent market weakness has seen commodity prices drop. But many forecasts see the lack of extra new copper production coming on line, together with growing demand from Asia putting upward pressure on copper prices. Even slowing demand growth still means more copper is needed each and every year. Meanwhile, the grade of copper discoveries is in constant decline. And those discoveries that are being made are increasingly in regions of the world that have higher sovereign risk.

UNHEDGED EXTRA PRODUCTION UPSIDE: And HGO has a cheap upgrade to the throughput of its mill - 2.4mtpa up to 2.7mtpa available to them, with an aim to increase this to 3.5mtpa at a capex of around $10m. Once they have an operating mill, any extra ore available can be put through, even when it is low grade. because the costs are fixed and the trucking diatances very small. Any additional production would not only be upside to base-case assumptions but would also be unhedged.

Hope that answers you question, GD. HGO benefits from a higher copper price, but they have taken the safe route and locked in significant amounts of hedging. Their revenue is largely a known quantity. It keeps the bankers happy. :)

Yaq