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Exactly Sparster, I’ve just been taking a look at a few recent articles in the Kitco site.
Make for some interesting reading:
https://www.kitco.com/news/2020-05-27/-Rocks-beat-stocks-gold-is-still-on-its-way-to-1-900-Bloomberg-Intelligence.html
And my personal favourite:
https://www.kitco.com/news/2020-05-27/Gold-to-see-5-000-9-000-price-levels-in-10-years-In-Gold-We-Trust-Report.html
All things point to this being the beginning of the bull run for gold in my opinion.
SJM - Agree, in his last interview EZ was quite candid that SHG was undervalued and the markets need to wake up - It was good to hear and i like his style to be honest, no BS!!!
I'm just going to sit back, top up if i can and listen to the wise words of the Colonel.
CD I think this may be a case where the market will only believe it when they see it. Which is fine by me as topping up at these levels/ any pull back seems like a no brainer. The BOD must be getting frustrated now as even a great RNS has had no effect whatsoever to sentiment. He even touched upon this in his last interview.
BuggerThe Banks,
"Do we need to distinguish between a loss..... & loss of income? Surely what we're talking about here is opportunity cost? "
I would say that what we are talking here is semantics. A loss is a loss!
Below is an extract from today's 2019 Annual Results for Petropavlovsk (POG).
"Average realised gold price increased 7%: $1,346/oz (2018: $1,263/oz) for the year, including a $61/oz loss from hedging (2018: $9/oz hedging loss)"
They do not seem to have a problem with this nasty little four letter word.
Artrader,
I am glad that you now agree with me that the hedging loss was written off at a gold price well below $1700, and that there is likely to be a further write down this year.
You have calculated "Total loss on that Hedge was almost $17m", however that assumes the gold price remains at $1700. I expect that the GP still has some way to go, so the loss could well be higher.
Do we need to distinguish between a loss..... & loss of income? Surely what we're talking about here is opportunity cost? They're not forking-over hard cash, they're simply missing out on ADDITIONAL revenue they could've earned had they not hedged.
I'm in a similar position: had I invested in CMCL or GPM instead of here, then I would be earning more :)
kenj
The loss WAS WRITTEN OFF
Look at the P/L accounts 2019/2020 The 2nd line:
Loss on non-hedge derivatives and other commodity contracts $9,833,000
It was in fact a loss of $11,963,000 on the hedge of 37,0000 oz at an average loss per oz of $323 an oz - This means they used a market value of $1,573 per oz
ITS WRITTEN OFF , gone, nuda, extinct, the hedge is dead, there is no more hedge loss on this years accounts. Its still a $12m loss but they've already taken it. unless...... gold goes over $1,573 ......Ooooooops
SORRY THERE IS A NEW LOSS as the current price of gold is $1700 an oz so thats another $5m loss 2020/2021
Total loss on that Hedge was almost $17m
BTW They are paying an increased Royalty to the Tanzanian Gvt based upon the current value of Golden in return the Tanzanian Govt aren't paying Shanta their $20m VAT owed???????
Oh yes their current liabilities are way over their cash balance.
Still wondering why there's a seller?
They had everything and now they are trying too hard
I hope your right colonel D as previous entry to Shanta at 12p went to 6.75p. I doubled up and left with a profit just under 10p. If it happens again I will quadruple up next time and keep half to 60%. If gold had stayed put Shanta would have been 14p yesterday but such are the joys of the precious metal market. The Kenya asset really makes this a growth stock and hopefully they do not hedge to cover debt in future as they have enough assets to merit reserve bank lending arrangements.
"The Hedge is closed
It was written off in last years accounts as a mark to market book loss."
I'll take your word for the hedge being written off, and the loss taken, Artrader.
However, it is impossible to know in advance what the gold price will be at any given time. So if they have booked the hedge as a loss in last years accounts, they were making assumptions on the future gold price.
The hedge itself is very much open, and I doubt that SHG used a price anywhere near $1700 in their loss adjustments. The truth of the matter is that one third of this years production is hedged at a price of $1247. So only two thirds of SHG's gold production will benefit from any rise in the price of gold. While SHG may not take an actual loss, at today's GP their revenue will drop by $12m to $13m.
The last we hear of what?
I hope that is the last we hear of the hedging/open position
The Hedge is closed
It was written off in last years accounts as a mark to market book loss.
The actual selling price before they make a loss this year is 1535 usd
They wrote everything off to save paying the promised dividend and made a 5m loss
The biggest worry is paying the Royalty on market price when you ain’t selling at market price.
Oh yes and there’s that little VAT problem and a lack of cash.
They also maintain to spend Usd5m in exploration despite the fact they purchased Barricks unwanted mines for usd7m
losing faith every time
Sir, when I worked for a metal company, every month we produced a profit/loss and all our hedges/open positions were valued at the month end based on LME prices and the unrealized profit/loss was taken into the accounts.
Their not exactly 'losing' on the deal, just not making as much margin as they will after the hedging is cleared. One would assume their costs are up to this, and once paid, the skies the limit.....
A slight problem with that GRAHAMBARNES,
There are 27,304 oz still to be to be sold at US$1,247 /oz.
The current Gold price is $1719 per oz, a difference of $472 per oz.
27,304 x $472 = $12,887,488.
So unless SHG have a spare $12m to $13m hanging around, this is very unlikely to happen. Whether they buy out the hedge as you suggest, or simply sell the gold at US$1,247 /oz, they will still lose nearly $13m, if the gold price remained at $1719. If the gold price rises SHG will lose even more on this deal.
You can close a hedge/open position at any and on the prompt date pay the difference to the broker.
How can they close their hedge in June?
As at the beginning of this quarter SHG had 31,265 oz to be to be sold at US$1,247 /oz.
They would need to be producing over 125k oz per year to achieve that much in one quarter.
Good day, I will be glad when this hedge/open position is closed in June because I am fed up with keep hearing about it.
I should point out that the hedge was rolled over for more than one quarter so the company had full exposure to the gold price at the time but the price of gold has remained stubbornly high so they are closing the hedge now. It is a short term issue but obviously one that puts people off.
The hedge was put in place to guarantee repayment of a significant amount of debt as well as being a requirement for part of the debt package. That said, it did appear to be extended beyond what was really required which turned it into a more speculative punt on the gold price.
Just been having a look at SHG as a possible investment. Very positive, until I read about their forward gold sales.
"As of 31 March 2020, the Company had sold forward 31,265 oz to January 2021 at an average price of US$1,247 /oz. Since the end of the Quarter, total forward sales commitments have been further reduced to 27,304 oz, representing a 32% reduction from forward sales commitments in place at the end of 2019."
So is that 27,304 oz to be to be sold at US$1,247 /oz ($480 below the current gold price)?
This represents between 32.1% to 34.1% of this years production guidance of 80,000 - 85,000 oz.