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The buy side of that hedge then becomes a creditor which causes even more problems. It's like a death spiral of dog 541t sandwiches and hot 5punk milkshakes
It's hits like a double whammy, not only is your cash down because you produced less but you then have to buy the missed ounces on top of your operational loss. It's absolutely devastating when a company is on the wrong end of a missed delivery with a hedge.
Anon, if the price of gold rises above that hedge and you don't meet production then you have to carry the loss per ounce on the open market.
The larger the proportion of production that is hedged the larger your risk.
Hedges are derivatives are contracts of delivery... You have to deliver on them on time at the prices agreed. Now imagine a company with no cash that has hedged let's say 60% of it's production profile and the mining contractors go on strike. Where would said company get the gold from to fulfill that contract?
Whereas I recall WIZZ had a hedge just before Covid, thay saved them £££££s.
"All they do is add costs and risks"
Costs, maybe, but risks? How so when you set a guaranteed figure? I don't see the risk.
Yes, you might lose out on new highs, as as happened, but you lock in at least some price that isn't way lower.
And given the latest news read, lower rates look like they might be pushed back some.
Crap growth rates amongst the majors might help POG though, I admit.
The thing is, who knows?
A hedge gives a figure we can use as a cert, is my point.
You're a positive type here, the same as me, so debates are fairly by the by.
We both know this will come good and it's only a matter of time.
Meanwhile, I can stand the naysayers, as they drive the price down. I've only got one blocked as he adds nothing whatsoever and can't even see that he can pull his losses back easily. Hey ho.
I've never been a fan of hedges Anon. All they do is add costs and risks. Buy side taking physical delivery always win, they know the market better than anyone and already have it sold before it lands. The seller books the costs, the opportunity cost and financial risk if production goes wobbly.
2350 is obviously much better but could also be a good indication that gold will move higher still over the next 12 months. All we need is some grade on the ROM pad. Currently 2 grams but only 25k tonnes of the stuff thus far, so they do need to get cracking with moving the ore now as the plant processes 23k tonnes a week but if they can maintain that 2g run rate as a floor then all we need to do is look at Yani for a read through with it's 1.6 grams
We're in danger of this actually coming together now imo
Haha, it's even confusing me Bush and I've kept a half eye on it. I need to listen to the whole thing again, at least once.
Whatever, it's safe to say it's all good re the hedge.
I'm still not sure I trust Dan and I hated the fact that the financial bloke didn't even know how to pronounce "Dugbe" and said it literally, but heyho, it's all a game, isn't it?
Watch the presentation again... The previous hedge was cancelled probably at small cost and replaced with a new contract and collar for 60k over 4 quarters starting from Q2 at a 2350 ceiling.
So all production is currently fully exposed to full pog.
Rus, here's the original hedge details;
"The Company's near-term revenue protection scheme has been finalised with 60,000 oz protected across the first three quarters of FY-2024 through forward pricing and cost collars, with an average floor price of US$2,000 per oz and upside of up to US$2,150."
So the floor price is increased. Matbe not as much as you like, but the higher you set the prices, the more it costs. I'm well happy with this.
In a volative and risky industry, guarantees are great, imo.
Rus, the first quarter of the hedge was paid down. Then Hum moved the remaining 3 months of the hedge into 4 months is how I understand it.
So basically reduced by 25% a month, which is why it's gone into Q1 25.
It probably cost a few bob, but was obviously deemed well worth it.
It is so confusing, I had to relisten to the presentation many times. DB talks about the hedge in two places.
In the first one he says
"From this position where we are now, we have 55 thousand ounces of forward looking gold hedged at a variety of cost collars prices from $2100 up"
That is where I thought the cost collars would be higher. In the old hedge it was up to $2150. Now he says $2100 up, without giving limit to the up. If it was the same collar prices, he should have said $2100-$2150 instead of saying up with no limit. Because the change was being done at a higher gold price of maybe $2300, I assumed he would be making a higher collar when the gold price is higher. Plus they were adding new q4 and q1 2025 which I assumed would have a higher collar.
He said "we have restructured some so we've paid down ... the first quarters uhhh", saying loudly restructured and paid down, with pauses and uh ums, which made me think they used cash to pay down the hedges. Those pauses and ums add to the confusion.
In the second place in the presentation he says
"and it gives us more exposure to gold at 23,500 right now" which made me think the collars were closer to 2300.
But I am now thinking Jux is right. This assumes DB is dumb, when he has a chance to restructure, he chooses not to raise the collars.
The other possibility is that DB is smart and raised the collar when the gold price is higher. This obviously is impossible because DB can never be smart!
I am still confused by his saying collars $2100 and up.
Not my understanding.
The remaining 55k oz now spread over 4 Qs at the same collar points.
It really improves exposure to current prices as it should have been 20k in each of the next couple of Qs but is now only 13.5k per Q and that results in an additional 6.5k per Q at this crucial point in time.
At the end of the day, it is not make or break: that is down to how quickly they get the higher grade or greater volume (or both). That critical diagram invites the thought that they have to depart from the plan and start selective mining where the high grade is, using whatever equipment is available, now that the blasting team are back in action. Bad long term, but needs must.
I don't think so no, they've just 'rescheduled' it meaning they benefit more now from POG, in the immediate term from this $2300/oz price but if gold stays here or goes even higher through 2024 they'll be losing out there instead as it will be hedged/collared a lot lower than spot price. If they had actually used up cash doing this Dan would have emphasised that either in the rns or IMC but he didn't.
They are potentially giving up future cash revenues to maximise short term generation, understandably as they need to navigate the next few months whilst the cards are stacked against them.
That was my understanding Rus
From listening to the presentation they used cash in q1 to buy back their old hedge. Their new hedge starting from q2 is 15k oz for the next 4 quarters (total 60k oz) at a price around $2300. Any production above 15k per q will be sold at market price. Is that right?
If that is the case, that explains the extra cash used in q1 in order to get more cash in future quarters. Their previous $2100 ceiling is removed and their forward gold sale prices can average $2300+.