Wheels Group Inc GRFJF

RE: MTM on Gold Forward Contracts and SP

[shortUSA2]

Well I'm not an accountant but wanting the POG to stay put or go down in order to have the EPS look better on paper wouldn't make sense.   They have an obligation to sell a certain amount of gold at $800.  For the rest, we should be hoping for the highest price possible.   In my experience, losses on hedged sales are reported as non cash losses.  They do come off the EPS but because they are non cash the loss is better described as "money we would have made if not for the hedge".     Investors understand this, and I would not expect to see WGI punished for showing a larger non cash loss in a quarter where gold was selling for $200 over the hedge price.   The behaviour of the stock price is simple evidence of this.  If it were better for us to have a lower POG then the share price would rise as gold moved lower and tank as it approached $1000.   Bottom line is we want higher gold prices.  The hedge just reduces our leverage to them and makes the EPS look worse than the reality.   Maybe, if they start generating good cash flows from the operation they can undertake to close out the hedgebook prematurely thereby maximizing the company's leverage to the POG, which is generally what investors want.   Too bad they can't get this done now while gold is around $900 because I expect to see the POG well over $1000 within 6 months.