Wheels Group Inc GRFJF

RE: Hedged gold miners

[shortUSA2]

The closing of the hedge books by the seniors over the last 5 years has been a significant contributor to the strength in the POG.   It is done because the shareholders demand that the company have full leverage to the POG.   The share price ultimately benefits because the hedges covered today free up more gold to be sold at higher prices in the future.  For example, covering hedges at $900 today in order to be able to sell it at $1200 in a couple years.   Buying at $900 entails a loss of $100 on the hedge in WGI's case but it eventually produces a gain of $400.  So it is very much worth doing.   Of course, this is all based on the assumption that gold will be higher in the future.  In WGI's case, they don't have the money to be doing this right now, but if they manage to generate consistent profits I would prefer that they start nibbling away at the hedge rather than looking for an acquisition.   This could all be moot in a short time anyway.  If WGI proves that they have a profitable mine it will likely be taken over.   Mulit million ounce, open pit, in the US, 100,000 plus ounce production, no other significant projects attached.  It would be a very tidy and simple takeover for a senior and just the sort of thing they look for.