GREY:LACHF - Post by User
Comment by
RedHorizonon Feb 05, 2009 7:00am
369 Views
Post# 15753839
RE: What ya think
RE: What ya thinkYou got it right on the pricing. What they did was sell out of the money call options on gold at about $1,150 US & used that cash from the calls sold to buy puts on gold at $775 for an equal number of ounces.
I like this move since it only reduces cash flow if gold exceeds $1150. Let me tell you all something, if gold goes to $1250 or so, LMA should soar through the roof even with this hedge. At $1250 the hedge has barely any impact, $100 an ounce for just 34% of production. At $1500 gold we lose $350/ounce on about 30000 ounces, $10.5 million US$. But we are making $1000 profit on the other 60,000 ounces & still $650 pretax profit on the hedged ounces.
More importantly I think, if we get a move in gold taking us up beyond $1150 an ounce, I think the whole sector gets rerated upward bigtime. While the rest of the world is falling apart our miners will be showing massive earnings growth. Consequently, I am not concerned about the hedge, the hedge is designed to reduce risk just in case we're wrong and gold doesn't do what we expect.