RE: RE: RE: Close the hedge! - CorrectionNot quite sure how this works, but it appears that the "hedge loss" is offset by the addition of the same amount to assets or revenues (not sure which). Either way, as far as I'm concerned, it doesn't matter, only the bottom line really matters:
From UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010:
(a) Derivatives and Hedging Activities
The Corporation uses derivative and non-derivative instruments to manage financial risks, including commodity, interest rate, equity price and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies and approved limits. The Corporation does not use derivatives for speculative purposes. The Corporation uses the following derivative instruments to manage these risks:
? Forward contracts to hedge exposures to fluctuations in metal prices (see Note 10)
For the nine month period ended September 30, 2010, the Corporation recorded a hedge loss of $2,070,767 (for the year ended December 31, 2009 – a loss of $1,696,117, for the nine month period ended September 30, 2009 a loss of $1,451,826). A loss occurs when the Company locks in a price in connection with the Revolving Advances Facility (Note 10) and the price of silver rises subsequent to forward contract transaction and before final settlement with the smelter.
Embedded Derivatives
Revenues from the sale of metals produced since the commencement of commercial production are based on provisional prices at the time of shipment. Variations between the price recorded at the shipment date and the actual final price set under the relevant contracts are caused by fluctuations in the market prices for copper, lead and silver, and result in an embedded derivative. The embedded derivative is recorded at fair value each period until settlement occurs, with the changes in fair value recorded to revenues. As at September 30, 2010, the Corporation has recorded embedded derivatives in the amount of $6,935,603 in receivables and related embedded derivatives within the consolidated balance sheet (December 31, 2009 - $5,682,134) related to these embedded derivatives. Currently, two customers represent 100% of the Corporation’s trade receivables which contains the embedded derivative.