Sumitomo Metal Mining Co., Ltd. has implemented a long-term hedging operation in order to secure the selling price of the gold produced at the Pogo Mine.
This plan is a continuation of a strategy that has been on-going since April 2009 and is based around the company’s ownership share of the producing coming out of Pogo mine, it is hoped that new hedging strategies will continue to make the plan a success.
A “minimax” hedge transaction (a transaction in which the effective selling price is secured through an agreement between the producer and trader in order to secure the price) has been carried out against one-fourth of the company’s 85% interest in the planned gold production volume at the Pogo Mine between January 2019 and December 2019. The lower price is US$1 200/toz and the upper price is US$1 450/toz.
Sumitomo is engaging in a new hedge operation which will account for one-fourth of SMM’s 85% stake in the gold planned for production at the Pogo Mine between January 2019 and December 2019, will have a guaranteed selling price of US$1 200/toz even if the spot price were to drop below that value. If the spot price is within the range of US$1 200/toz to US$1 450/toz, the selling price will be set accordingly.
If the spot price exceeds US$1 450/toz, the selling price will remain at US$1 450/toz. In this way SMM will secure earnings from the gold produced at the Pogo Mine within the set range.
It is clear to SMM that by implementing this latest hedge transaction, especially in regards to the one-fourth of the 85% stake that the company utlises, the company cannot benefit fully from the price of gold produced tat Pogo mine between January 2019 and December 2019 were to appreciate sharply and exceed US$1 450/toz. By the same token, however, if the price were to drop below US$1 200toz in that period, the company would still secure a selling price of US$1 200/toz on this one-fourth of its total stake – a level which SMM believes will contribute to the company’s earnings stability.
Read the article online at: https://www.globalminingreview.com/exploration-development/08092017/gold-hedging-will-continue-to-be-sumitomo-main-strategy-at-pogo-mine/