Saturday, September 27, 2014

KGHM: hedging copper with the seagull

The 14H1 KGHM report mentions a copper hedging strategy called the Seagull.

Basically, it hedges part of the revenues (40,5k tons in H2 vs. 283k tons produced in H1, or less than 15%) against copper prices falling below $7,500 / ton.

Since the copper price was approx. $6,800 / ton on Friday, the Seagull was in the air:

(assumes no premiums)
Notes: see post about visualizing option strategies

Hence, the KGHM 14Q3 revenues should be even a little bit higher than estimated on the basis of the commodities prices alone.

Unfortunatelly, KGHM does not hedge against silver prices and the later decreased significantly more than copper over the previous three months(  -16.76% vs. -4.22%).

The Q3 monthly average price for silver, should still be higher than the Q2's, but the lack of hedging means lost revenues.

Only a little consolation is the fact, that silver constitutes "only" some 17% of the combined Cu+Ag KGHM production. Still we are talking about more than 600 million USD annually exposed here...

And yes, there is also some gold, molybden and more...


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