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Gold/Mining/Energy : DROOY Durban Deep- Best S. African Mine
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To: baystock who wrote (270)10/7/1999 3:02:00 AM
From: baystock  Read Replies (1) of 851
 
After ASL's implosion, most gold share investors are scurrying around trying to understand their gold company's hedging. DROOY is hedged to the tune of 1.5 million oz which is a little over 1 years production. Not as squeaky clean as Harmony but not a ASL or CBJ style disaster either:

Regarding request for information on DRD'S HEDGE :

"DRD has sold forward approximately 1.5 million ounces over the next five years. This equates to under 25% of the projected production and below 10% of ore reserves (2% of resources). DRD utilises primarily plain "vanilla"instruments and has always avoided the "exotic" structures and "lease rateswaps".

If the gold price stays at these high levels DRD will increase its production and the percentage will decrease accordingly (for example to under 20%). These ounces have been sold forward at levels sufficient to
deliver a 20% cash operating margin on the specific ounces hedged and accordingly generates sufficient funds to cover the planned capital programmes. The large unhedged portion of DRD's production is open to
participate with the spot gold price, and as the gold price continues to increase, more of DRD's marginal gold resources become payable.

DRD's published ore reserves of 13.7 million ounces (excluding Harties reserves) were calculated at a gold price of R55 000/kg. With the spot price at $320/oz DRD's payable ore reserves increased by 700 000 ounces or 5% to 14.4 million oz. This increase equates to approximately half of DRD's hedged ounces.

The hedge book is actively managed in order to protect DRD from declines in the gold price, but at the same time to take advantage of upswings to allow greater participation. This is done through appropriate restructuring the hedge book, with due consideration to the market outlook and volatility. With this increase in the gold price and change in sentiment, DRD has
purchased "call options" which will allow DRD shareholders greater participation as the gold price continues to rise, to compensate for the ounces sold forward."

Kind regards
Maryna


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