Regarding hedging, writing calls.
As of the AGM on May 19, straight from Peggy in response to a question I posed during the Q&A portion of the meeting.
stockhouse.ca
excerpt
"The company has stopped writing calls on a small portion of the estimated annual production at this time. 14,000 oz currently at average price of US$550 remaining on the books at this time."
And a later follow up post with some more details regarding the call options ....
stockhouse.ca
excerpt...
"1. My first question was about the company's policy on hedging and writing of call options.
These are two somewhat different animals and some people don't understand that difference. The company has no actual hedging at this time, but they were writing some call options on gold. We already gave you the information Peggy supplied in response. No further writing of call options are planned at the present time, but there were 14,000 ounces at an average call price of US$550 still outstanding. I believe these contracts should mostly expire in the second qtr but not absolutely sure on this.
And from previous conversations with IR here's some additional detail .... Basically the call options are sold on a three month rotational basis, on a small percentage of their projected gold production. Some contracts may expire unused, some may have gold delivered into the contracts if so exercised by the holder of the options. As the previous contracts expired, new ones were written in place of the expired contract. The company receives a premium at the time the calls are written and sold. Say, perhaps $15 per written contract. ( Keep in mind, I'm no expert on options) If gold prices stay down low, some of those options may not get exercised if the strike price is higher than the spot price during the period or if the strike price at option expiry date, and the company will still sell the gold at spot and also book the additional premium received for that contract at time of writing.
We will have to wait until end of Q2 to see what effect this has on the average realized price per ounce received. The company didn't do too well with this strategy during Q1 '06 as the PoG sky rocketed, and they received about $43 per ounce less overall for their realized price per ounce sold compared to some other junior producers."
And earlier today I made a post over on another CMM thread showing what should happen if all call options were exercised and the gold delievered into them ...
smartinvestment.ca./php/phpBB2/viewtopic.php?t=1897&start=0&sid=8eb2e4cb116ab39e37a4c7a1bc802679
Q2 2006 Century Mining Estimates (my worst case scenario)
Sigma Open Pit operations
Assume 21,500 ounces of production (accounting for 20% increase in truck availability from Q1)
Average spot price for Q2 of US$625 (yeah I'm on low side at present)
14,000 ounces of call options at average US$550
Assume all call option ounces delivered (probably not going to happen)
14,000 x $550 $7,700,000
7500 x $625 = $4,687,500
$7,700,000 + $4,687,500 = $12,387,500 x $1.11 USD/CND exchange rate = C$13,750,000
Realized price per ounce average of approx US$576
21,500 ounces with cash costs of $350 = $7,525,000 x $1.11 USD/CDN exchange rate = C$8,352,750
C$13,750,000 - C$8,352,750 = C$5,397,250 mine operating cash flow.
There will no longer be any royalties cost as the company bought out the royalty payments from SGF. We also won't be seeing anymore interest or accretion charges from convertible debentures as that debt was eliminated by end of Q1. Also note, that those costs associated with the con debs was expensed in Q1 and if you remove those costs, then Q1 would have shown net break-even bottom line. Now taking into consideration the higher realized gold price and increased production which should lower the cash costs in Q2,.... Peggy stated in the AGM presentation that Century Mining would be showing a net profit for Q2.
Mg't still need to meet their objectives and considering that Q2 06 will be their 4th full qtr of operations at Sigma, one would have to think that the company should have a good handle on operations now. I'm willing to give them Q2 to get things fully in order, but in Q3 and Q4 this company needs to start performing to their projections, out-performing would be even better. We've been blessed with high gold prices which has helped this company weather some of the rough spots on start-up. The CDN/USD exchange rate has not helped the company meet its cost projections, with guidance in US cash costs being raised due to the much stronger than expected Canuck buck.
|
