FACTBOX-Hedging by copper producers
Tue Apr 21, 2009 5:53am EDT
reuters.com
April 21 (Reuters) - Earlier falls in metals prices have prompted more producers to opt to hedge their output in a bid to lock in future sales prices and minimise the impact on their profits.
Copper producers, until last July were enjoying record high prices for the metal and, keen to fully participate in the boom, generally saw no reason to hedge.
But, with prices having at around half the $8,940 a tonne peak seen in July last year some have changed their attitude in recent months.
Below are details of known hedging strategies implemented by copper producers, as well as entries for some of those who choose not to.
As a rule major diversified companies do not hedge because of investor interest in their exposure to commodities.
HEDGERS
ANTOFAGASTA (ANTO.L)
The London-listed miner said it has hedged 35 percent of its 2009 copper production estimated to be 433,000 tonnes.
BOLIDEN (BOL.ST)
* As of end-2008 the Swedish company had hedged 42,600 tonnes of 2009 copper output at $5,920 a tonne and 62,700 tonnes at $7,606 a tonne for 2010.
EQUINOX MINERALS (EQN.TO)
* The Toronto-listed firm established the Lumwana copper hedge book on Sept. 11, 2007 covering 30 percent of the first three years of production or 124,558 tonnes.
* Lumwana began preliminary copper concentrate production in December 2008.
* Hedge established at average price of $2.65 a lb.
* Hedge book last valued marked-to-market on Jan. 9, 2009 ($1.45 a lb) at $243 million.
FIRST QUANTUM MINERALS (FM.TO)
* The Toronto-listed company has a six-month rolling hedge on a maximum of 55 percent of its copper production, or about 63,500 tonnes. Currently it goes out to July, but is continuously reviewed.
* The collars are $1.45 a pound and $1.61 a pound.
HUDBAY MINERALS (HBM.TO)
"From time to time the company maintains price protection programmes and conducts commodity price risk management through the use of derivative contracts," the company said in its 2008 annual report.
KAZAKHMYS (KAZ.L)
* The Kazakh mining group has hedged 80,000 tonnes of copper production for this year.
* 7,500 tonnes of copper production has been hedged for each of the remaining months in 2009.
* The hedges will offset the negative impact if copper prices go below $3,000 per tonne, but the company also sacrifices the upside should the price rise above $4,000 per tonne.
KGHM KGHM.WA
* Poland's KGHM has hedged 63,000 tonnes, or around a fourth of the first-half output, at more than $6,000 per tonne.
* Company said it may generate 714 million zlotys ($204.5 million) in income from hedging in the first half, aided by a slide in the local currency. Based on assumption of copper prices at around levels seen in December.
* Favourable hedging positions gave a 444 million zlotys boost to KGHM's results in Q4 2008.
* Impact of favourable hedges the company entered in mid-2008 will start to wane in the second half of this year.
* "It would be right to conclude that for the third and fourth quarter we no longer have such good hedging positions on the copper market as in the fourth quarter of 2008 and in the first half of 2009," a company official said.
LUNDIN MINING (LUN.TO)
* Company announced on April 20 it had entered into multiple option collar arrangements which set a price protecting floor and cap the maximum price received for about 40,000 tonnes of copper spread evenly over the next 12 months.
* Weighted average floor price is $1.87 a lb and the weighted average ceiling is $2.39 a lb.
* No cash premiums were paid or received under the net zero cost structures.
TECK COMINCO (TCKb.TO)
* The Canada-based company had hedges on about 55 percent of its copper production through March at about $2.40 a pound.
* "The copper hedges have worked out pretty well for us," said spokeswoman Sarah Goodman.
NON-HEDGERS
ANGLO AMERICAN (AAL.L)
* The London-listed miner said it does not generally use hedging instruments, though it retains the right to do so.
FREEPORT-MCMORAN COPPER & GOLD INC (FCX.N)
* The company has ruled out hedging future copper production. NORDDEUTSCHE AFFINERIE (NAFG.DE)
* Europe's largest copper producer said it is not involved in hedging.
* The company does not produce for stocks on its own account and its own metal goes into its own downstream metal production.
* "We safeguard against price risks in that we always buy and sell metal at the same price simultaneously," a company spokeswoman said.
OZ MINERALS (OZL.AX)
* Said it is exposed to commodity price volatility on commodity sales made by the mines. This arises from sale of metal and metal in concentrate products, including copper, which are priced on, or benchmarked to, open market exchanges.
SOUTHERN COPPER CORP (SCC) (PCU.N)
* Majority owner Grupo Mexico (GMEXICOB.MX) said SCC signed hedge agreements to protect 179,443 short tonnes of copper in 2008. As of end-2008 these agreements accumulated earnings of $137 million.
* But the company does not have hedge contracts for 2009 and subsequent years.
XSTRATA (XTA.L)
* "We don't typically undertake long-term strategic hedging of commodity prices," the Swiss-based miner said. (Additional reporting by Agnieszka Barteczko, Cameron French, Michael Hogan and Michael Taylor; compiled by Pratima Desai and Karen Norton; edited by Sue Thomas) |
