Mining Companies Appear to be Engaging in Hedging Activities once Again

http://traderdannorcini.blogspot.com/2013/06/mining-companies-appear-to-be-engaging.html

Once upon a time in the West, We Dig It UP Mining, hedged or forward sold some of its expected gold production in order to mitigate price risk and to ensure that it captured reasonable profits on at least part of its production.

Then came the bull market in gold starting in 2001. We Dig It Up was nonplussed to say the least when it saw what its competitors' stock prices were doing while the price of gold was rising. Theirs' were exploding higher while its was languishing. As a matter of fact, New Kid on the Block Mining was bragging about its disdain for hedging while We Dig It Up Mining spend most of its stockholder meetings explaining why it was engaging in this obsolete strategy.

Eventually, threats from disgruntled shareholders and loss of market performance, were enough to convince the Board of We Dig It Up to abandon the practice of hedging altogether and join the crowd.

That is basically the way things have been since early in the last decade, until now!

What do I mean? Simple - Mining companies are now being faced with life and death decisions when it comes to the well being of their business. No one is quite sure how low the price of gold may or may not go but one thing they are certain of; gold down at current price levels means many miners are not going to be able to profitably (that word is key) dig the ore out of the ground for processing.