Ann: Capital Initiatives , page-75

Hi sbah22,

If you re-read you post, you said that "Gold hedging losses were due to improper accounting", which is different to saying that "claimed Ernst & Young was negligent over the accounting of gold and dollar hedging contracts." The accounting didn't cause the losses.

But thanks for that post, I didn't even know there had been the court cases.

However, they went bust in 2003. They went bust because they couldn't produce enough gold to satisfy their hedges, and as a minor issue the tantalum market was deep in the doldrums. But the basic reason was that they could only meet their hedging requirements by buying gold on market. From memory their hedging was 600,000 oz per year, but they were only producing 400koz - 450koz.

There was certainly enough disclosure to realise that this had to happen. It was a great short.

And therefore any DD has to look closely at hedge positions, because any risk that you may have a hedge to meet but no metal is a direct impact on your cash flow type risk.