Any suggestions why EVG has been sluggish whilst others are moving on up of late?
cy7,
I hear what you are saying. I understand that if EVG enters hedges for its gold production at 'x' price today there are risks. Just so I understand what you are saying:
1) If production/ construction delays occur at LL and EVG cannot physically deliver the gold to the counter-party on the contracted date, then EVG must buy that gold on-market to honour the delivery.
2) If the POG continues to climb, whilst EVG has previously agreed to sell their gold for 'x' price, which happens to be lower than the spot price, the risk or cost to EVG is 'opportunity cost', in that they have foregone the opportunity to sell gold at a higher price.
If this is correct, then I am not too concerned about (2), as EVG will still make a truckload and, with only an intention to hedge 50% of LL will still remain exposed to upside from the remainder of LL and also its other projects.
Looking at the historical charts for gold vs. the current speculative comments, there is always a propensity to return to the norm (e.g. Chinese Super-cycle commodities argument in 2007). Thus, hedging at a price above $1,000 USD oz, when production costs are $333 USD oz, would lock in excellent profits for 50% of LL production.
Any construction/ production delays that could occur I can see as being a risk to EVG.
However, when looking at the risks and the type of mining required to extract the gold I would think that they are much lower than traditional mining operations.
After all, the ore is sitting there, above ground in a big tailings dam ready for extraction.
The Xstrata, Albion plant would appear to be relatively small and straight forward to construct with contracts in place and construction well underway.
Operationally, I recall an HCer saying that electricity continuity may be a concern in a Latin American country.
Given this,
I would think that a bird in the hand (hedge 50% of production at historically high price) would be a good idea if I understand the risks 1 and 2 correctly.
I think that with all the hype gets around gold prices, media coverage, 'experts' opinion, etc, etc there is a greater chance of things going South AT SOME POINT as too much speculative money that has entered the sector SUDDENLY decides it is time to leave. Remember:
1) Oil at $150 per barrel 2008 2) Nickel at $28 per pound 2007
etc, etc.
Keen for thoughts and counter opinions.
Cheers John
EVG Price at posting:
7.8¢ Sentiment: Buy Disclosure: Held
