PWC Hedging In The Mining Industry

 PWC Hedging In The Mining Industry Analysis Paper

Hedging in the Mining Market

Strategy, Control and Governance



Chapter you: Executive brief summary

Chapter two: To hedge or never to hedge? Considering a strategy



a few – 12

Chapter three or more: What equipment are available? Putting into action

the hedge strategy

13 – twenty four

Chapter four: How do we control and keep an eye on a hedge


25 – 36

Chapter your five: How, so why and to which do we connect

our risk-management strategy?

37 – forty-four

Chapter 6th: What are the accounting ramifications?

45 – 49


50 – 51




In recent years, the quantity and intricacy of derivatives available to business have elevated dramatically. At the same time, regulators around the world have, inside their different ways, gradually increased and formalised the burden of responsibility on those charged with corporate governance.

This scenario is specially apparent in the mining market, exposed as it is to volatility in commodity prices, and also interest and currency exchange prices. These hazards are, naturally , those that the ever-increasing variety of derivatives is created to tackle, and an entire industry is growing up around the design and dotacion of hedge instruments pertaining to mining companies.

Over the years, the mining sector has found a steady stream of dramatic, unforeseen economical crises, incidents where leading to company collapse. These kinds of have been a result of the inability or inability of managing to understand, design and style, control, speak or are the cause of a hedging strategy effectively. Postmortems include often unveiled the problems that non-specialists in governance functions have experienced in aiming to perform their particular duties.

We now have worked with the managements of many mining firms around the world to tackle these issues. We believed it would now be helpful to talk about our experience, offering advice, particularly for the nonspecialist included in governance and control, within the following five key inquiries that the management of every exploration company must answer:

• To hedge or not to hedge? Considering a strategy

• What are the tools available? Employing a strategy

• How do we control and screen a hedging programme?

• How, why and to which do we speak the approach?

• Exactly what the accounting implications?

I use asked numerous our professionnals around the world to consider these inquiries, and set out in this report, you will find the chapters that they have contributed. I hope you find this useful and, if you want to explore these issues in more fine detail, our exploration specialists, whose details can be obtained on the Contacts page, are prepared to help.

Hugh Cameron

Global Mining Innovator,

PricewaterhouseCoopers, Johannesburg

Hedging in the Mining Sector 1

Section 1

Executive summary

Their education to which businesses use derivative

instruments and have interaction in hedging activities features

increased tremendously in recent years, combined with

complexity of the people instruments and activities. Adjustments

in monetary crisis markets, as well as related economical

innovations, have led to the expansion and use of

new derivative instruments to deal with exposures into a

variety of dangers, including commodity price, rate of interest

and foreign currency risks.

Exploration companies at this point routinely engage in activities

which were once outside the house their traditional business models.

These actions may involve highly complex, poorly

understood instruments that want specialised expertise

to analyse. Recent high-quality corporate scams have

proven that several boards of directors and management

have got failed to create discipline and control over the

use of derivatives. They have likewise failed to explain

clearly inside their communications with stakeholders how

and so why their hedge strategies lead to stakeholder


The economical press and courts have got highlighted a wide range

of hedging programmes which have ended in failing. Some

possess caused catastrophic loss to mining businesses and...


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