Hedging/Derivatives
The Group’s policy is to remain unhedged to the gold price. However, hedges are sometimes undertaken on a project specific basis as follows:
- to protect cash flows at times of significant expenditure;
- for specific debt servicing requirements; and
- to safeguard the viability of higher cost operations.
Gold Fields may from time to time establish currency financial instruments to protect underlying cash flows.
Gold Fields has various currency financial instruments – those remaining are described in the schedule.
Position at end of December 2008
As a result of the US$551 million drawn down under the original bridge loan facility to settle mainly the close-out of the Western Areas gold derivative structure on 30 January 2007, US dollar/rand forward cover was purchased during the March 2007 quarter to cover this amount. During financial 2008, US$233 million of this loan was repaid and the forward cover was reduced to US$318 million to correspond with the loan amount outstanding. At 31 December 2008, the unrealised foreign exchange loss on the revaluation of the US$318 million loan was R746 million. This loss was offset by R746 million cumulative positive gains on the forward cover purchased at an original rate of R7.3279.
During the December quarter R65 million of forward cover costs were accounted for as part of interest, as this forward cover has been designated as a hedging instrument.
In October 2008, US$150 million of expected gold revenue for the December quarter was sold forward on behalf of the South African operations. In December 2008, US$150 million was extended to the March quarter at an average forward rate of R10.3818. At the end of December 2008 the marked to market value of the US$150 million forward cover was positive by R90 million (US$9 million).
In October 2008, US$70 million of expected gold revenue for the December quarter was sold forward on behalf of the Australian operations. In December 2008, US$56 million was extended to the March quarter at an average forward rate of A$0.6650. At the end of December 2008 the marked to market value of the US$56 million forward cover was positive by US$1 million.
In August 2008, South African rand, Australian dollar and Euro forward cover was taken in the name of Gold Fields Ghana Ltd to cover foreign currency exposure on capital projects. Outstanding at the end of December were forward cover contracts of A$1 million and R11 million, both maturing in January.
The marked to market value for the outstanding contracts at the end of the December 2008 quarter was positive by US$1 million.
Ghana
Gold Fields Ghana Holdings (BVI) Ltd purchased four Asian style ICE Gasoil call options with strike prices ranging from US$0.90 per litre to US$1.11 per litre, which equates to a Brent crude price of between US$92 and US$142 per barrel, with final expiry on 28 February 2010.
The marked to market value for the above call options purchased was positive by US$0.3 million at the end of the December 2008 quarter, compared with the premium paid of US$10 million.
Australia
Gold Fields Australia purchased two Asian style Singapore 0.5 Gasoil call options with strike prices ranging from US$0.9128 per litre to US$1.0950 per litre with a final expiry on 28 February 2010.
The marked to market value for the above call options purchased was positive by US$0.1 million at the end of the December 2008 quarter, compared with a premium paid of US$4 million.
The premiums paid for the Ghanaian and Australian options as details above, except for US$0.3 million and US$0.1 million respectively, have been expensed.
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