PWC Hedging In The Mining Industry
Hedging in the Mining Industry
Strategy, Control and Governance
Contents
Foreword
Chapter 1: Executive summary
Chapter 2: To hedge or not to hedge? Considering a strategy
1
2–4
5 – 12
Chapter 3: What tools are available? Implementing the hedging strategy
13 – 24
Chapter 4: How do we control and monitor a hedging programme? 25 – 36
Chapter 5: How, why and to whom do we communicate our risk-management strategy?
37 – 44
Chapter 6: What are the accounting implications?
45 – 49
Appendix
50 – 51
Contacts
52
Foreword
In recent years, the number and complexity of derivatives available to business have increased dramatically. At the same time, regulators around the world have, in their different ways, steadily increased and formalised the burden of responsibility on those charged with corporate governance.
This scenario is particularly apparent in the mining industry, exposed as it is to volatility in commodity prices, as well as interest and currency exchange rates.
These risks are, of course, those that the ever-increasing range of derivatives is created to tackle, and a whole industry has grown up around the design and provision of hedge instruments for mining companies.
Over the years, the mining sector has seen a steady stream of dramatic, unforeseen financial crises, some even leading to corporate collapse. These have stemmed from the failure or inability of management to understand, design, control, communicate or account for a hedging strategy properly. Postmortems have often revealed the problems that non-specialists in governance roles have faced in trying to perform their duties.
We have worked with the managements of many mining companies around the world to tackle these issues. We thought it would now be helpful to share our experience, offering guidance, particularly to the non-specialist involved with governance and control, on the following five key questions that the management of every mining company needs to answer:
• To hedge or not
Strategy, Control and Governance
Contents
Foreword
Chapter 1: Executive summary
Chapter 2: To hedge or not to hedge? Considering a strategy
1
2–4
5 – 12
Chapter 3: What tools are available? Implementing the hedging strategy
13 – 24
Chapter 4: How do we control and monitor a hedging programme? 25 – 36
Chapter 5: How, why and to whom do we communicate our risk-management strategy?
37 – 44
Chapter 6: What are the accounting implications?
45 – 49
Appendix
50 – 51
Contacts
52
Foreword
In recent years, the number and complexity of derivatives available to business have increased dramatically. At the same time, regulators around the world have, in their different ways, steadily increased and formalised the burden of responsibility on those charged with corporate governance.
This scenario is particularly apparent in the mining industry, exposed as it is to volatility in commodity prices, as well as interest and currency exchange rates.
These risks are, of course, those that the ever-increasing range of derivatives is created to tackle, and a whole industry has grown up around the design and provision of hedge instruments for mining companies.
Over the years, the mining sector has seen a steady stream of dramatic, unforeseen financial crises, some even leading to corporate collapse. These have stemmed from the failure or inability of management to understand, design, control, communicate or account for a hedging strategy properly. Postmortems have often revealed the problems that non-specialists in governance roles have faced in trying to perform their duties.
We have worked with the managements of many mining companies around the world to tackle these issues. We thought it would now be helpful to share our experience, offering guidance, particularly to the non-specialist involved with governance and control, on the following five key questions that the management of every mining company needs to answer:
• To hedge or not