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Mining companies often have a portfolio of hedges for the commodity that they deal in. A hedge enables them to lock in the current price of their commodity and so protects them against a fall in that price. The problem is that a hedge locks out both the upside and downside so if the commodity price begins to rise the mine will have lost out on that extra profit. In 2010, Anglo Gold finally closed out a disastrous hedge book which had cost them heavily. In general, we believe that just because a company produces a particular commodity does not necessarily equip it to speculate in the derivatives market in that commodity. Mining is inherently risky because the price of the product it sells is outside of its control. Hedge books are an attempt to minimise that risk.

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