Commodity producers in general typically have a commodity driven cost base
as well as commodity price driven revenue stream. The research report
investigates the correlation between input commodity price and gold price for
gold mining companies, and how commodity price behaviour could potentially
have been harnessed in managing the earnings of South African gold mining
companies.
The research is performed via a regression analysis to gain insight into how
much of the underlying gold price is explained by movements in the input
commodity costs. Furthermore a representative South African Gold mine is
used to understand the earnings effect of simultaneous commodity input price
and gold price hedging.
The quantitative analysis confirms a sympathetic movement in gold mining
commodity input price and the gold price. Furthermore, the research report has
found that for the representative South African gold mining company,
simultaneous commodity input and gold price hedging would have increased
earnings for the years 2005 to 2008. To this end it is recommended that the comovement
in commodity prices be instrumental in the price risk management of
gold mining companies.