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EXCHANGE RATE EXPOSURE | |  | |
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Oxiana has some exposure to fluctuations in the US$ mostly through our operations at Golden Grove and through some non-US$ costs at our Laos operations. Relative to others in the Resources sector, the exposure is not great and is also offset by the natural hedge of a rising US$ gold price and US$ denominated debt.
Revenue and Expenses
Unlike many Australian resource stocks, the majority of Oxiana’s revenues and costs are denominated in US$ and hence overall are less impacted by changes in the A$.
Capital costs
Oxiana sources capital equipment from Australia and Europe resulting in some exposure to movements in the A$ for any future new projects.
Natural hedge against the US
The fall in the US$ has driven US$ gold prices higher. Oxiana is fully exposed to this rise in the gold price which helps offset any increased costs from the US$ fall.
Most of Oxiana’s debt is denominated in US$. As the value of the US$ falls, so too does the value of the debt owed by Oxiana when expressed in A$.
Unrealised Foreign Exchange Adjustment
In the full year financial results to December 2005 there was a profit of $7.3m due to the fall in the A$. Oxiana is an A$ denominated company however the operating subsidiary in Laos is a US$ denominated company. On the 30th June and the 31st December each year, a book entry is recorded that recognises the marked to market change in the value of Oxiana’s equity interest in the Lao operating company as a result of the change in the exchange rate. This is the Unrealised Foreign Exchange Adjustment.
Importantly, there is no transfer of cash nor any tax or operating implications of this book entry.
Most equity analysts adjust the net profit figure by adding back this Foreign Exchange Adjustment i.e. net profit for the 12 months to December is $80.3m less the $7.3m Unrealised FX Adjustment for a total profit of $73m.
Related pages
Hedging
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