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Fearful of slumping copper, Taseko hedges

Taseko Mines Ltd. has bought put options to hedge its 2011 copper production, signalling that miners, too, are worried about commodity prices.

Taseko chief executive officer Russell Hallbauer noted that while copper prices have averaged about $4.25 (U.S.) per pound over the last four months, "the price has experienced extreme volatility on a day over day, and week over week basis." By purchasing put options that protect against falling prices, Taseko can guarantee that it will receive a minimum of $3.61 per pound for all of its remaining 2011 copper production.

This revenue stream is crucial for the company. The government rejected the company's application to start up its new Prosperity mine because of environmental concerns, so Gibraltar is its only source of funding.

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For that reason Moody's raised some caution when Taseko raised $200-million in April to fund the development of Gibraltar's third phase. The rating agency noted that "Taseko is reliant on a single operation, the Gibraltar mine, and few customers." Moreover, "a single mine company like Taseko could have its business severely curtailed with only a single negative operational event."

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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