How is hedging used as a requirement in a debt covenant especially for a mining company? What does the debt covenant entail in respect to the company’s requirement to hedge the metals? Is it metals that is hedged? Is it against the increase in metal price or decrease in metal price? Basically a quick overview would be great. Much appreciated.
I’m assuming your talking about loan covenants here. I’ve never worked on a mining company but hedging interest rate risk with a swap is fairly common with floating rate loans. My suggestion is to find publicly traded companies in the mining space with senior loans in its cap structure. They should have publicly filed the credit agreement for the loan. You can see if any of those have hedging requirements.