2014 UTC - Presentation Challenge #1
PRESENTATION CHALLENGE
In order to successfully complete this challenge, each Team will need to deliver a written
submission and make a short PowerPoint presentation.
Team Presentations must:
1. Identify the potential risks faced by the company.
2. Develop a hedging solution for those risks that the group believes need to be hedged.
3. Provide a graphical scenario analysis showing the impact of the hedges across a number
of positive and negative market outcomes.
4. Develop a proposal for funding the new mine project in Australia.
Each team will be allocated 15 minutes to make their ‘pitch’ to the client. The PowerPoint
presentation should take 5-8 minutes, leaving time for questions.
The client pitch is to be made by two of the team members with the other two team
members answering the follow-up questions.
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Page 1
OVERVIEW
The group project is designed to test Team’s ability to:
Identify the different types of market and business risks faced by an international
company
Develop hedging strategies for the identified risks using traditional cash market and
derivative products
Present a client proposal in a clear and ordered fashion
Client Overview
OroMondo Exploration is a New York listed mining company that specializes in finding and
developing gold mining prospects across the globe.
Existing fully operational mines in Canada and South Africa currently produce 180,000
ounces of gold per year.
Canada
South Africa
Australia (New Mine)
Gold Output
(Ounces)
100,000
80,000
65,000 (starting
in 6 months)
Production Cost
per Ounce
CAD 690
ZAR 5,650
AUD 750
Production costs per ounce include cash costs, government royalties and the marginal cost
per ounce of mining and ore processing.
They recently discovered a significant prospect in Australia and are now at the stage of
bringing it into production. They require AUD 375 million in order to develop the project and
envisage full gold production would commence in 6 months’ time.
The company has 312 million shares on issue and they are currently trading at USD2.74
each.
The company is rated BB
The management of OroMondo Exploration believes gold will likely stabilize around current
levels and stay within 10% over a 12 month time horizon and 20% over a 2 year horizon.
They are concerned about the prospects for rising interest rates and extreme currency
movements.
©2014 CapitalWave Inc. and University Trading Challenge | All Rights Reserved.
Page 2
OroMondo Exploration Company Facts
Consolidated Balance Sheet (USD ‘000)
June 30 2014
June 30 2013
ASSETS
Current Assets
Cash and Cash Equivalents
23,810
16,070
Trade and Other Receivables
Inventory
Other Current Assets
6.560
20,390
1,502
52,262
6,426
11,966
1,517
35,979
5,914
459,477
4,478
3,035
432,377
4,247
522,131
475,638
37,437
32,543
69,690
53,584
39,415
92,999
141,562
17,768
5,148
164,478
136,318
11,848
4,464
152,630
555,691
0
-268,017
287,673
458,504
3,561
-232,056
230.009
Non-Current Assets
Loan due from related party
Property, plant and equipment
Other Assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Trade payables
Other Current Liabilities
Non-Current Liabilities
Long Term Debt
Other liabilities
Site reclamation obligations
EQUITY
Issued Share Capital
Warrants
Accumulated Deficit
522,131
475,638
Liabilities
The long term debt is primarily comprised of a $150 million floating rate bank loan with interest set
at 6 month USD LIBOR plus 150 basis points, and 5 years remaining to maturity.
©2014 CapitalWave Inc. and University Trading Challenge | All Rights Reserved.
Page 3
KEY MARKET DATA
Market
Current Rate
Spot Gold
USD/ZAR
USD/CAD
AUD/USD
USD 1190.75
11.316
1.1240
0.8675
Interbank Interest Rates / Swap Rates
USD
0.25%
0.30%
0.35%
0.80%
1.27%
1.60%
1.88%
2.25%
2.58%
3 month
6 month
12 month
2 year
3 year
4 year
5 year
7 year
10 year
CAD
1.12%
1.23%
1.29%
1.44%
1.63%
1.81%
1.97%
2.23%
2.57%
AUD
2.59%
2.75%
2.69%
2.78%
2.91%
3.16%
3.31%
3.57%
3.83%
ZAR
6.05%
6.25%
6.52%
6.93%
7.2%
7.42%
7.61%
7.87%
8.15%
Interest Rate Swap Conventions:
Assume all interest rate swap rates are Semi-annual, 30/360 day count basis, vs. 3 month floating
rate. The rates for 3 months through 12 months represent mid-market interbank deposit rates. The
swap rates are for maturities 2 years – 10 years.
Gold Futures
GCX14 (Nov '14)
GCZ14 (Dec '14)
GCG15 (Feb '15)
GCJ15 (Apr '15)
GCM15 (Jun '15)
GCQ15 (Aug '15)
GCV15 (Oct '15)
GCZ15 (Dec '15)
GCG16 (Feb '16)
GCJ16 (Apr '16)
GCM16 (Jun '16)
GCQ16 (Aug '16)
GCZ16 (Dec '16)
GCM17 (Jun '17)
GCZ17 (Dec '17)
GCM18 (Jun '18)
GCZ18 (Dec '18)
GCM19 (Jun '19)
GCZ19 (Dec '19)
GCM20 (Jun '20)
1,192.50
1,192.90
1,193.50
1,194.10
1,194.80
1,195.60
1,196.40
1,197.70
1,199.30
1,201.20
1,203.40
1,206.30
1,212.10
1,223.20
1,236.90
1,251.90
1,269.70
1,290.80
1,316.90
1,346.90
©2014 CapitalWave Inc. and University Trading Challenge | All Rights Reserved.
Page 4
ANNUALIZED CURRENCY OPTION VOLATILITIES
Maturity
1 month
2 month
3 month
4 month
5 month
6 month
9 month
12 month
USD/CAD
5.9%
6.3%
6.4%
6.6%
6.7%
6.8%
6.7%
6.7%
USD/ZAR
8.50%
8.70%
8.90%
9.15%
9.38%
9.60%
9.80%
10.25%
GOLD OPTIONS
Call Options
Strike
1,000.00
1,025.00
1,050.00
1,075.00
1,100.00
1,125.00
1,150.00
1,175.00
1,200.00
1,225.00
1,250.00
1,275.00
1,300.00
1,325.00
1,350.00
1,375.00
1,400.00
AUD/USD
8.3%
8.4%
8.6%
8.9%
9.0%
9.2%
9.2%
8.9%
Put Options
3 Month
6 Month
12 Month
3 Month
6 Month
12 Month
198.40
175.00
152.10
130.00
108.70
88.60
70.30
53.80
40.10
28.80
20.30
14.10
9.60
6.80
4.80
3.70
2.90
205.00
182.50
160.60
139.50
119.50
100.50
83.00
67.50
54.20
43.00
33.60
26.20
20.20
15.80
12.40
10.00
8.10
219.50
198.50
178.30
158.90
140.20
122.40
106.50
91.80
78.80
67.80
57.90
49.30
41.80
35.70
30.50
26.00
22.70
5.00
6.60
8.70
11.60
15.30
20.10
26.80
35.30
46.60
60.30
76.80
95.60
116.00
138.20
161.20
185.10
209.20
10.40
12.90
16.00
19.80
24.80
30.80
38.20
47.80
59.40
73.20
88.70
106.30
125.30
145.90
167.50
190.00
213.00
22.40
26.40
31.20
36.60
42.90
50.00
59.00
69.20
81.10
95.00
110.00
126.40
143.70
162.60
182.30
202.70
224.30
©2014 CapitalWave Inc. and University Trading Challenge | All Rights Reserved.
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