I saw a press release today that boggled my mind. The press release is from Gold Road Resources Ltd (AX:GOR), a company in the process of exploring/developing a large gold deposit in Western Australia.
According to the press release, GOR is pleased with itself for having short-sold 50K ounces of gold and having given itself the option of short-selling an additional 100K ounces of gold.
Now, it’s one thing for a current gold producer to forward-sell part of the coming year’s production in order to ensure a certain cash-flow, but GOR is not a current producer. It doesn’t even have a completed Feasibility Study and is therefore years away from having any production. In fact, there is no guarantee that it will ever have any production.
What GOR is doing cannot be called hedging. It is an outright bet against a further rise in the A$-denominated gold price. Moreover, the bet is subject to margin calls, so GOR shareholders better hope that the gold price doesn’t skyrocket over the next 12 months.
It’s quite possible that GOR won’t be hurt by its bearish gold bet. It’s also quite possible that I won’t be hurt if I play Russian roulette, but that doesn’t mean it’s a good idea for me to play.