The effect of input commodity price movements on the earnings of South African gold mining companies.

Commodity producers in general typically have a commodity driven cost baseas well as commodity price driven revenue stream. The research reportinvestigates the correlation between input commodity price and gold price forgold mining companies, and how commodity price behaviour could potentiallyhave been harnessed in managing the earnings of South African gold miningcompanies.The research is performed via a regression analysis to gain insight into howmuch of the underlying gold price is explained by movements in the inputcommodity costs. Furthermore a representative South African Gold mine isused to understand the earnings effect of simultaneous commodity input priceand gold price hedging.The quantitative analysis confirms a sympathetic movement in gold miningcommodity input price and the gold price. Furthermore, the research report hasfound that for the representative South African gold mining company,simultaneous commodity input and gold price hedging would have increasedearnings for the years 2005 to 2008. To this end it is recommended that the comovementin commodity prices be instrumental in the price risk management ofgold mining companies.