MINERALS MARKETING By RICHMOND OSEI-HWERE FACULTY OF LAW, KNUST.

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Presentation transcript:

MINERALS MARKETING By RICHMOND OSEI-HWERE FACULTY OF LAW, KNUST

 Mineral market structure  Hedging  Minerals marketing in Ghana

 The Spot Market  The Forward or Futures Market  The Options Market

 The spot market is a market that allows for contracts to be made between the seller and buyer based on the prevailing market price.  Products are delivered immediately (‘now’) at prices ruling (‘now’) at the time the contract is made.

 Buyers and sellers negotiate cash or spot sales.  Applicable in mineral marketing.  AGC gold sales are cash or spot sales.  Spot market can be:  an organized market, an exchange oran exchange  "over the counter", OTCOTC

 Forward or futures market allows for contracts to be made in advance or before the delivery of the product (mineral) described in the contract.  Forward contract or simply a forward is a non- standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today.

 Illustration of forward contract  A wants to buy a house a year from now  B want to sell his house worth $100,000 a year from now  Both agreed on a sale price of $104,000 in a years time  At the end of the year market valuation of B’s house is $110,000

 Illustration of forward contract – contd.  B is obliged to sell the house for $104,000  A can make a profit of $6,000 as A can sell the house for $110,000  B has made a potential loss of $6,000 and a profit of $4,000

 The forward price of such a contract is commonly contrasted with the spot price.forward pricespot price  The difference between the spot and the forward price is the forward premium or forward discount.forward premium  Considered in the form of profit or loss by the purchasing party.

 Forwards and futures markets are slightly different in form, rather than in substance.  Futures are exchange-traded, while forwards are traded over-the-counter.exchange-tradedover-the-counter  Essence of future market is standardization  Transactions are made on the floor of the exchange without personal contact in futures exchange  Forward market is a principal market – a dealer makes an offer to the client rather than a clearing house

 The forward market is off the floors of commodity exchanges, and it is more flexible and tends to be preferred by Mining Companies.

 An options market is a market that allows contracts conveying a right to buy or sell a given commodity at a specified price at a given date, known as expiration date.  Types of options market:  Call option  Put option

 A call option is a contract which gives the buyer, in exchange for a fee, the right to buy a particular commodity from the seller at a fixed price or strike price, on a given date or the expiration date.  A put option is a contract which gives the seller in exchange for a fee, the right to sell a particular commodity to the buyer at a fixed price or strike price at a given date or the expiration date.

 Can be defined as “[a] means to eliminate the risk of short term fluctuations in the price of a commodity by fixing or underpinning a price now for future production.”

 To mange price risk.  To improve cash management.  To enhance revenue.

 Forwarding contracts  Fixed forward contract  Spot deferred contract  Put and call options

 Look at the applicable laws such as:  Minerals and Mining Act, 2006  Precious Minerals Marketing Corporation Law, 1989 (PNDCL 219)  The Sale of Goods Act  Identify the various provisions applicable to minerals marketing in Ghana.

 THE END