Hermoine Gold Ltd – MAF II (2025) FULL
DISTINCTION SOLUTION
Question A – Key Risks & Mitigation
1. Commodity Price Risk – Gold priced in USD exposes revenue to global price volatility.
Mitigation: Use forward contracts, options, and diversify mineral portfolio.
2. Foreign Exchange Risk – USD weakness directly reduces Rand revenue.
Mitigation: FX hedging and natural hedging through USD-denominated costs.
3. Operational Risk – Safety incidents and Eskom outages reduce production and EBIT.
Mitigation: Backup power supply and strengthened safety compliance.
4. Regulatory Risk – Royalties, environmental and BEE compliance costs.
Mitigation: Strong governance and regulatory monitoring.
5. Labour Risk – Unionised workforce and strike actions.
Mitigation: Proactive labour engagement and long-term wage agreements.
6. Liquidity Risk – Cash reduced from R249k to R50k; overdraft introduced.
Mitigation: Improve working capital cycle and reduce dividend payouts.
7. Financial Covenant Risk – Debt ratio, gearing and leverage targets.
Mitigation: Deleveraging strategy and profit recovery plan.
, Question B – Material Variances
Standard per bar = 1.2kg × R1,000 = R1,200
Actual production = 1,000 bars
Standard Quantity Allowed = 1,000 × 1.2 = 1,200kg
Actual Quantity Used = 1,400kg
Actual Price = R950/kg
Material Price Variance:
(SP − AP) × AQ = (1,000 − 950) × 1,400 = R70,000 Favourable
Material Usage Variance:
(SQ − AQ) × SP = (1,200 − 1,400) × 1,000 = R200,000 Adverse
Net Material Variance = R130,000 Adverse.
Strategic implication:
Lower-grade ore reduced price per kg but caused inefficiencies,
leading to higher material usage and overall adverse performance.
DISTINCTION SOLUTION
Question A – Key Risks & Mitigation
1. Commodity Price Risk – Gold priced in USD exposes revenue to global price volatility.
Mitigation: Use forward contracts, options, and diversify mineral portfolio.
2. Foreign Exchange Risk – USD weakness directly reduces Rand revenue.
Mitigation: FX hedging and natural hedging through USD-denominated costs.
3. Operational Risk – Safety incidents and Eskom outages reduce production and EBIT.
Mitigation: Backup power supply and strengthened safety compliance.
4. Regulatory Risk – Royalties, environmental and BEE compliance costs.
Mitigation: Strong governance and regulatory monitoring.
5. Labour Risk – Unionised workforce and strike actions.
Mitigation: Proactive labour engagement and long-term wage agreements.
6. Liquidity Risk – Cash reduced from R249k to R50k; overdraft introduced.
Mitigation: Improve working capital cycle and reduce dividend payouts.
7. Financial Covenant Risk – Debt ratio, gearing and leverage targets.
Mitigation: Deleveraging strategy and profit recovery plan.
, Question B – Material Variances
Standard per bar = 1.2kg × R1,000 = R1,200
Actual production = 1,000 bars
Standard Quantity Allowed = 1,000 × 1.2 = 1,200kg
Actual Quantity Used = 1,400kg
Actual Price = R950/kg
Material Price Variance:
(SP − AP) × AQ = (1,000 − 950) × 1,400 = R70,000 Favourable
Material Usage Variance:
(SQ − AQ) × SP = (1,200 − 1,400) × 1,000 = R200,000 Adverse
Net Material Variance = R130,000 Adverse.
Strategic implication:
Lower-grade ore reduced price per kg but caused inefficiencies,
leading to higher material usage and overall adverse performance.
