The Collapse of Pasminco: Misjudgment, Misfortune and Miscalculation

Posted: 5 Feb 2012

See all articles by Christine A. Brown

Christine A. Brown

Department of Banking and Finance; Financial Research Network (FIRN)

Date Written: August 25, 2011

Abstract

In September 2001 when Pasminco Ltd was placed in voluntary administration, it was the world’s biggest zinc producer with over 10% of global output. This paper examines the hedging strategies that Pasminco had in place in the years leading up to the firm being declared insolvent and documents the financial factors that contributed to the corporate collapse. We build a valuation model that illustrates in stark terms that the company’s hedging strategies materially reduced neither the exposure to market risk nor the probability of financial distress, and were a major contributing factor to the company’s downfall. The analysis in this case study contains valuable lessons for companies facing quantity and exchange rate risk.

Keywords: exposure, hedging, market risk, value-at-risk

Suggested Citation

Brown, Christine A., The Collapse of Pasminco: Misjudgment, Misfortune and Miscalculation (August 25, 2011). Australian Journal of Management, Vol. 36, No. 2, 2011, Available at SSRN: https://ssrn.com/abstract=1998717

Christine A. Brown (Contact Author)

Department of Banking and Finance ( email )

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Financial Research Network (FIRN)

C/- University of Queensland Business School
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