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The collapse of Pasminco: misjudgment, misfortune and miscalculation

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  • Christine Brown

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  • James Ma

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.

Suggested Citation

  • Christine Brown & James Ma, 2011. "The collapse of Pasminco: misjudgment, misfortune and miscalculation," Australian Journal of Management, Australian School of Business, vol. 36(2), pages 287-312, August.
  • Handle: RePEc:sae:ausman:v:36:y:2011:i:2:p:287-312
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    Cited by:

    1. James Routledge & David Morrison, 2012. "Insolvency administration as a strategic response to financial distress," Australian Journal of Management, Australian School of Business, vol. 37(3), pages 441-459, December.

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    Keywords

    exposure; hedging; market risk; value-at-risk;

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