A hedging campaign by small-cap gold, silver and copper producer Dundee Precious Metals is showing a gross return of about 20%, following the collapse in copper prices since the start of the year, according to Hotline’s estimates.

In a production report on Wednesday January 14, the Toronto-listed mining and smelting company announced that it has hedged 90% of its projected payable copper output for 2015 at an average fixed price of $3.21 per lb, or $7,075 per tonne.

The bulk of the company’s revenues come from precious metals sales and it maintains an open exposure to both gold and silver prices, but it has hedged its position in copper to provide revenue certainty during the expansion of the Chelopech mine.

The company produced 46.4 million lb (21,000 tonnes) of copper in concentrates in 2014, and will issue guidance for 2015 next month.

Assuming production rates are maintained, on a gross basis the company’s hedging programme would nominally pay out about $30 million over spot prices of about $5,600 seen on the London Metal Exchange, according to Hotline’s ballpark estimates.

Like its larger mining peers, Dundee’s share prices was slammed during the rout in copper prices on Wednesday, with the TSX-listed stock dropping 13% as copper lost more than 5%.

But as North American markets opened again on Thursday, Dundee’s shares bounced as much as 9%, as investors took account of the likely additional payouts from the hedging campaign.

As the name Dundee Precious Metals would suggest, investors do not generally buy its stock to gain exposure to the spot copper price, and they will be grateful that this latest rout will not drag on earnings from gold, which is benefiting from haven buying.

But even among investors with stakes in pure-play copper miners such as Antofagasta, attitudes to hedging may be starting to change with copper prices trading near five-year lows.

Certain Chilean miners learned a bitter lesson about the upside risks of hedging as they partly missed out on the four-fold increase in copper prices during the 2000s as a result of long-term hedges put in place on the advice of analysts who hadn’t seen China’s economic explosion coming, much to the ire of their investors.

Fast-forward to 2015, and shareholders are surely changing their minds about the value of hedging. Some investors may even rail against copper miners for not locking in decent prices when they had the chance, as maddening as that criticism would be for copper miners to hear.

But a miner has to be bullish on the prospects for copper to take on the arduous task of getting it out of the ground, and most copper miners will remain confident that prices will rebound from here. But, as some market participants have asked this week, what if their optimism over price is misplaced, and copper continues to fall closer to production costs?

“The tragedy is that we’ll probably start seeing copper miners hedging only if copper prices hit $5,000, and they have to start think about shutting down mines,” a source at an investment bank told Hotline.