6. Derivative Financial Instruments
| 20071 | ||||||
| Assets | Liabilities | Net | ||||
| Natural gas hedging | $ | 127.6 | $ | 0.1 | $ | 127.5 |
| Natural gas non-hedging | 0.1 | 0.1 | – | |||
| Foreign currency and other forward purchase contracts | 7.3 | – | 7.3 | |||
| Total | 135.0 | 0.2 | 134.8 | |||
| Less current portion | (30.8) | (0.2) | (30.6) | |||
| Long-term portion | $ | 104.2 | $ | – | $ | 104.2 |
At times the company employs futures, swaps and option agreements to establish the cost of a portion of its natural gas requirements. These instruments are intended to hedge the future cost of the anticipated natural gas purchases for its US nitrogen and phosphate plants. Under these arrangements, the company receives or makes payments based on the differential between a specified price and the actual spot price of natural gas. The company has certain available lines of credit that are used to reduce cash margin requirements to maintain the derivatives. At December 31, 2007, it had collected cash margin requirements of $33.9 (2006 – $22.8), which were included in accounts payable and accrued charges (see Note 12).
As at December 31, 2007, the company had derivatives qualifying for hedge accounting in the form of swaps which represented a notional amount of 69.4 million MMBtu with maturities in 2008 through 2017. For the year ended December 31, 2007, gains of $48.1 were recognized in cost of goods sold excluding ineffectiveness, which resulted in an additional gain of $9.6 for the year. Of the gains and losses at December 31, 2007, approximately $23.9 of net gains will be reclassified to cost of goods sold within the next 12 months. As at December 31, 2007, gains from settled hedging transactions deferred in inventory were $NIL (2006 – $8.0). The fair value of the company's natural gas hedging contracts at December 31, 2007 approximated $127.5 (including liabilities of $0.1 recorded in accounts payable and accrued charges) (2006 – $120.3), using discount rates between 3.82 percent and 4.70 percent (2006 – between 5.06 percent and 5.37 percent) depending on the settlement date.
As at December 31, 2007, the company had entered into foreign currency forward contracts to sell US dollars and receive Canadian dollars in the notional amount of $60.0 (2006 – $100.0) at an average exchange rate of 1.0176 (2006 – 1.1478) per US dollar and to sell US dollars and receive Hong Kong dollars in the notional amount of $174.5 (2006 – $NIL) at an average exchange rate of 7.7937 (2006 – NIL) per US dollar. The company had also entered into other small forward contracts. Maturity dates for all forward contracts are within 2008 and 2009. The company recognized a gain of $13.0 for the year ended December 31, 2007 in foreign exchange (gain) loss related to foreign currency forward contracts classified as held-for-trading. As at December 31, 2007, the company had entered into an agreement for the forward purchase of shares of Sinofert that settled in January 2008. The fair value of these contracts at December 31, 2007 was a gain of $7.3.
The current portion of derivative instrument assets and liabilities represents unrealized gains and losses with settlement dates in the next 12 months.