Oops! Sorry! Pan American Silver to drop silver, gold hedges
Just 3 weeks after Pan American Silver announced it had hedged 20% of silver production and 18% of gold output in the short term for 12 months, the company rescinded its actions.
Posted: Wednesday , 11 Sep 2013
RENO (Mineweb) -
Pan American Silver announced Tuesday that it will close out its outstanding silver and gold hedge contracts, citing that the company’s actions may have sent the wrong message to the market and to the company’s shareholders.
Last month the company announced it had entered into forward contracts for 5.3 million ounces of silver at an average price of $20.43/oz, as well as 24,000 ounces of gold at an average of $1,323/oz.
The amount of gold and silver hedged represented 18% of gold output and 20% of silver output of the company’s forecasted 12-month silver and gold production.
In a news release issued Tuesday, Pan American CEO Geoff Burns said, “We decided to put the hedges in place as a short term tactical response, to reduce risk during a time of extreme price volatility. However, our action may have inadvertently sent the wrong message to the market and to our shareholders about our hedging philosophy and our view of the long term prospects for silver and gold.”
“We have become more comfortable that we will realize the benefits of our cost reduction initiatives and are considerably more optimistic about the short term prospects for both silver and gold, therefore negating the conditions that initially lead us to enter into the hedges,” he stressed. “More importantly, we need to unequivocally reassure our shareholders that the company’s fundamental philosophy is still that of not hedging our precious metal production, thereby providing maximum exposure to the price of silver.”
As reported by Mineweb on Aug. 15, 2013, Pan American announced it had entered into forward contracts as the company was faced with lower silver prices and net losses for both the second quarter and first half of the year.
During a conference call with analysts, CEO Burns said, “The basic premise is straightforward and financially conservative. We wanted to protect our cash flow and liquidity from our high-cost operations in the short term, allowing them the time necessary to fully implement new buying plans and reduce costs.”
“I expect this will be a short-term hedge only and is not a shift in Pan American’s strategy of leaving our precious metal production available and levered and exposed to spot market prices,” Burns assured analysts.
iPad Version: Picture - Gold and silver bars are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna: Lisi Niesner / Reuters