Loading ...Precious metals hedging: Just say no
Your humble scribe enjoyed an interesting conversation on the subject of hedging yesterday, on the back of this news out of Argonaut Gold (AR.to) yesterday:
TORONTO , Aug. 26, 2019 /CNW/ – Argonaut Gold Inc. (the “Company”, “Argonaut” or “Argonaut Gold”) (AR.TO) announces the Company has entered into a series of zero-cost collar option contracts, which were approved by the Board of Directors. The contracts cover a total of 145,500 ounces of gold through mid-2022. The floor price of the monthly gold collars has been set at $1,450 /oz with the ceiling price of the collars ranging from $1,630 /oz in the fourth quarter (“Q4”) of 2019 to $1,760 /oz for the first half (“H1”) of 2022.
It continues, with a head honcho who doth protest too much methinks as Prez/CEO Dougherty informed us of the corporate strategy and philosophy behind the decision to put on those “costless” collars (in speech marks because as we have noted previously, they are far from that) and bizarrely trying to compare the hedge with the whole of AR.to’s resource base. The bottom line is that AR.to has hedged between 35% and 40% of its expected 2020 and 2021 production, plus a couple of smaller hedges in 4q19 and 1h22, at a baseline price of U$1,450/oz with the top end of the costless collars between 1630 and 1760 (prices their CFO hopes will not get broken during the hedge program). They’ve done this to ensure getting at least U$1,450/oz for their gold ounces and in that way guarantee its old and high cash cost mine El Castillo remains profitable.