THE BOURSE WHISPERER: Saracen Mineral Holdings (ASX:SAR) has restructured its hedging program and reduced the amount of its debt facilities.
The company indicated restructuring was undertaken to align with reduced expenditures it had previously announced in a strategic review of its business in May that is aimed at reducing ‘all in’ sustaining cash costs to $950 per ounce.
The hedging restructure will result in Saracen’s hedged ounces in FY2014 increase from approx. 42 per cent (46,800 ounces) to approx. 60 per cent (66,300 ounces) of the company’s forecast production of 110,000 to 120,000 ounces of gold.
Saracen’s average hedged price in FY2014 is $1,640 per ounce.
In FY2015, hedging remains at 48 per cent (57,800 ounces) of forecast production (115,000 to 125,000 ounces).
The average hedged price in FY2015 is $1,689 per ounce with 52,500 ounces remaining post FY2015, until July 2016, at an average price of $1,724 per ounce.
The company explained its hedge program has been restructured by bringing forward 19,500 hedged ounces from the period August to December 2016 to increase hedging to 5,850 ounces in each month over the period July 2013 to April 2014 inclusive.
The total number of ounces hedged remains the same at 176,600 ounces.
“Bringing forward hedged ounces from FY2016 to FY2014 provides additional protection, in light of the volatility seen in the gold price over the past few months,” Saracen Mineral Holdings managing director Raleigh Finlayson said in the company’s announcement to the Australian Securities Exchange.
“Approximately 60 per cent of Saracen’s production for the FY2014 is hedged at $1,641 per ounce, significantly above the prevailing gold price.
“We are one of few global gold producers that can boast a viable business plan under most gold price environments courtesy of our hedge book of in excess of 176,000 ounces.
“The book will provide a significant cash windfall should the gold price fall markedly.
“Alternatively our significant resource inventory, of in excess of four million ounces, provides significant leverage to a higher gold price environment.
“We plan to use our hedge book to our advantage and remain nimble with our strategic plan to ensure that we remain viable under difficult economic conditions.
“For example, bringing forward these hedges increases our cashflows in FY2014 by approximately $3.5 million.”
Saracen’s comprehensive review also included the suspension of the plant expansion, which has resulted in a fall of the company’s total funding requirements, allowing it to reduce its debt facility to $45 million from the previous figure of $50 million.
The company has drawn $22 million of the debt facility to date, which are scheduled to be fully repaid by FY2015.