Singapore 31/08/2016 - Nyrstar said Wednesday it has started hedging its near-term zinc production to mitigate potential downside risks to the zinc price.
The short-term strategic hedging arrangements involve utilising put and call collar structures the for approximately 70 percent of the free metal produced by the company’s metals processing segment – which is at 8,000 tonnes of zinc metal per month - from September 2016 to the end of first quarter of 2017.
“While we believe that the zinc price should continue to rise on the basis of improving supply and demand fundamentals and that the Euro should depreciate over the medium term against the US dollar, we are prudently entering into short term hedging arrangements to reduce downside risk to the company's earnings as we execute the transformation plan," Bill Scotting, Nyrstar’s CEO, said in a statement.
The collar structures implemented result in full exposure to a floating zinc price between $2,137-2,437 per tonne from September 2016 to the end of December 2016. For first quarter 2017, the collar structure results in full exposure to a floating zinc price between $2,100-2,457. Thereafter, Nyrstar retains full exposure at a price above $2,800.
Nyrstar had announced in November last year a transformation and turnaround plan which targets balance sheet strengthening and portfolio restructuring with an exit from mining, and a refocus of the company on its core metals processing segment which makes the company sensitive to foreign exchange and zinc price movements, Scotting said.
The company is continuing the divestment of its mining assets. Earlier in August, Nyrstar said it was seeing more interest from potential buyers for its mining assets.
Nyrstar's management will continue to review and potentially apply strategic hedges to limit downside risks for key commodity price and foreign exchange sensitivities during the implementation of the company's transformation and turnaround plan, the company added.
The London Metal Exchange three-month zinc price has surged by around 60 percent since January this year on tightening global zinc ore supply. It had reached a 15-month high of $2,333 last Friday and was recently at $2,309 on Wednesday, down $2 from Tuesday’s close.
Nyrstar’s zinc metal output fell nine percent year-on-year to 507,000 tonnes, while its zinc in concentrate production dipped 39 percent year-on-year to 65,000 tonnes in January-June.