(Alliance News) - Mexican precious metals mining company Fresnillo PLC on Monday said it has hedged 7% of the company's 2021 silver production to limit downside risk to silver prices and take advantage of a potential rise in prices.
A hedging agreement is a kind of an insurance policy that protects a company against significant adverse movement in commodity prices.
The company said the hedging capitalises on the "unique market conditions, where current spreads have presented an opportunity to limit downside risk while retaining significant upside exposure to future silver price increases".
The hedging transaction was structured as a "collar" with an average floor price of USD20 per silver ounce and an average price ceiling of USD50 per ounce.
"This transaction has provided Fresnillo with the benefits of locking in a strong margin for the volume hedged for 2021, with the floor silver price well above the 2019 average realised price of USD16.1 per ounce, while ensuring the company can benefit from further rises in the silver price," the FTSE 100-listed company said.
For 2020, Fresnillo is estimating silver production in the range of 51 million to 56 million ounces.
Shares in Fresnillo were down 1.2% at 1,327.00 pence each in London on Monday morning.
By Tapan Panchal; tapanpanchal@alliancenews.com
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Fresnillo (FRES)