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ANDRADA Mining is set to become more exposed to movements in the tin price when its current hedge expires in November.
The company disclosed the detail during an investor presentation on Thursday, a week after announcing interim results for the six months to end-August.
The hedge is priced at about S$42,000/t and covers roughly 35% of production, CFO Hiten Ooka said.
Andrada would assess its cashflow and covenant requirements before deciding whether to hedge further production, while generally limiting hedging to a minority of output.
“It’s generally a portion of production and not a majority,” Ooka said.
The expiry comes after sharply higher tin prices helped drive a turnaround in Andrada’s interim results. Its effective tin price rose to S$52,131/t from S$33,154/t a year earlier, while contained tin production increased 13% to 576 tons.
Revenue increased 80% to £20.6m, while gross profit more than quadrupled to £8.3m. Andrada reported a £2.5m profit after tax compared with a £3m loss a year earlier, while cash generated from operations reached £4.9m.
The hedge contracts also boosted Andrada’s reported profit for the period.
Andrada lost £1.75m on hedge contracts that ended during the period, but gained £3.47m from changes in the value of contracts that were still open.
That produced a net hedge gain of £1.72m. Excluding it, Andrada said it would still have recorded an operating profit of about £3m.
Tin price outlook
Andrada remains upbeat on tin, with CEO Anthony Viljoen describing the market as “supply constrained”.
“We remain very bullish on the tin market,” Viljoen said. “Demand is increasing. We’ve seen inventories drop continually on the metals exchange.”
Myanmar remains a key uncertainty, with the market watching for a meaningful increase in supply from the country.
In written responses to MiningMX, Andrada said it did not expect tin supply constraints to ease in the medium term. Its strategy remained focused on increasing production at its Uis mine in Namibia.
The company expects its funded Uis expansion to lift annual contained tin production to between 1,500 and 1,900 tons. Output is expected to increase progressively during the first half of next year as new crushing and ore-sorting equipment is commissioned.
Viljoen said higher production should improve margins by spreading fixed costs over greater volumes.
“The greater throughput will dilute the fixed costs accordingly,” he said. “So we do anticipate much better margins as production increases.”
Andrada’s all-in sustaining cost rose to S$31,555/t from S$24,808/t a year earlier, mainly because of a higher stripping ratio as the company removes additional waste to expose ore ahead of increased processing capacity.
In written responses, Andrada said unit costs should decline as stripping returns to normal levels and the ore-sorting circuit and other plant upgrades come into operation.
Higher production is also expected to reduce the royalty burden on Uis under an existing sliding-scale arrangement, providing a further potential benefit to margins.
Andrada said it did not expect to need more funding over the next 12 months, even if tin prices and production fall by 10% and costs rise by 10%.