Pan American Silver Corp. (NASDAQ:PAAS) (TSE:PAA) is closing out its outstanding gold and silver hedges after worrying it may have sent shareholders a "wrong message" by the short-term hedging strategy.
"We decided to put the hedges in place as a short term tactical response, to reduce risk during a time of extreme price volatility," said president and CEO, Geoff Burns, in a statement. "However, our action may have inadvertently sent the wrong message to the market and to our shareholders about our hedging philosophy and our view of the long term prospects for silver and gold.
"We have become more comfortable that we will realize the benefits of our cost reduction initiatives and are considerably more optimistic about the short term prospects for both silver and gold, therefore negating the conditions that initially lead us to enter into the hedges."
It previously announced it had entered forward contracts for 5.3 million ounces of silver and 24,000 ounces of gold, at average prices of $20.43 per ounce of silver and $1,323 per ounce of gold, spread almost equally over a period of 12 months. This would have represented about 20 per cent and 18 per cent of the company's forecasted 12-month silver and gold production, respectively.
It is now planning to close all of these forward contracts before the end of the year through accelerated physical metal delivery and straight repurchase.
"We need to unequivocally reassure our shareholders that the company's fundamental philosophy is still that of not hedging our precious metal production, thereby providing maximum exposure to the price of silver," said Burns.
The company has seven operating mines in Mexico, Peru, Argentina and Bolivia and also owns several development projects in the U.S., Mexico, Peru and Argentina.
Shares of Pan American were down 2.4 per cent within moments of market close on Tuesday, at $12.00. Its stock has fallen more than 35 per cent so far this year.