And yes, him. It’s always a he. Here’s Great Panther (GPR.to) (GPL) on February 4th 2020:
On January 31, 2020, Great Panther’s non-deliverable forward foreign exchange contracts for BRL against the USD totalled approximately BRL 506 million (US$120 million), with pre-determined exchange rates ranging from BRL 4.11 to BRL 4.32 against the USD through the remainder of 2020. This compares to BRL 355 million at rates ranging from BRL 3.99 to BRL 4.18 as reported on September 30, 2019. This represents the majority of the Company’s BRL-denominated expenses for the balance of 2020.
The company also announced it had bought gold options that day:
Great Panther has purchased put options on 45,000 gold ounces that mature from March through to the end of June 2020 at an average cost of US$9.33 per ounce of gold. The options ensure a minimum sale price of $1,500
per ounce of gold for the majority of the Tucano Mine’s production
during the noted timeframe, without limiting any upside from rising gold
And GPL CEO Jeffrey Mason was feeling very pleased with himself:
“With the recent weakening of the Brazilian real, and gold prices
reaching multi-year highs, we are taking the opportunity to increase
certainty of cash flow in 2020,” stated Jeffrey Mason, Interim President and CEO.
So let’s see what’s been happening to the Brazilian Real (BRL):
That 4.63 close against the USD on Friday means that on average, the GPL hedge is 42c Brazilian out on every dollar. Do the math and you see the company has flushed just under $11m down the toilet already and the way things are going, it’s only going to get worse. And the gold put options? That’s easy, they spent U$9.33 per ounce on something they do not need and another U$420k down the drain. These are not “non-cash items” either, these are direct financial losses that also involve the CFO writing large cheques to counterparties.