By: OrePulse

Namibian tin producer Andrada Mining is poised for greater exposure to the spot tin market when a price hedge covering roughly 35% of its output expires in November, the company told investors in a presentation this week.

Chief Financial Officer Hiten Ooka said the hedge, priced at about S$42,000 a tonne, will not necessarily be replaced in full. The company said it would weigh its cash flow and lending-covenant requirements before deciding whether to hedge further production, noting that it typically hedges only a minority of output. "It's generally a portion of production and not a majority," Ooka said.

The update came a week after Andrada reported interim results for the six months to the end of August. The company said its effective tin price rose to S$52,131 a tonne from S$33,154 a tonne a year earlier, while contained tin production at its Uis mine in Namibia increased 13% to 576 tonnes. Revenue rose 80% to £20.6 million and gross profit more than quadrupled to £8.3 million. Andrada reported a profit after tax of £2.5 million, compared with a loss of £3 million in the same period last year, and said cash generated from operations was £4.9 million.

The hedging program contributed a net gain of £1.72 million in the period: Andrada said it lost £1.75 million on hedge contracts that closed during the six months but gained £3.47 million on contracts still open. Without any hedging, the company said it would still have posted an operating profit of about £3 million.

Chief Executive Anthony Viljoen described the tin market as "supply constrained" and said the company remains confident in the medium-term outlook. "We remain very bullish on the tin market," he said, adding that Andrada did not expect global supply constraints to ease soon. He pointed to Myanmar, a major tin-producing country, as a key source of uncertainty for global supply.

Andrada's growth plans center on a funded expansion of its Uis mine, where new crushing and ore-sorting equipment is due to come online in the first half of next year. The company expects the upgrade to progressively lift annual contained tin output to between 1,500 and 1,900 tonnes. Viljoen said higher throughput would also help spread fixed costs across more output. "The greater throughput will dilute the fixed costs accordingly," he said.

All-in sustaining costs at Uis rose to S$31,555 a tonne in the period, from S$24,808 a tonne a year earlier, which the company attributed mainly to a higher stripping ratio during mining. Andrada said it expects unit costs to ease once stripping normalizes and the new ore-sorting circuit and other plant upgrades are operating, and that higher production volumes should also reduce the per-tonne royalty burden under its existing sliding-scale royalty arrangement.

The company said it does not expect to require additional funding over the next 12 months, even under a stress scenario in which tin prices and production both fall 10% and costs rise 10%.