Capricorn Closes $50M Hedge, Buys Put Options Covering 15,000 Ounces
Capricorn Metals has closed out its last gold hedging contract, becoming fully exposed to gold price fluctuations while securing downside protection through put options. This strategic move positions the company to fund growth projects without additional debt or mandatory hedging.
- Final 16,700-ounce gold call option closed, Capricorn now fully unhedged
- Purchased 15,000 ounces of gold put options at A$5,000/oz to limit downside risk
- Closure and put options cost $50 million, funded from $404.6 million cash and bullion
- Previous hedge closures enhanced revenue by approximately $52 million
- Company poised to fund Karlawinda Expansion and Mt Gibson projects without new debt
Capricorn Metals Ends Hedging Era
Capricorn Metals Limited has officially closed its final gold hedging instrument, a 16,700-ounce call option set to mature at the end of June 2025. This decisive step means the company is now fully unhedged, exposing it entirely to the prevailing gold price. The move marks a significant shift in Capricorn’s risk management strategy, reflecting confidence in its operational cash flows and gold market outlook.
Balancing Risk with Put Options
To temper the risks of full exposure to gold price volatility, Capricorn simultaneously purchased put options covering 15,000 ounces at a strike price of A$5,000 per ounce, spread across maturities from September 2025 to March 2026. These puts provide a safety net, allowing Capricorn to participate fully in any gold price upside while limiting downside losses below the strike price. This nuanced approach blends risk mitigation with growth potential.
Financial Implications and Funding Strategy
The cost of closing the final hedge and acquiring the put options was $50 million, paid from Capricorn’s substantial cash and bullion reserves totaling $404.6 million as of March 31, 2025. This strong liquidity position underpins the company’s ability to fund its ongoing development projects, including the Karlawinda Expansion and the Mt Gibson Gold Project, without resorting to additional debt or mandatory hedging commitments.
Track Record of Hedge Closures
Capricorn’s proactive unwinding of previous gold forward contracts; totaling 158,000 ounces over the past two years; has already delivered approximately $52 million in revenue enhancements after costs. This track record suggests that the company’s strategic pivot to full exposure is grounded in a successful history of managing hedging risks and capitalising on favourable gold price movements.
Looking Ahead
With the final hedge behind it, Capricorn Metals stands at a crossroads where its financial performance will be closely tied to gold price dynamics. The company’s blend of unhedged exposure and protective put options positions it to benefit from rising gold prices while cushioning against sharp declines. Investors will be watching closely as Capricorn advances its growth projects funded from a strong balance sheet, free from the constraints of hedging obligations.
Bottom Line?
Capricorn’s full unhedged stance signals bold confidence but leaves it vulnerable to gold price swings ahead.
Questions in the middle?
- How will Capricorn’s cash flow respond if gold prices fall below the put option strike?
- What impact will full exposure have on Capricorn’s earnings volatility in the coming quarters?
- Could Capricorn consider reintroducing hedges if gold price volatility intensifies?
