Most talk of currency war focuses on the problems caused by countries devaluing their money. This does indeed cause a lot of problems, especially long-term once everyone figures out the game and starts front-running it by preemptively dumping their currency.
But in the short run, for every loser there’s a winner, in the form of a country whose growth accelerates because its exports are cheaper or a company whose earnings are padded by favorable exchange rates.
Among the most obvious beneficiaries on today’s currency war battlefield (where the dollar is strong and the euro and yen weak) are the mining companies that operate outside the US. They pay their workers and bankers in local currencies but sell their product on world markets, usually in return for dollars. So when the dollar goes up, the revenue from each unit of product rises faster than each unit of operating expense. Margins widen, earnings rise, and free cash piles up.
A good recent example is Great Panther Silver (GPL), which owns mines in Canada and Mexico. Those countries’ currencies fell versus the dollar in the first quarter, while Great Panther’s newest mine was ramping up. The result: more ounces of silver produced at lower cost, and more dollars flowing in. Some relevant numbers:
• Silver production up 61%
• Cash cost per silver ounce down 35% to US$8.71
• All-in sustaining cost per silver payable ounce (“AISC”) down 39% to US$14.47
• Revenues up 57%
• Net income $3.6 million versus year-earlier loss of $0.6 million
• EBITDA $3.7 million versus negative $0.5 million
• Cash flow from operating activities $4.8 million versus $0.6 million
The trends here are more notable than the magnitude of earnings and cash flow. Still, to be profitable with silver’s price at a multi-year low means that if the metal’s price starts rising, Great Panther and its peers will put up some spectacular numbers.
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