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Barrick Gold reduces hedgebook
17/02/2002 18:34 - (SA)
Toronto - Barrick Gold Corp said on Friday it will not increase its gold forward sales programme amid a bullish outlook for gold prices and low interest rates, but will put more emphasis on spot sales.
The world's second-largest gold producer said as it released fourth-quarter earnings on Thursday that it would cut the portion of output it delivers into its hedging programme to 50% at US$365 an ounce, from 61%, with the balance sold at spot prices.
The company's hedge book at December 31, 2001, included 18.2 million ounces in spot deferred contracts, or 22% of reserves. This includes 1.9 million ounces from Homestake Mining Co, a US rival it bought last year for $2.3 billion.
The full book, which also includes short call options and other contracts, had a mark-to-market of $356 million at the end of the quarter - up from $213 million in the third quarter.
Barrick president and chief executive Randall Oliphant said the takeover of Homestake, which was just 10% hedged, forced the miner to re-examine its forward sales strategy.
"We will maintain the income earning aspects of the programme and the assured revenue stream, but in contrast to past practice we will deliver 50 percent of our production into the programme," Oliphant told analysts.
Barrick began hedging 14 years ago when the market allowed producers to lock in higher prices and lower risk by borrowing gold from central banks, which gave it liquidity assurances during a capital intensive time.
"It's a proven performer, but with interest rates low and the outlook for the gold price being better, and the size of the position we have today, we made the decision... there was no reason to increase the size of the position given the market condition," said Jamie Sokalsky, chief financial officer.
"It's a position we are comfortable with, we think it makes sense for where we are, it makes sense in the current market books... we are well positioned at 50 percent and still well above from where we are today," Sokalsky said.
Major gold producers are increasingly choosing spot sales over advance or hedged deals. AngloGold, the world's biggest hedger, recently cut its hedgebook, which pushed gold above the key $300 an ounce level.
Spot gold was last indicated at $298.
- Reuters
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