December 1, 2009 / 1:08 PM / 8 years ago

UPDATE 3-Barrick closes hedge book early, stock soars

* Says can now fully benefit from increases in gold price

* Shares rise 7.6 pct as gold touches new high (Adds details, CEO and analyst comments)

By Cameron French

TORONTO, Dec 1 (Reuters) - Barrick Gold Corp (ABX.TO) said on Tuesday it had completely eliminated its fixed-price hedge book, allowing the company to take full advantage of rising gold prices and sparking a 7.6 percent rise in its shares.

Perhaps appropriately, the announcement came on a day the price of gold hit $1,200 for the first time, as the hedges -- which totaled 3 million ounces before Barrick began buying them back in September -- had become a symbol of the company's inability to benefit from a favorable gold environment.

"As of today, we are a fully unhedged gold producer," Barrick Chief Executive Aaron Regent said at an investment conference in New York.

The elimination of hedges comes earlier than the company had planned. Barrick said in September that it would get rid of all its hedges within 12 months, but sped up the pace due to the continued rise in gold prices.

"Our positive view on the gold price led us to accelerate the elimination of these contracts ahead of the schedule we had established," Regent said in a statement.

Gold XAU= has jumped 25 percent since the end of August, helped by a weakening U.S. dollar and fears of inflation.

Gold companies typically hedge, or agree to sell gold at a future date at a fixed price, to either finance projects or protect against falling bullion prices.

But with gold having nearly quintupled since 2001, Barrick was losing potential revenue each time the price ticked higher. This has weighed on Barrick's stock and prompted complaints from shareholders, which Regent listened to after he took over as the company's CEO early in January.

TOOK $5.7 BILLION CHARGE

Barrick issued equity and debt worth more than $5 billion to fund the elimination of the gold hedges, and took a $5.7 billion charge in the third quarter to get the hedging losses off its books.

The company said it would take an additional $300 million charge in the fourth quarter, as rising gold prices forced it to repurchase gold at higher costs -- $1,070 an ounce on average -- than it had originally anticipated.

"We believe investors had given the company a clear mandate to close the hedge, and that an attempt to time the market would have been badly received," said George Albino, an analyst at Macquarie Equities Research.

Albino said the question now was how the gold market would react, as Barrick will no longer be buying up ounces to fill the hedges.

Barrick's shares were up C$3.41 at C$48.27 on the Toronto Stock Exchange, touching a 10-month high.

The company has also been closing out 6.5 million ounces of floating hedge contracts, whose liability does not change with the price of gold. The company said it has reduced the obligation on those contracts to $700 million from an initial $3.7 billion.

Barrick expects to produce between 7.7 million and 8.1 million ounces of gold next year.

The company has not unveiled guidance past that point, but Regent said on Tuesday that the company's production should continue to trend higher past 2010, while extraction costs should come down as the company opens larger lower-cost mines.

$1=$1.04 Canadian Additional reporting by Euan Rocha; editing by Rob Wilson cameron.french@thomsonreuters.com; 416-941-8199: Reuters Messaging: cameron.french.reuters.com@reuters.net

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below