Barrick lashes out at critics of its hedging program
TORONTO, May 16, 2000 (The Canadian Press via COMTEX) -- Canada's largest gold producer, Barrick Gold Corp., says ``ridiculous'' comparisons of its hedging program are weighing down the company's stock price despite profits that are the industry's best.
Top executives of Barrick took turns during the annual meeting Tuesday to defend the policy -- in which the company sells a percentage of production on futures markets thereby protecting it from sharp downturns in the world price of gold.
``The program was designed to be able to take advantage of higher gold prices and withstand changes in the financial markets,'' president Randall Oliphant said after the meeting.
``The use of the word `hedging' by other gold companies is an abuse of the term,'' he said. ``When you're selling more gold in a period of time than you can deliver, that's speculation and it's got nothing to do with hedging.''
Oliphant said Barrick's hedging program was designed to reduce the company's risk. ``To put us in the same category as those other ones, people now realize that it's totally ridiculous.''
Barrick is the world's fourth-largest gold producer, but is the most valuable gold company in the world in terms of stock market capitalization, said Barry Cooper with CIBC World Markets in Toronto.
``And when you're top dog, you're liable to get the puck thrown at you now and then ... as a result of envy more than anything else,'' said Cooper.
With its principal mines in the United States and Peru, Barrick was able to boost its production to more than 3.6 million ounces in 1999. And with new mines being built in Nevada, Argentina and Tanzania, the company expects to push production up to five million ounces by 2003.
Barrick's economic fundamentals remain bright. ``We are again the world's most profitable gold producer,'' Oliphant told shareholders. ``We achieved record performance with higher production, greater reserves and new levels of earnings and cash flow.
And he told a shareholder at the meeting that Barrick's stock price -- which has risen about $4 in the last month -- should continue to profit now that ``the hedging cloud'' is no longer hanging over the company.
Gold prices continued to languish -- closing Tuesday at $275.50 US on the New York Mercantile Exchange -- while Barrick shares gained 30 cents on the Toronto stock market to $27.60.
The debate over hedging programs in the gold sector has been raging since late last year when soaring gold prices crippled two gold producers who had been betting on bullion prices falling rather than climbing.
Instead of profiting from the unexpected hike of 30 per cent in less than two weeks, Montreal-based Cambior Inc., and Ashanti Goldfields Co. of Ghana, were caught having to buy gold on the market and sell it at lower prices to satisfy their futures contracts.
Both companies have since been forced to sell assets or put themselves up for sale.
But Barrick -- which was one of the primary architects of the hedging program in the gold industry -- has seen only the positives. Over the last decade, the company has been able to deliver gold at an average of $66 US an ounce higher than the spot market price.
Barrick chairman and founder Peter Munk told shareholders this ``massive additional income'' has become the ``distinguishing feature of this company.''
And he criticized the media and others in the gold sector for labelling hedging as a bad idea for the industry.
Cooper said part of the problem is there are few general investors involved in gold stocks these days, leaving the purists -- usually gold fund managers -- who invest solely in the gold sector.
``If they're investing only in gold, they look on hedging as a situation that in the past has not benefited them or their portfolio because of companies like Ashanti and Cambior,'' he said.
``The fund investors don't trust hedging for the most part.''
Copyright (c) 2000 The Canadian Press (CP), All rights reserved.
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By James Stevenson
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