from canada's globeandmail
Gold rumour stirs price fear
Barrick mentioned in speculation that
AngloGold bidding for Gold Fields
PETER KENNEDY
Saturday, January 20, 2001
VANCOUVER -- Speculation that Barrick Gold Corp. might team up
with AngloGold Ltd. in a takeover bid for South Africa's Gold Fields
Ltd. has raised fears about the potential for a negative impact on the
price of gold.
Industry sources say those fears are fuelled by the likelihood that
AngloGold, which ranks as the world's largest gold miner, would try to
finance any future deal by hedging a big percentage of Gold Fields'
reserves.
Vince Borg, spokesman for Toronto-based Barrick, declined to
comment on the takeover speculation, which has been greeted with
skepticism by some analysts.
But gold industry analysts said the concerns stem from the fact that both
Barrick and South Africa's AngloGold traditonally have attempted to
protect themselves from fluctuating gold prices through hedging.
Designed to protect producers from falling gold prices, hedging allows
mining firms to lock in a set price for their output by making a
commitment to deliver gold into the market at a set price.
As soon as the hedging contract is signed, an intermediary borrows gold
from a central bank at interest rates of about 2 per cent and then sells it
into the market. The intermediary then takes the sale's proceeds and
invests it in a treasury bill or financial instrument that generates a higher
rate of return.
Gold Fields is the world's fourth largest producer, at about 3.9 million
ounces a year, and has reserves estimated at 75 million ounces or
one-eighth of the world's reserves. Traditionally, it has avoided hedging
its production.
Officials are worried that if a deal were to take place, AngloGold might
flood the market with gold by bringing the hedge ratio of Gold Fields'
reserves in line with AngloGold's 15 per cent.
That would put more pressure on the gold price, which, at yesterday's
close of $264.30 (U.S.), is trading at just $11.50 above its post-1980
low of $252.80.
"It has been relayed to me that the market thinks this [an increase in
hedging] is what will happen," said Martin Murenbeeld, the Victoria,
B.C.-based publisher of the Gold Monitor newsletter.
In an interview with Bloomberg News, AngloGold spokesman James
Duncan declined to comment on the possibility of a takeover, although
last month the company's chairman, Bobby Godsell, said an alliance with
Gold Fields would make sense. Gold Fields hasn't been approached by
AngloGold, spokesman Willie Jacobsz said yesterday.
Still, by combining their nearby mines in South Africa, AngloGold and
Gold Fields could cut costs, while an enlarged company would facilitate
the sale of unprofitable operations, analysts said. Gold Fields has been
seen as a takeover candidate since its failed merger with Franco-Nevada
Mining Corp. of Toronto last year.
Speculation concerning an AngloGold bid began last month when Anglo
American PLC increased its stake in Gold Fields to 16.7 per cent.
Without citing sources, Johannesburg's Business Day and Business
Report predicted that Barrick and AngloGold would announce a bid
yesterday. But that did not happen.
However, one industry official said he believes Barrick is being included
in the takeover speculation only because of its recent decision to cancel a
production startup at its Pascua-Lama gold mine on Chilean-Argentine
border. |
