Barrick changes policy, drops gold hedging
11/21/2003 8:19:34 AM
By Veronica Brown
LONDON, Nov 21 (Reuters) - Barrick Gold Corp (CA:ABX) stunned bullion markets on Friday by saying it was changing its hedging policy, and is no longer committed to selling the metal on forward markets as it is now cash rich.
"The commitment to hedging is gone...Hedging to us is no longer a requirement for running our business as it no longer creates shareholder value," Barrick Chairman and founder Peter Munk told reporters on the sidelines of a gold investment summit in London.
"Hedging was a means to overcome cyclicality. Over the next decade, we will do no more hedging," Munk added.
Spot gold , which had been trending lower on the back of a steadier dollar, reversed direction and jumped nearly $4.00 an ounce on the development to around $397.00.
At 1311 GMT, prices were at $396.50/397.30 an ounce, up from Thursday's New York close of $393.30/394.00.
"It's a bit of a knee-jerk reaction, but will set a good base for the New York open," a trader said.
As Canada's biggest gold producer, Barrick is the world's second-largest gold miner by market value and one of the largest bullion producers.
ABOUT-TURN FROM PREVIOUS POSITION
On Thursday, Munk had extolled the virtues of hedging by Barrick, which has one of the largest gold hedgebooks in the industry.
In an address to the conference Munk had said hedging via forward sales was a key factor in funding exploration and development projects.
"There is no other more fundamental responsibility on a group of people who run a mining company who every single day extract reserves, which are their only asset, than to replace them," he said on Thursday.
Last month, Barrick CEO Greg Wilkins said the hedgebook was too big, and that it wanted to cut it back by about one third to 20 percent of gold reserves.
Toronto-based Barrick has one of the largest hedge books in the gold industry, which is equal to around three years of output. The book currently consists of about 16 million ounces of gold that has been sold forward.
Gold's rise over the last couple of years to levels last seen in 1996 has largely followed from miners buying back previously hedged positions, although the pace of so-called de-hedging is slowing. Earlier this week gold reached $400.25 an ounce. (Additional reporting by Clare Black)
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