Bullish?
Barrick Sees $5.6 Billion Charge to End Gold Hedges (Update3)
2009-09-08 23:45:20.259 GMT
(Adds attempt to contact Barrick in 11th paragraph.)
By Edmond Lococo and Christopher Donville
Sept. 8 (Bloomberg) -- Barrick Gold Corp., the world's
largest gold producer, plans to record $5.6 billion in third-
quarter costs to eliminate fixed-price contracts as the company
bets that prices for the precious metal will climb.
As of yesterday, the company had gold sales contracts for
9.5 million ounces of gold, which had a mark-to-market position
of negative $5.6 billion, Toronto-based Barrick said today in a
statement. To fund some of the costs, Barrick agreed to sell
81.2 million shares at a price of $36.95 per share for proceeds
of $3 billion, the company said.
Barrick has "an increasingly positive outlook on the gold
price," the company said in the statement. Gold today rose to
the highest price since March 2008, topping $1,000 an ounce, as
the slumping dollar and inflation concerns boosted the metal's
appeal to investors.
"If you believe the U.S. dollar is going to weaken, this
makes a lot of sense for Barrick," Andrew C. Parkinson, who
helps manage the equivalent of $19 million at Van Arbor Asset
Management in Vancouver, said today in a phone interview. "To
close all your hedges is really taking a strong, one-sided
position."
Gold today reached as high as $1,009.70 in New York, within
3 percent of the record $1,033.90 in March 2008. Gold futures
for December delivery rose $3.10, or 0.3 percent, to $999.80 on
the Comex division of the New York Mercantile Exchange. The
metal has climbed 13 percent this year.
'Confidence'
"The fact that the world's largest gold producer is
shedding some of it's hedging contracts displays a degree of
confidence that is found primarily in speculators, not producers
looking to hedge," said Ralph Preston, an analyst at Heritage
West Futures Inc. in San Diego. "This is extremely bullish for
gold."
About $1.9 billion of the proceeds from Barrick's share
sale will be used to eliminate all fixed-price gold contracts in
the next 12 months, and $1 billion will eliminate a portion of
its floating spot-price contracts, the company said.
Barrick's effort to protect itself against a drop in
bullion prices has led to clashes with investors as metal prices
gained. In March, the company said it agreed to pay $24 million
to settle a lawsuit in which investors claimed the company
misled them by saying the hedging program wouldn't hurt profits.
'Particular Concern'
"The gold hedge book has been a particular concern among
our shareholders and the broader market which we believe has
obscured the many positive developments within the company,"
Barrick Chief Executive Officer Aaron Regent said in the
statement. "As a result of today's decision, we have addressed
that concern and maintained our financial flexibility."
RBC Capital Markets, Morgan Stanley & Co., J.P. Morgan
Securities Inc. and Scotia Capital Inc. are leading the
underwriting group, the company said. Barrick also granted the
underwriters an option for an additional 12.18 million common
shares, which may bring total proceeds to $3.45 billion.
Barrick spokesman Vincent Borg did not immediately return
telephone messages from Bloomberg News left after normal
business hours.
Barrick fell C$1.05, or 2.4 percent, to C$42.45 today in
Toronto Stock Exchange trading. The shares have gained 37
percent in the past 12 months.
The U.S. Dollar Index fell as much as 1.2 percent today to
an 11-month low. Gold typically rises when the greenback
declines.
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