Hi Dave:
Most people by now may have seen the Globe and Mail's article regarding Peter Munk and Barrick at theglobeandmail.com
An even more interesting read is from the Ottawa Citizen's Dec 13 edition where it would appear Munk indicates he would be prepared in the worst case scenario to diversify.
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Barrick remains optimistic in midst of gold meltdown
Company can ride out low-price period
BloombergNews
TORONTO - Barrick Gold Corp.'s Peter Munk, chairman and chief executive of the world's third-largest gold Producer, isn't particularly worried that the price of gold is hovering at 18 year lows.
The company has a stronger balance sheet than most of its rivals and has perhaps the best hedging program among gold producers, many analysts say. Barrick is the only large gold miner with an "A' credit rating from Standard & Poor's Corp., which likes its low-cost structure, large hedge position and $327 million U.S. in cash.
"We Positioned this company so that it can survive through its hedge position and low-cost production for a period without affecting my profits ' my earnings, or my cash flow," Mr. Munk said.
This week, Toronto-based Barrick said it will repurchase as much as 10 per cent of its shares for $710 million Cdn. in an attempt to reassure investors that Barrick stands apart from other gold miners.
Barrick, one of the first practitioners of selling its future production, currently has 10 million ounces of gold sold forward at an average price of $410 U.S. an ounce, or about 40 per cent more than the current gold price.
By selling forward its production, Barrick promises to deliver an ounce of gold at a specific price and time in the future, locking in a price. Barrick is such a big believer in hedging that over the past decade it hasn't sold an ounce of gold produced from one of its mines into the spot market.
Mr. Munk thinks Barrick can hunker down and survive even if his worst case scenario occurs and Europe's central bankers sell off their gold reserves next year as part of their preparations to create a single European currency.
"We could take a 10-year view at $300-an-ounce hedging, expand our hedge position and look at options where we can merge or acquire a non-gold producer and then keep our gold in reserve," Mr. Munk said.
Mr. Munk thinks it's unlikely that central banks will liquidate their gold reserves with prices so low. "If you dump 10 years' production on a market which isn't there, what are you going to get for it?"
Gold bullion for three-month delivery has fallen 23 per cent over the past year from $370 U.S. an ounce to $284 U.S. amid concern European banks will follow Australia and Argentina in selling off part of their foreign exchange reserves.
Barrick's shares, and those of its competitors, have fallen in tandem with bullion. Barrick's shares have fallen 40 per cent this year. They rose 8o cents tO $23.6o in mid-afternoon trading.
This year Barrick made some moves to cope with falling gold prices, taking a $385-million U.S. charge to shut down five high-cost mines.
With the shutdown of those mines and expansion of lower-cost deposits, Barrick's operating cost per ounce of gold will drop to $150 U.S. from $190 U.S. this year - compared with a world average COST Of $262 U.S. an ounce - while total production will remain constant at three million ounces.
Mr. Munk said he expects falling bullion prices will create acquisition opportunities among higher-cost, more leveraged producers, although repurchasing shares is currently Barrick's best investment.
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