Barrick Gold Corporation (NYSE: ABX)(TSX: ABX) announced today that it has completed the elimination of all of its Gold Hedges(1) and now has full leverage to the gold price on the industry's largest gold production and reserves.
"Our positive view on the gold price led us to accelerate the elimination of these contracts ahead of the schedule we had established. With their elimination we no longer have any gold price related mark-to-market exposure and will now fully benefit from increases in the gold price," said Aaron Regent, Barrick's President and Chief Executive Officer.
"Barrick's gold production and reserves are now completely unhedged and our capital structure has also been simplified," added Aaron Regent.
In September, Barrick announced its plan to eliminate all of its Gold Hedges within 12 months and a substantial portion of the liability related to its fully participating Floating Contracts(1). The Gold Hedges were contracts where Barrick had sold forward gold ounces and would receive a fixed price upon delivering into these contracts. As such, Barrick did not benefit from any increase in the gold price but the mark-to-market (MTM) liability, or costs of these contracts, would increase with a rise in the gold price. The remaining Floating Contracts were previously fixed price contracts that have been neutralized by entering into an offsetting contract whereby the gold has been repurchased. The impact was to fix the loss on these contracts at that point, such that it will not change with subsequent movements in the gold price but will incur a financing charge, similar to a floating rate US dollar obligation with an average rate currently between 3% and 4%. No activity in the gold market is required to settle the Floating Contracts obligation and the Company will fully participate in any subsequent increase in the price of gold. The obligation related to the Floating Contracts has been reduced to $0.7 billion and has primarily 10-year terms with commercial banks.
To fund the elimination of the Gold Hedges and a substantial portion of the Floating Contracts liability, Barrick issued new equity in September for net proceeds of $3.9 billion and in October issued $1.25 billion in new long-term debt securities for total net proceeds of $5.1 billion.
Reconciliation of Gold Hedges and Floating Contracts from September 7, 2009
to December 1, 2009
Floating
Gold Hedges Contracts Total
Ounces Liability Liability Liability
(millions) ($ billions) ($ billions) ($ billions)
----------------------------------------------------------- ---------------
As at September
7, 2009 3.0 1.9 3.7 5.6(i)
Change in
liability(ii) -- 0.2 -- 0.2
Ounces eliminated/
net proceeds used
to date (3.0)(iii) (2.1) (3.0) (5.1)
----------------------------------------------------------- ---------------
Remaining Liability
as at December
1, 2009 -- -- 0.7 0.7
----------------------------------------------------------- ---------------
(i) The total liability excludes a $0.1 billion obligation for silver
sales contracts.
(ii) The change in liability is net of an increase in the MTM of the Gold
Hedges of $0.3 billion and $0.1 billion of certain balance sheet
reclassifications.
(iii) Barrick has eliminated all of the Gold Hedges at an average price of
$1,070 per ounce.
The subsequent change in the MTM of the Gold Hedges of $0.3 billion that occurred prior to elimination will be recorded as a charge to earnings in the fourth quarter. There will be no further charges to earnings related to changes in the MTM of Gold Hedges now that they have been fully eliminated.
In the last two years, Barrick has eliminated its legacy project Gold Hedge position of 9.5 million ounces at a weighted average gold price of $930 per ounce, by either settling its fixed price contracts or by converting fixed price contracts into Floating Contracts.
For 2010, Barrick expects gold production to grow to 7.7-8.1 million ounces at lower total cash costs than 2009.
Barrick Gold Corporation's vision is to become the world's best gold company by finding, acquiring, developing and producing quality reserves in a safe, profitable and socially responsible manner.
