Hedging "Just Makes Sense" Says Barrick's New Chair
Thursday, 12/05/2013 16:31
Gold hedging should be "an active topic" for world's No.1 miner, says incoming chairman...
BARRICK HEDGING could return, the world's largest gold miner's new chairman told journalists Wednesday.
Due to follower founder and current co-chair Peter Munk as the sole head of Barrick's board in spring 2014, "As an outsider," said John Thornton, formerly a president at investment bank Goldman Sachs, "I always thought it made great sense to hedge, given the background I come from.
"I can't imagine why you wouldn't look at that seriously all the time."
Gold miner hedging is where a producer sells future output at current prices, delivering metal to meet those contracts as it is then mined and processed.
Barrick Gold (ticker: ABX) "
coined money off its hedging strategy," during the late 1990s, the
Globe & Mail in Toronto, Canada – where Barrick is headquartered – said in a 2009 story.
But that year, and with
gold prices surging to record highs, Barrick spent almost $6 billion to buy back the last of its giant hedge-book, built during the previous bear market.
"Economic conditions," Munk told Bloomberg in 2010, "are more likely to increase gold prices than the other way around.
"We hedged for 10 years and it paid off. Conditions were so dramatically different a decade ago."
Then-CEO Aaron Regent told the same news-wire in early 2011 that "There's a logic to hedging, and our shareholders have made it very clear to us that they don't want us to hedge gold."
Regent got $12 million severance pay in June 2012. Joining new CEO Jamie Sokalsky as co-chairman with Munk in April that year, Thornton received $11.9 million as a welcome. Barrick has so far written down $8.7 billion of its assets as a result of lower gold prices in 2013.
"Doesn't mean you would necessarily hedge," Thornton explained Wednesday. "But I can't understand for the life of me why hedging wouldn't be an active topic [which we'd] be carefully following at all times.
"Given the characteristics of a commodity like this, it just makes sense to me."
Barrick's stock was up 0.5% Thursday morning in New York, trading 14% above early July's 10-year low.
"Gold miners have seen their profit margins crumble," said TD Securities analysts in Toronto in a note earlier this autumn.
"The first to realize that prudent hedging isn't necessarily an evil thing will benefit."
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