Barrick Gold to Eliminate Hedges
By Staff News & Analysis - September 09, 2009

Barrick Gold Corp., the world's biggest gold producer, said Tuesday it plans to eliminate all of its gold hedges and raise $3 billion in a share offering to help pay for the move. The Toronto-based company cited the bullish outlook for gold. Its announcement came on a day the price of the metal rose above $1,000 per ounce to its highest level since March 2008. – AP

Dominant Social Theme: Barrick acts responsibly?

Free-Market Analysis: Of course Barrick held out. We tend to share what is an industry wide view that Barrick was perhaps invented at least in part to manipulate the price of gold and to keep the price down through various speculative means. It may have managed to do this very well throughout the 1990s, though it was eventually sued over certain practices and settled out court.

The move by Barrick is certainly an important one when seen in the above context. We think Barrick is much less of a manipulative mover and shaker these days, if one grants that it was. The move is therefore twofold. It removes a stumbling block to gold's upward move and it shows clearly that an entity that once was likely a drag on the market is now casting a bet for a higher price. Here's some more from the article:

Earlier Tuesday, Barrick agreed to sell silver reserves from four of its mines to Silver Wheaton Corp. in a deal worth $625 million. The transaction will provide Barrick with a source of financing for its Pascua-Lama mining project which is under construction on the border between Argentina and Chile while it significantly boosts the size of the 5-year-old Silver Wheaton. The key mine in the deal is Pascua-Lama. Vancouver, British Columbia-based Silver Wheaton will receive 25 percent of the silver production over the life the mine, expected to be at least 25 years. Until Pascua-Lama begins production sometime in 2014, Silver Wheaton will receive 100 percent of silver produced at three other Barrick mines, two in north-central Peru and a third in the San Juan province of Argentina. Barrick will retain 100 percent of the gold production at all mines and 75 percent of the silver at Pascua-Lama.

After Thoughts

Nice to see Barrick wheeling and dealing for properties like an almost-normal big mining firm. Additionally, notice that much of the activity seems to revolve around silver. Silver is still fairly underpriced, historically, compared to gold. Maybe Barrick's management hasn't noticed this? The company could be on its way to financing its way out of its gold hedge at the expense of mortgaging some of their silver potential. Robbing Peter to pay Paul?

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