Barrick May Close Hedge Book Ahead of Plan

By Jan Harvey
Reuters
Monday, November 2, 2009

Barrick Chief Financial Officer Jamie Sokalsky also told Reuters the company had bought back 1 million ounces of hedged gold in October.

"We are going to be opportunistic, and we're going to be responsive to the market, but we will have it done by 12 months at the latest," Sokalsky said on the sidelines of the London Bullion Market Association's annual conference.

"We could very well do it before then," he said, adding: "The market was right for us in October to buy the million ounces and we'll see what transpires going forward."

Hedging allows producers to lock in prices for future output, but the strategy can backfire if prices rise significantly.

"The hedge book had been a disadvantage to our share price, because shareholders didn't think we had (exposure to) upside to the gold price," Sokalasky said.

"By taking away the cap, we should be able to more fully benefit, as we believe the gold prices will rise significantly."

A combination of global economic, political, and financial uncertainty and strong fundamentals -- good investment demand combined with constrained mine supply -- mean gold could set new highs in the near future, he said.

"It is hard to put a number on it, but if you look at where gold rose to back in the early 1980s on an inflation-adjusted basis, it was over $2,000 an ounce," he said.

"I am not necessarily predicting that, but I think we can certainly go up by a few hundred dollars, maybe higher," he said.

Gold's record high is $1,070.40 an ounce, set in October.

Sokalsky also said Barrick believes gold mine supply will continue to fall, which would support the gold price.

"There has been a dearth of big gold discoveries, exploration spending had dried up when the gold price was under $300 more than a decade ago, and as a result, there haven't been a lot of exploration finds," he said.