AP – Barrick Gold to eliminate hedges, plans offer:
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.
Gold hedges are futures contracts that commit a company to selling the metal at set prices. While hedges guarantee certain cash flows, they often commit a metals producer to ship the gold at prices lower than the current spot price. Barrick’s decision to pay off its hedges amounts to a bet that gold prices will keep rising.
Jesse’s Cafe Americain – Barrick Capitulates:
Barrick Gold and their bullion bank partner J.P. Morgan were the target of lawsuits by the gold bulls, most recently Blanchard and Company, for price manipulation through the use of forward sales in their hedge book. The contention was that the selling was being used to manipulate the price of gold.
Barrick’s initial defense was that if they were acting in conjunction with the central banks, they were therefore immune from prosecution since the central banks are immune from prosecution. Details of that story are here. The public document that Blanchard had put forward was shocking in its implications indeed, and can be seen here.
Almost as shocking as the complete lack of interest and follow up in such a potential scandal by the financial community, market regulators, and the media. One has to wonder what Barrick’s management now sees in the precious metal markets, in order to accept this significant shareholder dilution to take down those fixed price contracts now.
Off the cuff, the Barrick statement implies that they will be purchasing 4% of total world production in the open market for bullion which is already tight at these prices in addition to taking an enormous amount of forward selling off the market. Unless, of course, they can take delivery directly from existing reserves, such as from the Fed via the IMF.
TruthInGold – Barrick Is Doing What?:
What’s even more extraordinary about this move is the implied message that Barrick is sending to the world about where they think the price of gold is headed. They wouldn’t be spending $3 billion in shareholder capital upfront to get rid of these hedges if they thought the gold bull market was over and the price was about to fall. This move by Barrick is a signal to the world that they believe the price of gold is going much higher in price and they are willing to spend several billion in order to reap the full benefits of much higher gold prices in the future.
For anyone doubting the legitimacy of the gold bull, would you rather place your faith in the idiots on CNBC or in the smoke signals being sent globally by one of the world’s largest gold miners?
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