An September 8 article titled ‘Barrick raises billions to cut hedges’ reports that Barrick Gold Corp, the world’s largest gold miner (production about 8 million ounces/year) is planning to largely eliminate its ‘gold hedge book’ by raising U.S.$3.45 billion through an equity offering led by RBC Dominion Securities, Morgan Stanley, JPMorgan and Scotia Capital.  On September 9 Barrick announced this amount was being increased to U.S.$3.5 billion.  The article sets out details of Barrick’s hedge contracts, and how Barrick plans to allocate the proceeds.  I find this an interesting move on Barrick’s part.  One has to believe that before deciding to proceed with this equity offering the Barrick Board sought and received the best advice money can buy with respect to the balance between the share dilution resulting from the transaction, and the effect on Barrick’s share price that may result from forecasted gold prices.  The article states:  “Barrick is a gold company that has forged its reputation on clever financial engineering more than a belief in metal prices”.   This equity offering does not strike me as falling into the category of a ‘financial engineering transaction’.  What does strikes me is that I think it likely Barrick’s Board and Management have concluded that on the ‘balance of probabilities’ the price of gold is more likely to increase than decrease from its current +/-U.S.$1,000 level.

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