Barrick Gold to eliminate hedging program

Barrick Gold will eliminate its longstanding practice of hedging some of its gold production, saying it sees a rosy future for the price of the precious metal.

The Toronto-based gold giant said it would raise $3 billion US by selling 81.2 million shares at a price of $36.95 US each. The shares closed in NYSE trading Tuesday at $39.30 US.

The $3 billion would be used to implement its new strategic direction — $1.9 billion would be spent on eliminating all of its fixed price gold hedge contracts within the next year. Another $1 billion would eliminate a portion of its floating spot price gold contracts. 

The company said it would take a $5.6 billion charge to its earnings in the third quarter as a result of a change in accounting treatment for the contracts.

Barrick said all of its future production would be directly tied to gold prices because it thinks gold prices will continue to rise. Gold futures topped $1,000 an ounce on Tuesday for the first time since February.

In a statement issued late Tuesday, the company said it expects "global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies." 

It also cited "robust gold supply/demand fundamentals."

Barrick officials said the hedging contracts that had prevented the company from taking full advantage of the recent upswing in gold prices were hurting the company's bottom line and its share price.

For many years, Barrick has engaged in hedging — selling much of its production at pre-determined prices. That guaranteed a certain minimum price for its gold but prevented it from taking full advantage of rising gold prices.

"The gold hedge book has been a particular concern among our shareholders and the broader market, which we believe has obscured the many positive developments within the company," Barrick CEO Aaron Regent said in a statement.

"As a result of today's decision, we have addressed that concern and maintained our financial flexibility."

The company announced in 2003 that it would end its hedging program within 10 years.

Barrick Gold is the world's largest producer of gold.