LONDON � In what had every appearance of being a damage limitation exercise, Peter Munk, chairman of Barrick Gold, made an unscheduled return to the Gold Investment Summit here to announce his company had given up hedging � and would do no more for the next ten years. This appeared to be a complete reversal of his spirited defence of hedging in a keynote speech only 24 hours before. Reports of his remarks, as usual made off-the-cuff without notes, might not have gone down well with some shareholders.
Today (November 21) Munk called together reporters at the Gold Summit to tell them that, while every prudent gold mining group should have hedging as one of the weapons in its armoury, Barrick did not need to use the technique for a long time to come because it had plenty of cash. The company might even do some de-hedging.
Munk also made it clear that, although he believed in the value of hedging as an important tool for gold companies, many investors were against it and this could be reflected in Barrick�s share price.
As soon as this revised version became known, gold�s price in London gained US$4 an ounce before settling back a little and Barrick�s share price in Toronto moved up to the highest level since early September.
On Thursday, during his first appearance at the Gold Summit, organised by Euromoney publications and the World Gold Council, Munk said Barrick turned to hedging because: �We have to be able to make long term commitments in cyclical markets and to make sure we have the cash to cover capital expenditure.� In Barrick�s case this expenditure could be considerable as it now cost US$500m to $1bn to construct a new gold mine.
Today Munk told reporters he wanted to enlarge on his previous comments. "The commitment to hedging is gone,� he said. �Hedging to us is no longer a requirement for running our business as it no longer creates shareholder value."
�Hedging today does not carry the premium it carries in every other business � everybody is risk averse except the gold business�
Munk said that de-hedging could be an option for Barrick if it created shareholder value. "We could well do that in terms of assigning contract positions to our long term financing plans - project financing for mines," he said. However, that was something the company had not yet done. "We're totally open minded now," he added.
Last month, Barrick�s chief executive Greg Wilkins said his group�s hedge book was too big, and he hoped to cut it by about one third to 20 percent of gold reserves. Barrick�s hedges cover roughly three years of output � 16m ounces of gold sold forward.
Munk is known as the �High Priest of hedgers� because of the way Barrick pioneered and expanded the technique. On Thursday he insisted that hedging had not hurt Barrick�s profits as not one ounce of its gold had been sold, or would be sold, below the spot price.
He was a last minute substitution on Thursday, appearing at the Gold Summit instead of Wilkins who, it was said, had to attend to some urgent business in New Orleans.