Barrick Raises $3 Billion to Retire Hedges

Sep. 09, 2009 7:17 AM ETGOLD, FRFHF
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Barrick Gold (ABX) launched the largest bought deal ever seen in Canadian equity markets on Tuesday, selling $3-billion (U.S.) of stock as it moves to close down its hedged gold production.

On a day that had already seen a $1-billion equity sale from Fairfax Financial (FFH), Barrick is selling 81.2 million common shares at $36.95 each. The deal is being led by RBC Dominion Securities, Morgan Stanley, JP Morgan and Scotia Capital; these underwriters are shouldering the risk of selling shares of the world’s largest gold miner.

The underwriting was done at a 6 per cent discount to the price of Barrick’s stock on Tuesday. The market’s reaction to this deal will be fascinating, as it eliminates hedged gold production that was a major negative for the stock, but comes at a price.

Under its current hedge contracts, Barrick is locked in to selling 9.5 million ounces of future production at an average cost of $375 an ounce.

To put these numbers in perspective, a senior global gold mining company produces 1 million ounces of bullion a year. And gold, in case you missed the news, went through $1,000 an ounce on Tuesday. Barrick’s hedged production, put in place to give the company predicable future earnings, had become an enormous millstone.

While there has long been speculation that Barrick would move to cut its hedged production - the market places a premium on pure plays in bullion - this move came as a surprise. Sources say Barrick excutives first briefed investment bankers on their plans on Friday, and the underwriting came together over the Labour Day weekend.

In a news release, Barrick said it intends to use $1.9-billion of the cash to eliminate all of its fixed-price gold contracts within the next 12 months and approximately $1-billion to eliminate a portion of its

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Streetwise is a daily compendium of news about deals and players in Canada's investment industry. You can find the blog at, the website of Canada's national newspaper The Globe & Mail, or at The Globe's investment website, Globe Investor. Streetwise is primarily written by business and investment columnist Andrew Willis. He joined The Globe in September of 1995. His career has included stints at a number of publications, including The Financial Post, The Financial Times of Canada, Dow Jones/Wall Street Journal, and MacLean's magazine. He also did freelance writing for Investment Executive magazine. He appears on television for BNN TV and CBC Newsworld. Andrew has co-written a book, The Bre-X Fraud, with business journalist Douglas Goold. Read his Streetwise newspaper columns Tuesday through Friday in the pages of The Globe and Mail's Report on Business. Boyd Erman also contributes. He is a long-time business journalist who has worked at Dow Jones, Bloomberg, and the National Post before joining the Globe and Mail, Canada's national newspaper. Over the years, his areas of coverage have included economics, monetary policy, debt markets and corporate finance. In addition, he is a regular commentator and guest host on Business News Network. He covers markets and the brokerage industry for The Globe and Mail's Report on Business. Steve Ladurantaye also contributes. He wrote about technology companies in Ottawa before reporting for the Peterborough Examiner and Kingston Whig-Standard, where he won a National Newspaper Award for explanatory journalism. After joining the Globe and Mail, Canada's national newspaper, in 2007, his work has regularly appeared in Report On Business and Globe Investor Magazine. He is now an investment writer. Tara Perkins has been a business reporter since 2004. She has been writing for the Globe's business section since the spring of 2007, covering the banking sector during the course of the financial crisis. Prior to that, she worked for the Toronto Star. Tara has a Bachelor of Journalism from Ryerson University and a Bachelor of Commerce from the University of Guelph

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