Four years after Barrick Gold Corp. (ABX) stopped hedging bullion sales,
its next chairman, John Thornton, says the practice makes sense and is
worth considering.
Thornton, a former Goldman Sachs Group Inc. president and currently
Barrick’s co-chairman, spoke yesterday after the world’s biggest
producer of the metal announced he would succeed Chairman Peter Munk
next year.
Barrick spent at least $5.6 billion in 2009 to get out of fixed-price
sales contracts as it bet on rising gold prices. The metal is heading
for its first annual drop in
13 years, having declined 27 percent so far
in 2013. That slump has helped to erode earnings and prompted gold
producers to take at least $26 billion of writedowns this year,
“As an outsider, I always thought it made great sense to hedge,”
Thornton told reporters at Barrick’s Toronto headquarters. “I can’t
understand for the life of me why that wouldn’t be an active topic that
you would be carefully following at all times.”
Once a strategy used by Barrick and other major gold producers such as
AngloGold Ashanti Ltd., hedging fell out of favor in the past decade as
companies found themselves locked into lower prices as gold rose.
Producers de-hedged 8.16 million ounces in 2009, according to a report
from London-based researcher GFMS Ltd. the following year.
Ballooning Costs
“The smart companies are going to be the ones that use put options or
enter into forward contracts for a portion of their current year’s
production to guarantee that production, to guarantee that cash flow,”
Goldsmith said by phone.
Gold for immediate delivery dropped 1.4 percent to $1,226.64 an ounce at
9:07 p.m. in London. Barrick fell 2 percent to C$16.39 at the close in
Toronto, extending its decline this year to 53 percent.
Barrick has endured 18 months of turmoil. In addition to the gold-price
drop that spurred $8.7 billion of writedowns, it fired its chief
executive officer last year after a disastrous copper acquisition and
revealed ballooning costs at its biggest construction project, the
Pascua-Lama mine in the Andes.
Current CEO Jamie Sokalsky has sold three Australian mines this year and
has put others under review as the company faced criticism from
shareholders to cut costs and increase cash flow.
New Directors
As well as announcing that Munk, 86, will retire at its next annual
shareholders meeting, Barrick said yesterday it’s nominating four new
independent directors and adopting a new executive-compensation plan. It
also said James Gowans will start as chief operating officer in
January.
Canada’s biggest pension funds wanted new independent board members and
said Barrick should consider replacing directors who had been there
longer than 20 years and were close to Munk, two investors briefed on
the matter said in September. An $11.9 million signing bonus for
Thorntonstarting as co-chairman was described by Canada’s six largest
pension fund managers in April as a “troubling precedent.”
The independent directors nominated by Barrick are Ned Goodman, CEO of
Dundee Corp., a holding company with investments in precious metals and
other assets; Nancy Lockhart, a former chief administrative officer of
Frum Development Group; David Naylor, a former University of Toronto
president; and Ernie Thrasher, founder of Xcoal Energy & Resources
LLC, a coal-trading firm.
Chinese Partnership
Directors Howard Beck and former Canadian Prime Minister Brian Mulroney
won’t stand for re-election at the shareholders meeting, Barrick said.
“We’re encouraged by the steps the company seems to be taking to enhance
the role of independent directors,” said Maxime Chagnon, a spokesman
for Caisse de Depot de Placement du Quebec, Canada’s second-biggest
pension fund and one of the investors that criticized executive pay at
Barrick as excessive.
Goodman’s nomination was welcomed by Robert Gill in Toronto who helps
manage C$8 billion including Barrick shares at Aston Hill Financial Inc.
“He brings instant credibility in a very important circle of Barrick
shareholders, the institutional investors who are informed,” Gill said
yesterday by phone.
Thornton, 59, said yesterday he’s seeking to form a partnership with
Chinese companies with a view to possible cooperation on mining projects
in the future.
Other Minerals
Thornton has connections to China, which was where he headed to in 2003
after departing Goldman. He helped establish a business leadership
program at Beijing’s Tsinghua University and is a member of China
Investment Corp.’s international advisory board.
“China will in fact be at the center of just about everything, certainly
the world’s economic growth and the world’s commodities,” he said.
While Barrick’s priority is to improve its gold operations, it also has
the ability to be a “world-leading company” in other minerals, according
to Thornton.
“That’s the kind of journey that I feel we’re on,” he said. “And when I
look out over the next two decades, that’s where I’d like Barrick to
go.”
Source : bloomberg.com
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