Goldman Sachs acquires Italian central bank

Section:

Big Hedgebook of Barrick-Placer is Manageable, Analysts Say

From Reuters
Wednesday, December 28, 2005

http://today.reuters.com/investing/financeArticle.aspx?
type=mergersNews&storyID=uri:2005-12-
28T200940Z_01_N28263119_RTRIDST_0_MINERALS-BARRICK-
PLACER.XML&pageNumber=0&summit=

TORONTO, Dec 28 (Reuters) - Analysts are recommending that Placer
Dome Inc. shareholders tender their shares to Barrick Gold Corp.'s
sweetened takeover offer and seem unperturbed by the combined
company's big hedgebook.

If the $10.4 billion acquisition succeeds, Barrick will inherit
Placer's hedgebook, which sits at around 8 million ounces of gold.
This will push the total of Barrick's forward sales contracts to
around 21 million ounces from about 12.9 million -- representing the
largest hedgebook in the industry.

John Ing, president of Maison Placements Canada, said Barrick's
strategy will be to either deliver into the gold contracts or buy
them back.

"Unfortunately, we have a rising gold price. That makes the task
difficult," he said in a recent interview.

"If you mark-to-market the portfolios together, you are looking at
multibillion mark-to-market losses, particularly with gold at $500-
plus."

He added: "Unquestionably (the hedgebook) is a challenge, but with a
combined balance sheet it should be less of a challenge."

The merger of the two Canadian miners would create the world's
largest gold producer.

Hedging, through which producers fix prices for their metal using
forward sales and/or options, fell out of favor with investors when
the gold price started to rise late in 2001.

Although hedging protects miners when the gold price is low, it has
also prevented some producers from fully benefiting from the price
rally. On the year, the price of gold is up 20 percent at around $510
an ounce amid inflation worries and as investors diversify into the
safe-haven metal from currencies.

For Barrick, its strategy remains the same: to reduce the hedgebook.
But exactly how and when, no one knows at this point.

Currently, 14 percent of Barrick's reserves are hedged, including
those allocated to Pascua-Lama, which is an unmined project in South
America. Around 13 percent of Placer's reserves are hedged.

Kerry Smith, an analyst with Haywood Securities said that Barrick's
large hedgebook is manageable.

"It's not that problematic," he said. "Right now Barrick has a big
hedgebook. What the new strategy is, I can't speak to that."

Robert Mantse, vice-president with DBRS, said the debt rating agency
is very comfortable with the combined company's hedgebook.

"Looking at it from a debt perspective, we are comfortable with their
position," said Mantse, the head of DBRS's mining and metals
group. "It works out to about 15 percent of annual production, so you
still have quite a bit of upside, but you've got that insurance on
the downside."

He added: "Don't forget it's 10 years out and a lot can happen with
the gold price over 10 years."

Last week, Placer agreed to be taken over by Barrick after Barrick
sweetened its offer to $22.50 a share from $20.50. The offer expires
Jan. 19.

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