Nuclear bomb hangs above the gold market


Barrick's Munk flies to defence of hedging

By Keith Damsell
May 17, 2000

Peter Munk, chairman of Barrick Gold Corporation, gave an emotional defence
of the company's hedging strategy on May 16, a forward-selling gold program
that has generated profit and controversy for the Toronto mining giant.

"Don't let yourself be taken in by confusion and propaganda," Munk told
shareholders at the company's annual meeting in Toronto. "There's lots of
talk of hedging and how it benefits Barrick and hurts the industry. It does
the opposite. It's the only means to regain the confidence of the capital
markets," he said.

Hedging has come under severe criticism thanks to the woes of Montreal's
Cambior and Ashanti Goldfields. Gold's sudden rally to $339 per ounce last
October forced the two companies to unload assets to cover massive hedging

The crisis tainted the entire industry, including hedging pioneer Barrick. In
February, a handful of Canadian producers dramatically reduced their hedging
positions, including Placer Dome. Barrick followed suit, trimming its hedging
program from 18.8-million ounces to its current 13.4 million ounces. The
company is guaranteed a minimum price of $360 per ounce, about $80 more than
the current price.

Despite promises the programme is risk-free, Barrick shares tumbled to a low
of C$22.50 in March. The stock's 52-week high is $38.20. "This very hedging,
after a decade of proven performance, has come under a serious cloud," said

"The only risk [a gold producer] takes is if it fails to deliver gold. A
company like Barrick has for 15-years, day in and day out, week in and week
out, month in and month out, year in and year out, never missed a target."

Hedging has generated more than $1.5 billion of extra profit for Barrick,
earnings that have made the firm the world's most profitable gold producer.
Over the past six years, the company has produced 16-million ounces of gold
and earned about $1 billion profit. In comparison, the rest of the Western
world has produced 140-million ounces and lost $1 billion during the same
period. "No one will be able to get a higher gold price than Barrick under
any scenario," said Munk. "Barrick can always offer you the higher of the
spot price or the hedge price."

For the company, 1999 was another record year. Key mining operations in the
United States and Peru boosted production to 3.6 million ounces.

The opening of mines in Nevada, Chile, Argentina and Tanzania are expected to
increase production to five million ounces by 2003 at an estimated cash cost
of $145 per ounce. Earnings, cash flow and reserves all rose last year and
the company continued to lower production costs.