Barrick free from fixed hedges

Barrick Gold (ABX-T, ABX-N), the company credited with taking gold hedging mainstream, has eliminated its fixed-price hedge book.

While the company had won favour in the late 90s for hedging gold before its price began to fall, in recent years its share price has been held back by its thick hedge book. By closing out the fixed hedges, Barrick believes it will unbound its shares so that they can fully partake in the yellow metal’s historic climb in price.

And the Toronto-based company couldn’t have picked a better day to make the announcement as gold hit US$1,200.

The confluence of higher gold prices and Barrick’s announcement helped the company’s shares gain 7% or $3.34 to finish at $48.20 in Toronto on Dec. 1.

Barrick had 3 million oz. of gold hedged before it went on an aggressive campaign to buy them back in September. Initially it said the hedges would take 12 months to close out, but spurred on by higher gold prices, the company accelerated its plan.

To fund such a costly endeavor, Barrick had to issue equity and debt worth more than $5 billion and it took a $5.7 billion third quarter charge in its financial statements to wipe the hedging losses off its books.

It will have to take another $300 million charge in the fourth quarter since gold’s rising price made its repurchases come in at a higher than anticipated cost. It says it cost an average of US$1,070 an oz. to close out the fixed hedges.

The company, however, still has floating hedges on its book, although it has been closing out those positions as well.

It has so far closed 6.5 million oz of floating hedge contracts, reducing its obligation on the contracts to $700 million from an initial $3.7 billion.