Hedging to cost Barrick nearly $1 billion by mid-year

Barrick Campaign Aims
to Get a Little Respect

By Andy Hoffman
The Globe and Mail, Toronto
Friday, February 23, 2007

http://www.globeinvestor.com/servlet/WireFeedRedirect?cf=GlobeInvestor/c...

TORONTO -- Disappointed by a weak stock performance amid rising bullion prices, Barrick Gold Corp. head Greg Wilkins said the world's largest gold producer will embark on an ambitious campaign to increase the value of its shares.

In a presentation to analysts and investors in Toronto yesterday, Mr. Wilkins and other Barrick executives outlined plans to boost the miner's exposure to the price of gold in a bid to attract investors.

"I think we've done a lot of great things for the company that have not been recognized in the marketplace. As a shareholder myself I would have thought that at these gold prices and with our earnings we would have had much better performance than we achieved," Barrick's chief executive officer told reporters following the conference.

While Barrick has the world's largest gold production, reserves, and development projects, the stock market has assigned more relative value to smaller miners likely to be taken over as well as to some of Barrick's faster-growing competitors at the senior producer level, such as Goldcorp Inc.

Since the beginning of 2006, the average share prices of junior and intermediate gold companies has increased 86 percent, Goldcorp shares gained 28 percent, and the spot price of gold climbed 30 percent.

During the same period, shares of Toronto-based Barrick have risen just 13 percent.

"That's embarrassing, frankly -- that's just embarrassing," Mr. Wilkins said.

Among the initiatives unveiled yesterday was the earlier-than-expected elimination of the company's non-project related hedge contracts, which lock the company into selling gold at a fixed price and have limited Barrick's ability to realize full market price for its gold production.

Barrick said it reduced hedge contracts by one million ounces during the fourth quarter and had eliminated the fixed-price sales contracts not tied to specific projects by getting rid of another roughly 1.5 million ounces this quarter. It had previously pledged to be done with that part of its hedge book by 2009.

The hedge reduction cut profit by US$327 million in the fourth quarter. The company will record a charge related to the hedge book deliveries of $564 million in the first quarter and $65 million in the second quarter.

"It's really about the valuation of the company. There's a very obvious way to make a lot of money by buying Barrick stock today if all you have is the belief that gold prices are going to remain pretty much at these levels into the future," Mr. Wilkins said.

Barrick still has approximately 9.5 million ounces of project-specific hedging contracts that could limit its ability to sell its gold at current market prices of $680 an ounce.

Compounding investor concerns are rising costs and flat production. Barrick reduced its 2007 gold production outlook from between 8.4 million and 8.5 million ounces to between 8.1 million and 8.4 million ounces. Costs per ounce will increase 5 per cent from last year to between $335 and $350 per ounce.

"That is certainly the bad news," Desjardins Securities analyst Michael Fowler said in a note to clients.

Mr. Wilkins said the higher costs were due mainly to lower grades of ore being mined. But he added that inflationary pressures from fuel, construction, and mining equipment costs are levelling out.

"The prognosis for costs going into the future is much more stability," he said.

The CEO and other Barrick executives also said the market has failed to properly take into account its stable of development projects including a joint venture nickel project in Tanzania, two platinum and palladium projects, the Reko Diq copper and gold property in Pakistan, and Pascua-Lama, a gold and silver project that straddles the border between Chile and Argentina.

Barrick cut probable gold reserves at Pasuca to 17 million ounces from a previous 18 million ounces and raised expected costs to build the project to as much as $2.4 billion from $1.5 billion.

Mr. Wilkins said Barrick is on track to achieve a further 10 to 15 percent above the expected $200 million in cost savings related to the $10 billion acquisition of Placer Dome that was completed early last year.

Barrick shares fell 78 cents (Canadian) to $36.47 on the Toronto Stock Exchange yesterday.

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