By Frank Tang
NEW YORK (Reuters) - Barrick Gold Corp (ABX.TO: Quote, Profile, Research, Stock Buzz), the world's top producer, will not consider hedging its production against any downside of gold prices, its chief executive said this week.
"No, we learned that there are better ways, more shareholder-friendly ways to manage our balance sheets," Greg Wilkins told the Reuters Global Mining Summit when asked if Barrick would consider hedging in the next three to five years given that gold was trading at all-time highs.
Canada-based Barrick has removed all of its gold forward contracts on the corporate sales side, while the miner was keeping a project hedge-book that it intended to use for supporting project financing, Wilkins said by telephone from India where he was just named chairman of the World Gold Council.
"When we used to hedge, of course, it was to ensure that we had stable cash flow because we're a single commodity company. We didn't want to end up waking up one day with a crash of the gold price and put our company into jeopardy," he said.
"But now we are just bigger, and we have a copper business that generates a lot of cash flow. So we have a more diversified portfolio, and we have a very low-cost structure relative to the industry," he said.
Wilkins said that the company could better control costs by focusing on higher-grade gold mines.
"There is a little grade management because gold prices are high, and we can afford to mine possibly lower-grade material. We can always reverse that trend if the gold price starts to come back down and that would lower our cost," Wilkins said.
Hedging allows producers to lock in prices for future output, but it can backfire if metals prices rise above the hedged price. Record bullion prices have prompted many producers to reduce or eliminate their hedges to take advantage of the rising prices.
Fortis Bank said in a recent report that mining companies are expected to reduce their gold hedging positions by 6 million to 8 million ounces in 2008, against a decline of 13.5 million last year.
Producer de-hedging has provided support to gold prices, market experts said. Spot gold closed in New York on Thursday at around $990 per ounce, while futures prices briefly went through the $1,000 barrier earlier in the day.
(Editing by Matthew Lewis)
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