Message: Barrick faces ongoing Hedge Book Handicap
Gold's biggest name in the spotlightIs Barrick, the world's biggest gold miner by value and production, preparing for a bought deal of up to USD 3bn? Author: By Barry Sergeant Posted: Tuesday , 24 Feb 2009 JOHANNESBURG - (excerpt) Barrick, the world's biggest gold miner, by value and production, appears to be under increasing pressure to replenish its capital base, following last week's results announcement that guided for lower production and higher costs during 2009. Barrick pointed out that as of 31 December 2008, it held the gold industry's highest credit rating, a cash balance of USD 1.4bn, a USD 1.5bn undrawn credit facility and net debt of USD2.9bn, and scheduled repayments of less than USD 300m over the next four years. Barrick currently ranks among the world's top five miners of all kinds, measured by market value. Its current market capitalisation, at USD 30bn, has more than doubled from low points less than six months ago. A number of specialist analysts have, however, again pointed out that while Barrick is apparently headed for growth in free cash flow, it also faces an ongoing hedge book handicap. Analysts at RBC Capital Markets see free cash flow growing to USD 1.1bn in 2010, from USD 0.6bn in 2009. New mine development is expected to be supported by a strong balance sheet, say the analysts, with an estimated USD 1.7bn in cash at 2009 year-end, a USD 1.5bn un-drawn line of credit, and debt to total capitalisation of 20%. "However", state Stephen D Walker and Valerie Blume at RBC Capital Markets, "the company continues to be handicapped by a hedge book that has seen the current realized value of the 9.5m ounces hedged decline from USD 374/oz to USD 364/oz in the past quarter. At a USD 1,000/oz gold price, the mark-to-market of the book is negative USD 6.0bn and changes by USD 0.95bn for every USD 100/oz move in the gold price. While the company has the flexibility to defer delivery until future years, in the current low interest rate environment, the realized value will not increase significantly over the next few years". While Barrick's financial - and other positions - remain robust by any measure, a number of investors are keen to see the company cash in on the recent popularity of bought deals that have been successfully put through markets by gold companies. The dollar gold price has traded up around the past few days close to the record levels seen in March 2008, allowing listed gold stocks to rank as the best-performing equities subsector in the world. Investors have shown a distinct keenness for substantial blocks of fresh gold stock equity. Beyond the gold sector, a number of forced capital issues have hit markets, not least that by Xstrata, but gold companies have inevitably been able to raise capital with minimal relative dilution, and with relative ease. The past few days alone has witnessed bought deals from Great Basin Gold, Focus Minerals, Victoria Gold, and Allied Gold. The biggest gold-sector bought deals in the past while have been from Newcrest, which raised the equivalent of around USD 485m, and Newmont, which raised USD 1.1bn in equity, and also sold USD 450m worth of convertibles. Relative to its overall market value, Barrick could be good for a raising of up to USD 3bn. This would free up its balance sheet, allow it to chip away at its hedge book, and provide it with greater flexibility for further possible acquisitions. Barrick this year anticipates gold production of 7.2 to 7.6m ounces, mainly due to lower expected grades and output at its flagship Goldstrike operations. But it also has the luxury of the optionality of developing at least one of its four advanced-stage feasibility or pre-feasibility stage big projects, viz., Donlin Creek, Pascua Lama, Cerro Casale and Reko Diq. http://www.mineweb.com/mineweb/view/... |
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