Barrick plans to spend extra cash on acquisitions

By Frank Tang
Reuters
Tuesday, September 15, 2009

http://www.reuters.com/article/euPrivateEquityNews/idUSTRE58D4UK20090914...

DENVER -- The chief executive of Barrick Gold Corp. said on Monday that the world's largest gold producer will use excess cash from higher production and cost savings for acquisitions and to increase its reserves.

Aaron Regent, CEO of Barrick, which announced last week it would buy back most its hedges as gold hit $1,000 an ounce, also said that he did not believe the de-hedging process had any impact on the price of gold.

Regent said in an interview on the sidelines of the Denver Gold Forum that the buyback decision was driven by a positive outlook on gold prices and to broaden Barrick's investment appeal.

"It is a significant overhang of the company, and it has obscured many of the positive things. Because of that, the appeal of Barrick to the broader (investor) community had been limited," Regent said.

With current prices, every $10-an-ounce rise in gold increases the liability of those hedges by about $30 million, Regent said.

Regent said that de-hedging allowed Barrick to close the cost gap compared with its peers, and it would put Barrick in a better position in pursuing future acquisitions.

"Eliminating the hedge book is a step in the right direction," he said.

Regent said that Barrick will eliminate its hedges by buying back in the open market as well as using the company's future production to offset the forward contracts.

Toronto-based Barrick will use excess cash to fund existing and new mining projects, Regent said.

"We will ... be looking at acquisitions to the extent that we want to continue to replace and increase resources through explorations."

He gave no details of potential targets.

Barrick forecast higher gold output and lower production costs for 2010 on a year on year.

For the industry as a whole, however, Regent expects gold production to continue to decline in the next few years.

Asked what $1,000 an ounce meant for a gold miner, Regent said, "It's a good price. We generate decent revenue, decent profit and lots of cash."

Regent said that gold, typically viewed as a safe haven in times of economic crises and rising geopolitical tension, has confirmed its status as an attractive component to diversify an investment portfolio.

"Gold as an asset class has performed well as expected, particularly in periods of uncertainties," Regent said.

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