TORONTO (miningweekly.com) – In a move to gain full exposure to a burgeoning gold price, the biggest miner of the precious metal, Barrick Gold, announced on Tuesday it will raise a whopping $3-billion in a bought-deal public offering of shares.

The company will use $1,9-billion of the money raised to eliminate all of its fixed-priced gold contracts within the next 12 months and about $1-billion to eliminate a portion of its floating spot price gold contracts.

"The gold hedge book has been a particular concern among our shareholders and the broader market which we believe has obscured the many positive developments within the company," CEO Aaron Regent said.

"As a result of today's decision, we have addressed that concern and maintained our financial flexibility."

The company will take a $5,6-billion charge to earnings in the third quarter as a result of a change in accounting treatment for the contracts.

The decision to gain full leverage to the gold price on all future production was made in light of an "increasingly positive" outlook on the gold price, coupled with continuingly robust supply and demand fundamentals, Barrick said.

"The company expects global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies."

Barrick also believes that the hedges and floating contracts were negatively affecting the company's appeal to investors, and therefore weighing on its share price, Regent commented.

Gold producers across the industry have been reducing their hedge books for most of this decade, in order to take advantage of rising bullion prices.

Industry-watcher VM Group said in a report last month that the global gold hedge book has fallen from more than 100-million ounces in 2001 to just 14,7-million ounces by midyear.

Another gold major, South Africa's AngloGold Ashanti, has made significant cuts to its hedge book and promised further reductions by year-end.

Gold surged to $1 004,50/oz on Tuesday, the highest since March 2008 when the metal hit a record $1 030,80. It retreated to around $996/oz later in the day.

BOUGHT DEAL

Toronto-based Barrick said after markets closed on Tuesday that it has entered into an agreement with a syndicate of underwriters, led by RBC Capital Markets, Morgan Stanley & Co, JP Morgan Securities Inc and Scotia Capita, for a bought-deal public offering for gross proceeds of about $3-billion, representing 81,2-million common shares of Barrick at a price of $36,95 a share.

As of September 7, Barrick had gold sales contracts on 9,5-million ounces, with a mark-to-market position of a negative $5,6-billion.

These include three-million ounces of fixed price contracts where Barrick does not participate in gold price movements, with a negative mark-to-market position of $1,9-billion.

In the next year, Barrick will buy these ounces in the open market and/or deliver gold from its own production. These ounces will then be delivered against the gold hedges.

The company also has 6,5-million ounces of floating contracts, with a negative mark-to-market position of $3,7-billion. The company will use whatever is left over from the offering after settling the fixed price contracts to settle a portion of the floating contracts.

Thereafter, the remaining floating contracts will be compared with alternative sources of debt financing and will likely be repaid or refinanced "to the extent that more attractive sources of debt capital are available", Barrick said.

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