American Barrick

Since the case that we did on American Barrick was several years old, I did some research to find out whether their risk management policies have changed in the last couple of years. I found a few interesting articles in the NY times and I saw that they have changed quite dramatically. According to an article in the NY times, Barrick had suffered severe first quarter losses due to the company exiting hedge funds to take advandtage of the strong gold spot prices. Barrick was charged $557 million when they exited their hedge funds. By doing this, Barrick earnings were $398 million compared to the previous year of $263 million. Barrick said that they have completely eliminated their hedge book.

Barrick has always been very firm with their risk management plocies, but I agree with the recent changes that they have made. I looked at the gold price index over the last decade on goldprice.org and since January, 2001 where gold was trading at $260 an ounce, and it has been steadily increasing since then. Over the last 3 years gold prices have shot up from $450 an ounce in the beginning of 2006 up to $926 an ounce where it is today. The managers at Barrick had taken full advantage of this opportunity. If you take a look at Barrick's stock price chart on NY times, you will notice that its curve is very similar to that of the gold price chart.

I believe that Barrick should continue doing this until the market recovers and people stop buying gold as a fear of the weakeing dollar. Once the market recover, they should start hedging again to reduce the risk of gold price volatility.