By Lesley Wroughton
TORONTO (Reuters) - A string of setbacks and worries about its
hedge book has seen shares in Barrick Gold Corp
But Randall Oliphant, Barrick's chief executive, told Reuters that the share price was reacting to misconceptions about gold hedging and would rise as investors familiarized themselves with the Barrick growth plan.
Barrick shares have fallen about 12 percent since January 2002 when gold began its steady rise from $280 an ounce to over $350. It has underperformed the broader Toronto Stock Exchange gold index, which is up 23 percent in the same period.
In comparison, stock in Denver-based Newmont Mining
Oliphant said the market did not fully appreciate how much Barrick stood to benefit from the increase in spot gold, with the majority of its reserves unhedged.
He said investors were focused on the short term and were ignoring the Barrick growth plan which will double profits by 2006 with new mines in Peru, Argentina, Chile and Australia.
Oliphant said the company would be articulating its growth plans more in the months to come.
"I don't think the market is right now focused on our growth program and the new mines we're bringing on, and so I think once that is fully understood and built into valuations that we will do just fine," he said in an interview.
Hedging allows companies to bet on changing prices and Barick has long prided itself on one of the industry's most profitable hedging programs. But as the gold price has risen above $350 an ounce some analysts fear Barrick will have problems fulfilling its hedge contracts.
Oliphant said this was "entirely inaccurate" and investors had nothing to worry about.
"Our company has benefited tremendously in the past from hedging and this is something that gives us assured cash flow going forward," he said, adding; "At the same time, with the vast majority of our reserves unhedged, we stand to benefit a lot from rising prices."
Like other producers, Barrick has cut its hedge positions since last year as data show investors favor unhedged companies. It has said it will reduce its hedgebook to 12 million ounces in 2003 from 16.2 million ounces at the end of September 2002.
A series of setbacks are also to blame for Barrick's poor stock performance, beginning last year with production problems at four mines that triggered a surprise profit warning, an anti-trust lawsuit launched against the company in the United States, and an income tax dispute with Peru.
Oliphant said the company was confident of meeting targets released in December for production and costs for the balance of 2002.
Barrick has dismissed as "ludicrous and without merit" the lawsuit brought by U.S. bullion dealer Blanchard & Co that alleges the company and J.P Morgan Chase manipulated the gold price. It will appeal a $41 million income tax assessment by Peru on its Pierina mine for the 1999 and 2000 taxation years.
Oliphant said 2003 could be a turning point for the Toronto-based company.
"What we will do is show that we are receiving these higher gold prices, we will continue to advance our pipeline and people will increasingly recognize that this is real and as time goes on it will become that much more imminent...which will be reflected in our stock price," he said.
Barrick's stock price rose 35 Canadian cents to C$24.29 in Toronto on Tuesday morning.
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