By Nicole Mordant
VANCOUVER, British Columbia (Reuters) - Barrick Gold Corp.
The world's third biggest gold producer slashed its hedge position by a bigger-than-expected 800,000 ounces by opting to sell nearly two-thirds of its quarterly output in fixed-price contracts at an average of $382 an ounce, 6 percent lower than what it could have earned on the market.
"We were surprised at the aggressiveness with which they delivered into their hedges... We were expecting around 600,000 ounces," said John O'Brien, an analyst at Ragen MacKenzie.
Forward sales at fixed prices, a cornerstone of Barrick's strategy in the past to protect itself from low gold prices, have been vilified by a vocal contingent of investors because they reduce the company's sales exposure to current high prices.
In a surprise U-turn, Barrick last year pledged to wipe out its hedge contracts over time and cut at least 1.5 million ounces in 2004.
At the end of the quarter, Barrick still had 14.7 million ounces of gold sold forward, equal to 17 percent of its unmined reserves. At contracted prices, the position is worth $1.8 billion less than if the gold were sold into the market.
EARNINGS HIT BY SILVER CONTRACTS
Barrick's shares on the Toronto Stock Exchange rose 40 Canadian cents to C$28.45 on Thursday as investors applauded the quarter's strong operational performance despite a profit that came in slightly weaker than the consensus forecast of analysts.
The company posted a 10 percent fall in earnings to $26 million, or 5 cents a share, partly because it lost $15 million on a silver derivatives position as the silver price rose. Analysts had forecast earnings of 7 cents a share.
In the year-before quarter, Barrick earned $29 million, or 5 cents a share.
From its 12 mines on four continents, Barrick produced 1.28 million ounces of gold at a cash cost of $199 an ounce.
Without providing specifics, the company warned of possible overruns in the $1.2 billion startup cost, and in operating costs, at its Pascua-Lama site on the Chile-Argentina border.
The project, due to start production in 2008 or 2009, is forecast to provide 800,000 ounces of gold a year plus a large amount of silver and is Barrick's biggest mine development.
Don McLean, an analyst at Paradigm Capital, said the possible overshoot was unsurprising in light of recent steel price increases and cost pressures at global mine projects.
Barrick chief executive Greg Wilkins declined to comment on
speculation that the miner might bid for Ivanhoe Mines Ltd.'s
"We're quite happy to have a poly-metallic deposit that provides cost credits and other contributions," he told reporters after Barrick's annual meeting in Toronto.
(Additional reporting by Franco Pingue in Toronto)
($1=$1.36 Canadian)
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