Barrick subsidiary issues innovative gold-backed bond

A wholly-owned U.S. subsidiary of American Barrick Resources has launched a $50 million(US) gold- indexed Eurobond guaranteed by American Barrick.

The notes allow the company to borrow money at a low rate of interest, 2%, and provide investors with another way to invest in gold with an added feature — the amount of gold represented by the bond increases each year after 1989.

The notes, issued in denominations equal to the U.S. dollar value of 100 g of gold, will mature Feb 26, 1992. The initial price will be determined by taking the London afternoon fixing for 100 g of gold averaged over the four trading days ending Jan 27, 1987.

100 g is equal to about 3.21 troy oz.

At $400 per oz of gold, the bond will represent 125,000 oz of gold. Barrick says it expects its total gold production by 1989 to exceed 400,000 oz.

The notes carry an annual coupon of 2% on the original principal amount. Each note entitles the holder to exchange the note at any time after Feb 26, 1988, until the expiry date for the cash equivalent value at then current prices of the amount of gold represented by each note or physical delivery of gold bullion.

At maturity the holder will receive the cash value of gold represented by each note or physical gold.

An added twist to the bond is that after Feb 25, 1989, the amount of gold represented by each bond increases each year. The amount by which it increases is determined by a complicated formula, but it works out to a bit more than an additional four grams of gold per year.

The notes will not be registered in the U.S. and therefore will not be sold there.