Editor’s Picks: End of an era with elimination of Barrick hedge

The old saw “better late than never” came to mind during the week ended May 5, the 18th trading week of 2007.

* Openly frustrated and embarrassed by a share price that regularly underperformed spot gold, Barrick Gold management finally gave in to the many critics of its large gold hedge book, and eliminated the last remnants of it as of May 1. Barrick can now sell all of its gold production from existing mines at spot prices.

The last unwinding of the hedge book was painful, costing US$557 million on an after-tax basis and driving the world’s biggest gold miner deep into the red in the first quarter with a US$159-million net loss.

It makes us wonder how much of those extra profits from hedging that Barrick bragged about in such a cocky manner in the late 1990s were frittered away by the major’s anachronistic hedging policies in the new millennium.

Investors loved the latest move, though, driving shares up 8.5% on the week and adding $2.3 billion to the company’s $29-billion market capitalization.

Old habits die hard, however: in the first quarter Barrick says it entered into a transaction where it can participate in higher copper prices up to US$3.58 per lb., while maintaining a floor price of US$3.08 per lb., on the remaining 253 million lbs. of copper in its copper-linked notes. At presstime spot copper was — you guessed it — well above the ceiling and traded at US$3.72 per lb.

* We were completely wrong a month ago that LionOre Mining International’s shareholders should tender to Xstrata’s takeover offer; Russia’s Norilsk Nickel swooped in this past week with a juicy $21.50 per-share cash offer that tops by $3.00. Xstrata’s bid, proposed in late March, and values LionOre at $5.3 billion.

* Mergers and acquisitions in the mining sector are so hot these days — with a new substantial deal emerging about every second day — that young upstart Xstrata has actually slipped to a distant fifth in the “super major” category, well behind BHP Billiton, CVRD, Anglo American and Rio Tinto in the enterprise value category, with Shenhua Coal, Freeport, Alcoa, Amplats, Norilsk, RUSAL and Alcan all nipping at the Zug-based miner’s heels.

* Further down the nickel food chain, the obscure Vancouver-based junior MBMI Resources had a sweet week, starting at $1.18 and trading at $2.19 at presstime. After years of tough slogging, in late April the company’s Philippine subsidiary was granted all requisite permits to begin mining on its Alpha nickel-laterite property in Narra, Palawan.

The company says that, subject to weather, product shipments to Asian consumers should begin before the end of the second quarter, even though a proper feasibility study has yet to be completed.

* The silver scene has been pretty quiet this year, but that changed on May 3 with Coeur d’Alene Mines making an inspired play to scoop up Australian-based Bolnisi Gold and its 73.6%-owned subsidiary Palmarejo Silver and Gold in an all-share deal valued at about US$1.1 billion.

Coeur’s eye is on Palmarejo’s prized Palmarejo-Trogan tenement in Chihuahua, Mexico, where the main Palmarejo deposit hosts about 971,000 oz. gold and 89 million oz. silver, and a low-cost open-pit mine is due to open late next year.

The deal is a smart way for Coeur to cement its position as a major player in the niche silver subsector.

* Here in Canada, we are impressed that Blue Note Mining was able to close a $25-million financing and report that concentrate production from the metallurgically difficult Caribou lead-zinc mine is set to resume in late June of this year, and that the Caribou mill refurbishment is also on schedule.

* It’s with sadness we note the passing in Toronto of Jim O’Connell, anchor at Canada’s Business News Network (formerly Report on Business TV), a gentle, classy family man and avid marathon runner who died of colon cancer at age 48. Gold bugs owed O’Connell a big debt of gratitude for providing an extremely rare opportunity to talk in detail to a Canada-wide television audience about gold’s underappreciated monetary role.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.