Barrick Gold increases share offering

A day after announcing a plan to eliminate its gold hedging program, Barrick Gold increased the value of the share offering it will issue to pay for it.

Citing "strong investor demand," the Toronto-based gold giant said it will now sell 94.8 million common shares at $36.95 US to raise $3.5 billion. That's an increase on the 81.2 million originally announced late Tuesday.

The deal includes an over-allotment option that could see even more shares sold, bringing in as much as $4 billion for Barrick.

The money would be used to implement its new strategic direction $1.9 billion would be spent on eliminating all of its fixed price gold hedge contracts within the next year. About $1.5 billion would eliminate a portion of its floating spot price gold contracts.

The company said it would take a $5.6-billion charge to its earnings in the third quarter as a result of a change in accounting treatment for the contracts.

Barrick, the world's largest gold miner,said all of its future production would be directly tied to gold prices because it thinks gold prices will continue to rise. Gold futures topped $1,000 an ounce on Tuesday for the first time since February.

'Robust fundamentals' cited

In a statement, the company said it expects "global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies."

It also cited "robust gold supply/demand fundamentals."

Barrick officials said the hedging contracts that had prevented the company from taking full advantage of the recent upswing in gold prices were hurting the company's bottom line and its share price.

For many years, Barrick has engaged in hedging selling much of its production at pre-determined prices. That guaranteed a certain minimum price for its gold but prevented it from taking full advantage of rising gold prices.

"The gold hedge book has been a particular concern among our shareholders and the broader market, which we believe has obscured the many positive developments within the company," Barrick CEO Aaron Regent said.

Barrick announced plans to unwind its hedge book as far back as 2003, so the move is clearly a vote of confidence in the long-term value of the precious metal. But in the short term, investors reacted underwhelmingly to the news. The move will dilute Barrick's share float by a little less than 10 per cent, to 968 million shares, or as much as 982 million if the over-allotment option is exercised in full.

Reflecting the gap between where Barrick was trading before the announcement and the $36.95 share price, Barrick shares lost more than four per cent, trading at $40.70 at midday in New York.