Barrick Case Writeup

In: Business and Management

Submitted By jasun17
Words 13270
Pages 54
Harvard Business School

Rev. October 6, 1995

American Barrick Resources Corporation:
Managing Gold Price Risk
During 1992 the financial team of Toronto-based American Barrick Resources Corporation, one of the world’s fastest growing and most financially successful gold-mining concerns, met regularly to review strategic and tactical issues related to managing the firm’s exposure to gold price risk. Many major gold mines prided themselves on hedging none of the price risk of their output. If unhedged, a gold mine’s sole output, and hence its profits, cash flows, and stock price, were tied to gyrations in the price of gold. However, American Barrick had in place a gold-hedging program that was an integral and much publicized part of the firm’s corporate strategy. In an environment of falling gold prices, the firm’s hedge position had allowed it to profit handsomely and to sell its commodity output at prices well above market rates. For example, in 1992, American Barrick produced and sold over 1,280,000 ounces of gold at an average price of $422 per ounce, while the market price was about $345 per ounce.1 American Barrick’s gold-hedging program, and indeed all the corporate finance and treasury functions of the $4 billion market capitalization enterprise, were managed by a trio of relatively young but experienced financial executives: Gregory Wilkins (executive vice president and chief financial officer), Robert Wickham (vice president, finance), and Randall Oliphant (treasurer). Messrs. Wickham and Oliphant were responsible for the day-to-day management of American Barrick’s highly regarded hedging program, and they reported to and worked closely with Mr. Wilkins. Gregory Wilkins and Robert Wickham had been with the firm since its startup, and Randall Oliphant had joined the firm in 1987. The gold-hedging program was a distinguishing and permanent…...

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