American Barrick Case

AMERICAN BARRICK RESOURCES CORPORATION – CASE WRITE UP

Executive Summary

American Barrick Resources Corporation stood out amongst its many competitors by not only being the world’s fastest growing gold-mining company, but by also being the most profitable. It achieved an immense profitability by employing risk management tools that enabled the firm to properly manage its exposure to gold price risk. While many of its competitors decided that employing a hedge against gold price risk was absurd given that a gold mine’s profitability relies solely upon its output, American Barrick’s executives understood that no one can actually predict the price of gold at any given point in time, but what one can do is to take appropriate measures to profit or at least minimize your losses from the variations in the price of gold. The measures put in place by American Barrick’s executives allowed the firm to capitalize on opportunities to expand its operations by acquiring other firms when the price of gold declined and many of ABX’s competitors were weakened by astounding losses. In the following paragraphs, I will discuss how American Barrick protected itself against declines in the price of gold, difficulties in applying these risk management measures, and I will conclude this discussion with a recommendation as to what is the best hedging instrument for ABX to utilize given its hedging strategy and the challenges it might encounter in following its hedging policy.

ABX’s Hedging Policy

One of the most important factors that investors consider before committing their funds to a corporation is the quality of the management team in charge of running the day to day operations of a firm and ABX enjoyed of a best-in-class management team that brought not only a wealth of experience in the gold-mining industry, but also a thorough understanding of the desires of individuals looking to invest in gold-mining companies. Given this, the management team at ABX decided to moderate its...