1. The Gold Industry Presented by: Andreana Lu Yang Ivy Wai Ting Fung
Simon Wisniewski
Jeff d’Avignon

2. Gold Mining Industry Demand & supply of gold Production of gold
Market dynamics
Large producers
Firm cost structure and revenue composition
Firm strategies going forward

3. Demand & Supply of Gold
The market dynamics of gold are dominated by short-term supply and demand fluctuations
Sudden surge in demand or disruption in supply can lead backwardation, where the spot price is higher than the forward price
The gold market is usually in contango, due to the smoothing of supply that is possible due to accessible stocks.

4. Demand & Supply of Gold

5. How Gold is Mined Exploration Exploration Drilling Blasthole Drilling
Blasting
Underground Mining
Ore & Waste Haulage

6. How Gold is Mined Heap Leaching Mining Oxidization Leaching Stripping
Electro-winning

7. How Gold is Mined
Smelting
Gold Bullion
Refining
Reclamation

8. How Gold is Traded Over the Counter
Between principals, not through exchanges
Contracts terms are flexible
Main centers: London, New York, and Zurich
Mining companies and central banks tend to transact their business through London and New York
Twice daily during London trading hours there is a “fix” which offers reference prices for that day’s trading.

9. The Settlement Process
The basis of settlement is delivery of a standard London Good Delivery Bar, at the London vault nominated by the dealer who made the sale. Currency settlement for gold transactions will generally be in US dollars over a US dollar account held in New York.

10. Market Dynamics: Gold Prices

11. Gold Prices Comparisons
Like all prices, the gold price reflects not only the inherent value of gold, but also the relative strength of the currency in which it is quoted.

12. Largest gold producers by market capitalization
Companies:
Anglo American PLC
Newmont Mining Corp.
Barrick Gold Corp.
AngloGold Ashanti Ltd.
Placer Dome Inc.
Gold Fields Ltd.
Market Capitalization:
35.87B
20.28B
13.73B
10.10B
7.76B
6.26B

13. Firm Cost Structure & Revenue composition
Costs applicable to sales of gold and other base metals
Depreciate, depletion & amortization
Depreciation, depletion, & amortization
Exploration, research & development
General & administrative
Mergers and resturing
Writ-down of long lived assets
Others
Revenue Composition
Sales of gold
Sale of other base metals
Gain on investment
Gain on derivative instrument
Gain on dividends, interest & foreign exchange income

14. Issues Facing Gold Companies
There have been only a few large deposits found since 1998 and none of these have made it to production as of yet
Rising costs with gold prices impose questions of the ability to finance and develop projects
Copper-gold projects will become more common in gold company portfolios

15. Firm Strategies & Key Success Factors
Effective cost control to maximize margin by improving supply chain management and usage of technologies such as
e-commerce
Strategic balance between gold mine grades produced and life of assets
Continuous commitment to research & development to uncover large gold deposits

16. Risk Assessment
Three major market risks faced by firms in gold mining industries:
Commodity Price Risk
Foreign Exchange Rate Risk
Interest Rate Risk

17. Commodity Price Risk
Commodity Price Risk = Gold Price Risk (the change in the price of the gold)
It affects gold mining companies’
Asset values
Profitability of its operations
Cash flows generated those operations

18. Commodity Price Risk
The price of gold is affected by numerous factors:
Demand for gold in both jewellery and industrial uses
International/regional, political/economic trends
The relative strength of U.S dollars of other currencies
Financial market expectations
Numbers of speculative activities
Reserves
Number of forward sales
Production and cost levels for gold

19. Foreign Exchange Risk
Is the change in the relative values of currencies
Since gold mining companies do not have the luxury of choosing where the ore bodies are, they usually have their mining operations, activities, investment outside of their countries
Their revenue and costs are primarily incurred in foreign currencies
Adverse movement will affect a company’s:
Cash flows
Profitability

20. Interest Rate Risk Interest rate exposures impact a company’s:
Cash Balances
Borrowings (to meet short falls in current cash flows)
Long term debts
Hedging activities (the impact international interest rate differentials)
Returns on its assets
Firm value
Significant decrease in interest rates and/or increase in gold lease rates can have a great negative impact on the price of the new gold sales contract and on the difference between the forward gold price & current spot price

21. Effective Risk Management
All gold mining companies face a similar exposure
The prospects depend on its risk management decisions and strategies
Firm characteristics play a major role in risk management

22. Measurement of Risks
Methods vary across industries and firms within the same industry
No specific requirements needed for gold mining companies
In theory, should use delta calculation
Delta: the change in the value of a portfolio with respect to a change in the price of the underlying asset (gold)
Delta % : portfolio delta / amount of gold produced over 3 years

23. Measurement of Risks BUT:
Most gold mining companies do not use this delta calculation
No mention of the volatility of spot gold prices
Instead, they only briefly mention that a certain dollars per ounce change in the gold price would result in an increase or decrease in approximately how many dollars change in cash flow from operations and net income.

24. Techniques and Products
Gold producers can use:
Future Contacts
Gold loan
Gold Swaps
Spot deferred contract
Forward sales of gold
Put options (Insurance purpose)
To hedge themselves against the exposures

25. Derivative Usage for Gold Price Risk
Most gold mining companies use:
Forward contracts
Spot deferred contract
Put and call option
Gold lease rate swaps
Most prefer to use forward contracts as its hedging instruments due to the introduction of SFAS NO 133/138
This allows gold producers to not consider their sales contracts as derivative instruments as long as they are considered to be normal sales
Gold mining firms can record the proceeds under this contract as revenue and can be held off balance sheet until maturity, the date of the delivery of the gold in the future

26. Derivative Usage for Foreign Currency Risk
Gold mining companies use:
Currency forwards
Currency options
Since gold is quoted and traded in US dollars, gold producers with operations and investment in a large number of countries outside U.S will be exposed to foreign exchange rate risks

27. Derivative Usage for Interest Rate Risk
Gold mining companies ONLY use:
Medium to long term horizon interest rate swap
Interest rate risk is not viewed as important as the gold price risk and currency risk due to the low leverage in the gold mining industry

28. Firm Characteristics Factors
Firm Size
Is measured by the firm’s gold reserves representing the maximum collateral value and the market value of assets
It is proven that firm size is negatively correlated with the degree of hedging
Smaller firms tend to have little negotiation power and have a higher chance of facing higher financing costs
Liquidity
Is important in determining how much funds a firm can provide in terms of emergencies
With a large cash balance, firms will face fewer financial constraints and hardships
So, they do less hedging as their risk management strategies

29. Firm Characteristics Factors
Leverage
Firms with higher leverage have a higher chance of facing financial constraints
They do more hedging in their risk management strategies
Since gold mining industry has low leverage levels, it will not have a major impact on the firms
Average Cash Cost
Is important element in determining gold mining companies’ profitability, efficiency and productivity
There is a positive association between financial distress and average cash cost
Since smaller firms tend to have a higher cash cost average than large firms, they have a greater tendency to encounter financial distress when the price of gold decreases

30. Potential Hazards
Gold mining companies use different derivative instruments to hedge themselves against the risks that they face from potential future movement in market variables
The main motives for hedging:
To cover the total operating costs
Remove price risk
Enhance revenue
Control their cash flows

31. Potential Hazard
BUT
No assurance that outcome of hedging will be better than the outcome without hedging
Leave firm’s profit to be dependent solely on the underlying productive activities
May suffer opportunity loss

32. Risks due to Hedging By hedging, firms face:
Credit risk
Market liquidity risk
Mark to market risk
Risks associated with factors such as:
Default by counterparty
Costs associated with unwinding the position
Possible restrictions on credit lines
In order to develop an effective risk management program, a firm should make a clear statement about the firm’s risk management philosophy

33. Newmont Mining Corporation
Now lets look at Newmont Mining Corporation
Creating Value with Every Ounce …

34. Corporate Profile Incorporated in 1921
Trades on NYSE, Australian and Toronto stock exchanges (NYSE & ASX: NEM; TSX: NMC)
Newmont Mining Corporation is the world’s largest gold producer
Has operations in US, Canada, Australia, Peru, Indonesia, Uzbekistan, Turkey, Bolivia, New Zealand and Mexico
The only S&P 500 gold stock
In addition to gold, also engages in the production and exploration of silver, copper and zinc
Most of Newmont’s revenues come from the sale of refined gold in the international market
Founded in 1921 in New York City, Newmont has been trading on the New York Stock Exchange (NYSE) since In addition to the NYSE, Newmont trades on the Australian and Toronto stock exchanges.
The corporation is the world’s largest gold producer with significant assets or operations on five continents. They have mining operations in the US, Canada, Australia, Peru, Indonesia, Uzbekistan, Turkey, Bolivia, New Zealand and Mexico.
The company is also engaged in the production of silver, copper and zinc and is the only S&P 500 gold stock. However, most of Newmont’s revenues come from the sale of refined gold in the international market

35. Newmont Properties

36. Creating Value with Every Ounce…
ACHIEVED STRONG EARNINGS GROWTH AND CASH FLOW GENERATION
Net income of $476 million, $1.16 earnings per share
$589 million net cash provided from operations, after using $121 million for the settlement of effective cash flow hedges
DEMONSTRATED OPERATING EXCELLENCE ACROSS ALL CORE REGIONS
Gold sales of 7.4 million equity ounces
DEMONSTRATED LEVERAGE TO THE GOLD PRICE
Unhedged philosophy
Substantially eliminated the acquired Australian gold hedge books
Record gold reserves of 91.3 million equity ounces
STRENGTHENED BALANCE SHEET
Reduced debt by $739 million
As of December 31, 2003, Newmont had gold reserves of 91.3 million equity ounces and an aggregate land position of approximately 60,000 square miles (155,840 square kilometers).
ACHIEVED STRONG EARNINGS GROWTH AND CASH FLOW GENERATION
• Net income of $476 million, $1.16 earnings per share, basic.
• $589 million net cash provided from operations, after using
$121 million for the settlement of effective cash flow hedges.
DEMONSTRATED OPERATING EXCELLENCE ACROSS ALL CORE REGIONS
• Gold sales of 7.4 million equity ounces.
• Record gold sales of 1.5 million equity ounces at Yanacocha in Peru.
• Record low net cash costs at Batu Hijau in Indonesia.
DEMONSTRATED LEVERAGE TO THE GOLD PRICE
• Unhedged philosophy.
• Substantially eliminated the acquired Australian gold hedge books.
• Share price appreciation of 67% versus 17% rise in the average
realized gold price for the year.
• Record gold reserves of 91.3 million equity ounces.
STRENGTHENED BALANCE SHEET
• Reduced debt by $739 million.
• Cash exceeded debt by $237 million at year-end.

37. Financials Today: Can$ 53.730 EPS 1.36 P/E 39.50
52-Week High   Week Low  48.110

38. Hedging Philosophy
With respect to gold, Newmont’s philosophy is to remain largely unhedged and the corporation generally sells its gold production at market prices
Historically, Newmont has, on a limited basis, entered into derivative contracts to protect the selling price for certain anticipated gold productions and to manage risks associated with:
Commodity price changes
Foreign currency changes
Interest rates changes
The hedging policy authorized by Newmont’s Board of Directors limits total gold hedging activity to 16 million ounces

39. Commodity Price Risk
Newmont’s business is extremely dependent on the price of gold, which is affected by numerous factors beyond Newmont’s control:
Actions by governments and central banks, a strong U.S. dollar, recessions, speculative trading, decreased demand, high supply of gold from production, disinvestment, scrap and hedging sales by gold producers in forward transactions and other hedging transactions
Any drop in the price of gold adversely impacts Newmont’s revenues, profits and cash flows, particularly in light of their unhedged philosophy
Based on estimates of Newmont’s stand-alone 2004 production and expenses, a $10-per-ounce change in the gold price would result in an increase or decrease of approximately $55 million in cash flow from operations and approximately $50 million in net income
Some of the factors that put downward pressure on the price of gold:
sales or leasing of gold by governments and central banks
a strong U.S. dollar
global and regional recession or reduced economic activity
speculative trading
decreased demand for gold for industrial uses, use in jewelry and investment
high supply of gold from production, disinvestment, scrap and hedging
sales by gold producers in forward transactions and other hedging transactions
devaluing local currencies (relative to gold priced in U.S. dollars) leading to lower production costs and higher production in certain major gold-producing regions

40. Elimination of Hedge Positions
Following the Normandy (now Newmont Australia) acquisition, and in accordance with the company’s unhedged philosophy, efforts to reduce and simplify the Normandy hedge positions have been undertaken
Accordingly, the Normandy gold hedge books have been reduced by approx. 9.4 million ounces since February 2002
Gold forward sales contracts and other “committed hedging obligations” were reduced by 7,547,000 ounces since February 15, 2002 by delivering production into the contracts or through early close outs
Thus, as of December 31, 2003, the gold hedge book has been eliminated
Now lets take a look at Newmont’s Hedge Position:
Even though Newmont stands as a non-hedging firm, it has inherited a hedge book from the acquisition of Normandy, a gold company who used to hedge 80~95% of its total reserves.
Working to reduce this inherited hedge book down to zero, Newmont, by the end of 2002,
is left with about 10.3% of proven and probable reserves subjected to derivative contracts.

41. Use of Derivatives
Newmont had no gold forward sales contracts at December 31, 2003, although positions existed at December 31, 2002.
Newmont had $11,758 million fair value of gold put option contracts outstanding at December 31, 2003 and $22,604 million back on December 31, 2002.
Newmont had no gold convertible put option contracts and other instruments outstanding at December 31, 2003, although positions existed at December 31, 2002.
Newmont had no gold sold convertible put option contracts outstanding at December 31, 2003, although a position did exist at December 31, 2002.

42. Price-Capped Sales Contracts
In September 2001, Newmont entered into transactions that closed out certain call options through replacement with a series of forward sales contracts requiring physical delivery of the same quantity of gold over slightly extended future periods
Under the terms of the contracts, Newmont will realize the lower of the spot price on the delivery date or the capped price ranging from $350 per ounce in 2005 to $392 per ounce in 2011.
These forward sales contracts are accounted for as normal sales contracts under SFAS 133.
In September 2001, Newmont entered into transactions that closed out certain call options through replacement with a series of forward sales contracts requiring physical delivery of the same quantity of gold over slightly extended future periods.
Under the terms of the contracts, Newmont will realize the lower of the spot price on the delivery date or the capped price ranging from $350 per ounce in 2005 to $392 per ounce in 2011.
These forward sales contracts are accounted for as normal sales contracts under SFAS 133.
Newmont had the following price-capped forward sales contracts outstanding at December 31, 2003:

43. USD/Gold Swap Contracts
Prior to Newmont’s acquisition, Normandy entered into a USD/gold swap contract whereby principal payments on USD bonds were swapped into gold-denominated payments of 600,000 ounces in 2008
This instrument was marked to market at each period end, with the change reflected in income until the contract was closed out during the NYOL buy back transaction
This position was extinguished as part of the NYOL voluntary administration process and the fair value of this instrument at December 31, 2002 was a negative $87.2 million
At the time of Normandy’s acquisition, three of its affiliates had a substantial derivative instrument position. Those
affiliates are now known as Newmont Gold Treasury (“NGT”), Newmont NFM Limited and Newmont Yandal Operations
Pty Ltd (“NYOL”). Normandy’s policy was to hedge a minimum of 60% of recoverable reserves (which are generally
between 80% and 95% of total reserves). Normandy utilized forward sales contracts with fixed and floating gold lease rates,
but did not enter into contracts that required margin calls and had no outstanding long-dated sold call options.

44. Fair Values of Instruments
Gold Commodity Contracts
2002
2003
Ounces (000)
Fair Value (000)
Gold Forward Sales Contracts
3,332
-209,718
Gold Put Option Contracts
1,544
-22,604
-11,758
Gold Convertible Put Options
1,459
-125,486
Gold Sold Convertible Put Options
240
-14,295
Price-Capped Contracts
2,350
n/a
USD/Gold Swap Contracts
600
-87,200
Here is a table on the rough break-down of Newmont’s Gold Commodity Contracts, which include, gold forward sales contracts, gold put option contracts, gold convertible put options, gold sold convertible put options, price-capped contracts, and US$/gold swap contracts.

45. Foreign Exchange Risk
Currency fluctuations may affect the costs that Newmont incurs at its operations
Gold is sold throughout the world based principally on the U.S. dollar price, but a portion of Newmont’s operating expenses are incurred in local currencies
The appreciation of non-U.S. dollar currencies against the U.S. dollar can increase the costs of gold production in U.S. dollar terms at mines located outside the United States, making such mines less profitable
The currencies that primarily impact Newmont’s results of operations are the Australian and Canadian dollars
During 2003, both currencies strengthened by an average of 17% and 11%, respectively, against the U.S. dollar. This increased U.S. dollar reported operating costs in Australia and Canada by approximately $76.2 million and $7.6 million

46. Foreign Currency
Newmont acquired certain cross currency swap contracts in the Normandy transaction intended to hedge the currency risk on repayment of US dollar-denominated debt
These contracts were closed out during the quarter ended June 30, 2002 for net proceeds of $50.8 million. The contracts were accounted for on a mark-to-market basis until closed out, resulting in a loss to income of $8.5 million for the period from February 15, 2002 through December 31, 2002
Newmont also acquired currency swap contracts to receive AUD and pay USD designated as hedges of AUD denominated debt. The contracts are accounted for on a mark-to-market basis with the change recorded in earnings

47. Foreign Currency
To the extent that there are fluctuations in local currency exchange rates against the U.S. dollar, the devaluation of a local currency is generally economically neutral or beneficial to most operations since local salaries and supply contracts will decrease against the U.S. dollar based revenue stream
The year ended December 31, 2003 included a foreign currency translation gain of $97.0 million amongst other things composed a $27.4 million mark-to-market gain on ineffective foreign currency swaps

48. Interest Rate Swaps
During the last half of 2001, Newmont entered into contracts to hedge the interest rate risk exposure on a portion of its $275 million 8.625% debentures and its $200 million 8.375% debentures
The fair value of the derivative assets was $5.3 million at December 31, 2003 and the fair value of the hedge portion was $7.7 million and $16.9 million at December 31, 2003 and 2002, respectively
The Company has managed some of its fixed rate debt exposure by entering into interest rate swaps

49. Fair Values of Instruments
Other Sales Contracts, Commodity and Derivative Instruments
2002
2003
Fair Value (000)
Cross Currency Swap Contracts
-8,500
Currency Swap Contracts
-21,924
7,669
Interest Rate Swap contracts
16,900
7,700
Fixed Rate Debt
1,075
639
And in this table, it shows some other sales contracts, commodity and derivative instruments utilized by Newmont, which include cross currency swap contracts, currency swap contract, interest rate swap contracts, and fixed rate debt.

50. Employee Stock Options
The Company maintains stock option plans for executives and eligible employees
Options to purchase shares of stock can be granted with exercise prices equal to or greater than the market value of the underlying stock at the date of grant
The options vest over periods ranging from two to four years and are exercisable over periods of up to ten years
At December 31, 2003, 11,767,961 shares were available for future grants under the Company’s employee stock plans
The Company maintains stock option plans for executives and eligible employees. Under the Company’s stock option plans, options to purchase shares of stock can be granted with exercise prices equal to or greater than the market value of the underlying stock at the date of grant. The options vest over periods ranging from two to four years and are exercisable over periods of up to ten years. In addition, the Company has a non-employee directors stock plan (the “Directors Plan”) under which non-employee directors were, before 2003, entitled toreceive stock options in lieu of other compensation. At December 31, 2003, 11,767,961 shares were available for future grants under the Company’s employee stock plans. In conjunction with the Directors Plan, 5,592 options were issued and outstanding at December 31, 2003.
Certain key executives were granted options that, although the exercise price was equal to the fair market value on the date of grant, cannot be exercised when otherwise vested unless the market price of Newmont’s common stock is a defined amount above the option exercise price. In addition, the same executives were granted options with exercise prices in excess of the fair market value on the date of grant. Generally, these key executive options vest over a period of one to five years and are exercisable over a ten-year period. At December 31, 2003, 89,863 of these options were outstanding and 44,931 were exercisable.
The Company grants restricted stock to certain employees. These shares are granted upon achievement of certain financial and operating thresholds at fair market value on the grant date. These stock grants are subject to certain restrictions related to ownership and transferability.

51. Employee Stock Options
Certain key executives were granted options that, although the exercise price was equal to the fair market value on the date of grant, cannot be exercised unless the market price of Newmont’s common stock is a defined amount above the option exercise price
In addition, the same executives were granted options with exercise prices in excess of the fair market value on the date of grant
These key executive options vest over a period of one to five years and are exercisable over a ten-year period
At December 31, 2003, 89,863 of these options were outstanding and 44,931 were exercisable

53. Corporate Profile
Founded in 1983 when three small mining and oil and gas companies were merged as Barrick Resources Corp.
Barrick Gold Corporation engages in the production and sale of gold, including related mining activities such as exploration, development, mining and processing.
Shares are traded under the ticker symbol ABX on the Toronto, New York, London and Swiss stock exchanges and the Paris Bourse.

54. Corporate Profile
Barrick Gold Corporation is among the world’s largest gold producers of market capitalization, gold production and reserves.
North America's #2 gold producer behind Newmont Mining.
Barrick's hedging practices, which have become its distinguishing feature, came under attack from investors in 2000, despite company estimates that it earned an additional $391 million through hedging in 1999 and another $300million in 2000.

55. Operations
Operates a low-cost portfolio of 12 mines and four major development projects on four continents :
North America, South America, Africa and Australia
The Company’s development plan is expected to add four major new mines between 2005 and Together, these mines are projected to produce approximately 2 million plus ounces of gold annually

56. Operations
In 2004 the Company’s 12 operating mines produced about 5 million ounces of gold (5.51 in 2003), at a cash cost of $212 per ounce ($189 in 2003), the lowest cash cost of all senior producers.
For 2005, the Company expects gold production to be 5.4 to 5.5 million ounces at an average total cash cost of $220 to $230 per ounce.
The Company increased its reserves by over 3 million ounces during 2004, with gold mineral reserves of 89 million ounces as at December 31.

57. Financials Public Company (NYSE: ABX; Toronto: ABX)
Fiscal Year-End December
2004 Sales (mil.) 1,932.0
1-Year Sales Growth` -5.1%
2004 Net Income (mil.)
1-Year Net Income Growth 24.0%
2003 Employees 7,100
1-Year Employee Growth 4.4%
The industry's only A-rated balance sheet with no net debt.
Rank #468 in FT Global 500 and included in the TSX 60

58. Financials
Income Statement Balance Sheet Cash Flows Statement

59. Financials : Performance
Today: US$  EPS  0.46 P/E  55.70
52-Week High   Week Low   Indicated

60. Risk Exposures Gold Price Risk Interest Rate Risk
Foreign Exchange Risk
Derivative Risk
Credit Risk
Market Liquidity Risk
Mark-to-Market Risk

61. Risk Management Philosophy
Barrick is known as one of the more successful hedgers in the industry (the company estimates its hedging strategy has added more than $2 billion since the late 1980s)
In 2003, Barrick implemented a no-hedge strategy the wake of rising gold prices - a significant departure from previous practice.
Financial risk management has given the Company the ability to grow reserves and production, allowing it to significantly increase its leverage to the gold price. Barrick has more than four out of every five ounces of reserves currently unhedged.

62. Risk Management Philosophy
Barrick use derivative instruments to mitigate the effects of certain risks that are inherent in its business, and also to take advantage of opportunities to secure attractive pricing for commodities, currencies and interest rates.
The inherent risks that Barrick most often attempts to mitigate by the use of derivative instruments occur from changes in commodity prices (gold and silver), interest rates and foreign currency exchange rates. Because Barrick produces gold and silver, incurs costs in foreign currencies, and invests and borrow in US dollars and is therefore subject to US interest rates, its derivative instruments cover natural underlying asset or liability positions.
The purpose of the hedging elements of Barrick’s derivative program is so that changes in the values of cash flows from hedged items are offset by equivalent changes in the values of derivative instruments. Barrick does not hold derivatives for the purpose of speculation; its risk management programs are designed to enable Barrick to plan its business effectively and, where possible, mitigate adverse effects of future movements in gold and silver prices, interest rates and foreign currency exchange rates.

63. Hedging Activities The main types of derivatives Barrick uses are:
Forward gold and silver sales contracts.
Interest rate swaps.
Foreign currency contracts.
Gold lease rate swap contracts.

64. Hedging Activities
Barrick mainly use over-the-counter (“OTC”) derivative contracts. Using privately negotiated master trading agreements with its counterparties, Barrick is, in many cases, able to secure more favorable terms than if it used exchange-traded derivative instruments. Barrick has been able to negotiate these master trading agreements due to its credit standing and the quality and long-life nature of its mines and gold mineral reserves.

65. Hedging Activities
Barrick values derivative instruments using pricing inputs that are readily available from independent sources. The fair value of the contracts is mainly affected by, among other things, changes in commodity prices, interest rates, gold lease rates and foreign currency exchange rates.

66. Hedging Activities
Barrick use of these contracts is based on established practices and parameters, which are subject to the oversight of the Finance Committee of the Board of Directors.
Barrick also maintain a separate compliance function to independently monitor its hedging and financial risk management activities and segregate the duties of personnel responsible for entering into transactions from those responsible for recording transactions.

67. Hedging Activities Forward gold and silver sales contracts:
These contracts provide for the sale of future gold production in fixed quantities with delivery dates at our discretion over a period of up to 15 years.

68. Hedging Activities Interest rate swaps:
These instruments are used to counteract the volatility of variable short-term interest rates by substituting fixed interest rates over longer terms on cash and short-term investments. Barrick also use interest rate swaps to swap our interest due on long-term debt obligations from fixed to floating, to take advantage of the present low interest-rate environment.

69. Hedging Activities Foreign currency contracts:
These instruments are used for the cash flows at Barrick’s operating mines and development projects from forecasted expenditures denominated in Canadian and Australian dollars to insulate them from currency fluctuations.

70. Hedging Activities Gold lease rate swap contracts:
These contracts are used to manage the fixed gold lease rate element of fixed-price forward gold sales contracts and to take advantage of lower short-term gold lease rates.

71. The End