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The Gold Industry

Presented by:

Andreana Lu Yang

Ivy Wai Ting Fung

Simon Wisniewski

Jeff d’Avignon

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Gold Mining Industry

Demand & supply of gold Production of gold Market dynamics Large producers Firm cost structure and revenue

composition Firm strategies going forward

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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.

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Demand & Supplyof Gold

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How Gold is Mined

Exploration Exploration Drilling Blasthole Drilling

Blasting Underground Mining Ore & Waste Haulage

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How Gold is Mined

Heap Leaching Mining Oxidization

Leaching Stripping Electro-winning

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How Gold is Mined

Smelting Gold Bullion Refining

Reclamation

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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.

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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.

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Market Dynamics: Gold Prices

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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.

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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

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Firm Cost Structure & Revenue composition

Cost Structure: Costs applicable to sales of

gold and other base metals Depreciate, depletion & amo

rtization Depreciation, depletion, & a

mortization Exploration, research & dev

elopment General & administrative Mergers and resturing Writ-down of long lived asse

ts 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

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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

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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

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Risk Assessment Three major market risks faced by firms in gold

mining industries:

Commodity Price Risk

Foreign Exchange Rate Risk

Interest Rate Risk

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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

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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

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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

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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

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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

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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

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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.

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Techniques and Products

Gold producers can use: Future Contacts Gold loan Gold Swaps Spot deferred contract Forward sales of gold Put options (Insurance purpose)

ǂ To hedge themselves against the exposures

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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

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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

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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

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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

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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

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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

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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

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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

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Newmont Mining Corporation

Creating Value with Every Ounce …

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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 refin

ed gold in the international market

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Newmont Properties

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Creating Value with Every Ounce… ACHIEVED STRONG EARNINGS GROWTH AND CASH FLOW G

ENERATION 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 CO

RE REGIONS Gold sales of 7.4 million equity ounces

DEMONSTRATED LEVERAGE TO THE GOLD PRICE Unhedged philosophy Substantially eliminated the acquired Australian gold hedge book

s Record gold reserves of 91.3 million equity ounces

STRENGTHENED BALANCE SHEET Reduced debt by $739 million

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FinancialsToday: Can$ 53.730 EPS  1.36 P/E  39.50

52-Week High  61.950 52-Week Low  48.110

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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

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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

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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

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Use of Derivatives Newmont had no gold forward sales contracts at December 31, 200

3, 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.

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Price-Capped Sales Contracts In September 2001, Newmont entered into transactions that closed o

ut 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.

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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

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Fair Values of Instruments

Gold Commodity Contracts

2002 2003

Ounces (000)

Fair Value (000)

Fair Value (000)

Gold Forward Sales Contracts 3,332 -209,718 0

Gold Put Option Contracts 1,544 -22,604 -11,758

Gold Convertible Put Options 1,459 -125,486 0

Gold Sold Convertible Put Options 240 -14,295 0

Price-Capped Contracts 2,350 n/a n/a

USD/Gold Swap Contracts 600 -87,200 0

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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

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Foreign Currency Newmont acquired certain cross currency swap contract

s 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

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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

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Interest Rate Swaps During the last half of 2001, Newmont entered into c

ontracts 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

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Fair Values of Instruments

Other Sales Contracts, Commodity and Derivative

Instruments

2002 2003

Fair Value (000)

Fair Value (000)

Cross Currency Swap Contracts -8,500 0

Currency Swap Contracts -21,924 7,669

Interest Rate Swap contracts 16,900 7,700

Fixed Rate Debt 1,075 639

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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

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Employee Stock Options Certain key executives were granted options that, al

though 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 fi

ve years and are exercisable over a ten-year period At December 31, 2003, 89,863 of these options were outst

anding and 44,931 were exercisable

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Founded in 1983 when three small mining and Founded in 1983 when three small mining and oil and gas companies were merged as Barrick oil and gas companies were merged as Barrick Resources Corp. Resources Corp.

Barrick Gold Corporation engages in the Barrick Gold Corporation engages in the production and sale of gold, including related production and sale of gold, including related mining activities such as exploration, development, mining activities such as exploration, development, mining and processing.mining and processing.

Shares are traded under the ticker symbol ABX Shares are traded under the ticker symbol ABX on the Toronto, New York, London and Swiss stock on the Toronto, New York, London and Swiss stock exchanges and the Paris Bourseexchanges and the Paris Bourse..

CorporateCorporate Profile Profile

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Barrick Gold Corporation is among the world’s Barrick Gold Corporation is among the world’s largest gold producers of market capitalization, gold largest gold producers of market capitalization, gold production and reserves.production and reserves.

North America's #2 gold producer behind Newmont North America's #2 gold producer behind Newmont Mining.Mining.

Barrick's hedging practices, which have become its Barrick's hedging practices, which have become its distinguishing feature, came under attack from distinguishing feature, came under attack from investors in 2000, despite company estimates that it investors in 2000, despite company estimates that it earned an additional $391 million through hedging in earned an additional $391 million through hedging in 1999 and another $300million in 2000.1999 and another $300million in 2000.

CorporateCorporate Profile Profile

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OperationsOperations Operates a low-cost portfolio of 12 mines and four major development projects on four Operates a low-cost portfolio of 12 mines and four major development projects on four

continents :continents :

North America, South America, Africa and AustraliaNorth America, South America, Africa and Australia

The Company’s development plan is expected to add four major new mines between The Company’s development plan is expected to add four major new mines between 2005 and 2008. Together, these mines are projected to produce approximately 2 million 2005 and 2008. Together, these mines are projected to produce approximately 2 million plus ounces of gold annually plus ounces of gold annually

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In 2004 the Company’s 12 operating mines produced about 5 million ounces of gold (5.51 in 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 2003), at a cash cost of $212 per ounce ($189 in 2003), the lowest cash cost of all senior producers. producers.

For 2005, the Company expects gold production to be 5.4 to 5.5 million ounces at an average total 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. cash cost of $220 to $230 per ounce.

The Company increased its reserves by over 3 million ounces during 2004, with gold mineral The Company increased its reserves by over 3 million ounces during 2004, with gold mineral reserves of 89 million ounces as at December 31. reserves of 89 million ounces as at December 31.

OperationsOperations

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FinancialsFinancials•Public Company (NYSE: ABX; Toronto: ABX) Public Company (NYSE: ABX; Toronto: ABX)

•Fiscal Year-End December Fiscal Year-End December

2004 Sales (mil.)2004 Sales (mil.) 1,932.01,932.0

1-Year Sales Growth`1-Year Sales Growth` -5.1%-5.1%

2004 Net Income (mil.)2004 Net Income (mil.) 248.0248.0

1-Year Net Income Growth1-Year Net Income Growth 24.0%24.0%

2003 Employees2003 Employees 7,1007,100

1-Year Employee Growth1-Year Employee Growth 4.4%4.4%

The industry's only A-rated balance sheet with no net debt. The industry's only A-rated balance sheet with no net debt. Rank #468 in FT Global 500 and included in the TSX 60 Rank #468 in FT Global 500 and included in the TSX 60

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Income StatementIncome StatementBalance SheetBalance SheetCash Flows StatementCash Flows Statement

FinancialsFinancials

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Financials : PerformanceFinancials : PerformanceToday: Today: US$ 25.600 US$ 25.600 EPS  EPS  0.46 0.46 P/E  P/E  55.70 55.70

52-Week High  52-Week High  26.320 26.320 52-Week Low  52-Week Low  18.040 Indicated18.040 Indicated

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RiskRisk Exposures Exposures

Gold Price RiskGold Price Risk

Interest Rate RiskInterest Rate Risk

Foreign Exchange RiskForeign Exchange Risk

Derivative RiskDerivative Risk•Credit RiskCredit Risk•Market Liquidity RiskMarket Liquidity Risk•Mark-to-Market RiskMark-to-Market Risk

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Risk Management PhilosophyRisk Management Philosophy• Barrick is known as one of the more Barrick is known as one of the more successful hedgers in the industry (the successful hedgers in the industry (the company estimates its hedging company estimates its hedging strategy has added more than $2 strategy has added more than $2 billion since the late 1980s)billion since the late 1980s)

• In 2003, Barrick implemented a no-In 2003, Barrick implemented a no-hedge strategy the wake of rising gold hedge strategy the wake of rising gold prices - a significant departure from prices - a significant departure from previous practice.previous practice.

• Financial risk management has given Financial risk management has given the Company the ability to grow the Company the ability to grow reserves and production, allowing it to reserves and production, allowing it to significantly increase its leverage to significantly increase its leverage to the gold price. Barrick has more than the gold price. Barrick has more than four out of every five ounces of four out of every five ounces of reserves currently unhedged. reserves currently unhedged.

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• Barrick use derivative instruments to mitigate the effects of Barrick use derivative instruments to mitigate the effects of certain risks that are inherent in its business, and also to take certain risks that are inherent in its business, and also to take advantage of opportunities to secure attractive pricing for advantage of opportunities to secure attractive pricing for commodities, currencies and interest rates. commodities, currencies and interest rates.

• The inherent risks that Barrick most often attempts to mitigate The inherent risks that Barrick most often attempts to mitigate by the use of derivative instruments occur from changes in by the use of derivative instruments occur from changes in commodity prices (gold and silver), interest rates and foreign commodity prices (gold and silver), interest rates and foreign currency exchange rates. Because Barrick produces gold and currency exchange rates. Because Barrick produces gold and silver, incurs costs in foreign currencies, and invests and borrow in silver, incurs costs in foreign currencies, and invests and borrow in US dollars and is therefore subject to US interest rates, its US dollars and is therefore subject to US interest rates, its derivative instruments cover natural underlying asset or liability derivative instruments cover natural underlying asset or liability positions.positions.

• The purpose of the hedging elements of Barrick’s derivative The purpose of the hedging elements of Barrick’s derivative program is so that changes in the values of cash flows from program is so that changes in the values of cash flows from hedged items are offset by equivalent changes in the values of hedged items are offset by equivalent changes in the values of derivative instruments. Barrick does not hold derivatives for the derivative instruments. Barrick does not hold derivatives for the purpose of speculation; its risk management programs are purpose of speculation; its risk management programs are designed to enable Barrick to plan its business effectively and, designed to enable Barrick to plan its business effectively and, where possible, mitigate adverse effects of future movements in where possible, mitigate adverse effects of future movements in gold and silver prices, interest rates and foreign currency gold and silver prices, interest rates and foreign currency exchange ratesexchange rates.

Risk Management PhilosophyRisk Management Philosophy

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Hedging ActivitiesHedging Activities

The main types of derivatives Barrick The main types of derivatives Barrick uses are:uses are:

• Forward gold and silver sales Forward gold and silver sales contractscontracts..

• Interest rate swaps.Interest rate swaps.

• Foreign currency contracts.Foreign currency contracts.

• Gold lease rate swap contracts.Gold lease rate swap contracts.

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

Hedging ActivitiesHedging Activities

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

Hedging ActivitiesHedging Activities

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

Hedging ActivitiesHedging Activities

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

Hedging ActivitiesHedging Activities

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

Hedging ActivitiesHedging Activities

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

Hedging ActivitiesHedging Activities

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Gold lease rate swap contracts:Gold lease rate swap contracts:

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

Hedging ActivitiesHedging Activities

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The EndThe End