Barrick Gold-Hedge Close Makes Deal-Of-The-Year List

It's the first of "The Best" in the Globe and Mail's annual "Deals of the Year" list:

For years, investment banks earned sweet fees for running Barrick Gold's massive hedge book. Then gold went on a tear, and hedged production became a millstone for newly minted CEO Aaron Regent. So those same investment banks proposed a massive stock sale to raise cash that would close out the hedges.

Mr. Regent, to his credit, put the dealers' feet to the fire. By pushing for the largest bought deal in Canadian history, a $3.5-billion financing, the CEO shifted the considerable risks of this deal to the brokerage houses.

Without blinking, the Street went all in, as the bankers believed an unhedged Barrick would find all kinds of buyers. They were right. Huge global demand for the world's biggest bullion play meant Barrick ended up selling $4-billion of stock....

Great for the investment bankers responsible, even though the move came almost right at the top of the market. There's an old trader's rule that says if a mjaor holdout "capitulates," then a top has been reached. Barrick deciding to end its hedging and tie its revenue to the gold price, ending more than a decade of hedges, counts as a capitulation.

Of course, calling Barrick "dumb" for doing so isn't exactly warranted. The company sold stock to close the book, pushing the price up by almost 8% on the announcement day. The stock's pulled back since then, but not by much.