Enterprise Risk Management at Barrick|Enterprise Risk Management|Case Study|Case Studies

Enterprise Risk Management at Barrick

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Case Details:

Case Code : ERMT-015
Case Length : 16 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Barrick
Industry : Gold
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Overview of Risks

Barrick had identified various risks for regular monitoring and management - changes in the price of gold and certain other commodities; regulatory, political or economic developments in the areas in which it did business; and changes in mining or processing rates.

With a large proportion of Barrick's reserve base undeveloped, the timing of commencement of production, as well as capital and operating costs of the company's development projects would have a significant impact on future financial performance.

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Gold and Silver Price Risk
Gold prices were volatile because the market for gold was relatively small. The entire investment across the world in gold (bars and coinage) in 2002 was estimated by British consulting group, Gold Field Mineral Services Ltd to be only 449 tonnes or $4.5 billion...

Forward Sales Contracts
Barrick's forward sales program was an important tool to manage financial risk. Barrick believed the program enabled it to plan major capital investments for the development of new mines...

Energy Price Risk
Electricity and diesel fuel costs represented approximately 16% of the total cash costs per ounce for 2002...

Interest Rate Risk
Barrick's interest rate risk exposure mainly related to future contango returns in its spot deferred contracts, the fair value and ongoing payments under lease rate and US dollar interest-rate swaps, and interest receipts on cash balances. Barrick was more adversely affected by lower than higher interest rates...

Currency Risk
Although Barrick operated on four continents, it did not view currency fluctuations as a significant risk. Nearly half of its production came from mines in the US. All revenues and most cash expenditures were denominated in US dollars...

Liquidity Risk
Barrick's operating cash flows were affected by the volume of gold sales, gold prices and cash operating costs. Barrick believed it had healthy operating cash flows. In 2003, Barrick expected cash flows to remain at levels, similar to those in 2002...

Derivative Risk
Derivatives were an integral part of Barrick's financial risk management strategy. Barrick did not hold derivatives for the purpose of speculation. Its derivative program was designed to enable it to plan its operations on the basis of assumptions that would not be jeopardized by future movements of gold and silver prices, interest rates and currency exchange rates...


Exhibit I: Barrick Revenues from Forward Sales Contracts
Exhibit II: Barrick Financial Highlights
Exhibit III: Barrick Consolidated Statements of Income
Exhibit IV: Barrick Consolidated Statements of Cash Flows
Exhibit V: Barrick Consolidated Balance Sheets


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