Summary Gold is a particularly volatile commodity that has not traditionally been hedged against price risk, but over the years many companies in the sector have adopted risk management strategies with great enthusiasm . The American Barrick Resources Corporation is particularly zealous. The company has embraced risk management and even incorporated it into one of its key business objectives. Over the years American Barrick has become a successful and rapidly growing company, however, after discovering abundant ore deposits in a recently purchased mine, the company is particularly exposed to price risk. Gold prices and interest rates are at historically low levels and American Barrick is unsure how to proceed. Introduction (objective) Peter Munk, the founder of American Barrick, after experience and past failures came to believe that high liquidity and low leverage were fundamental principles for a successful business. The greater flexibility gained by following these guidelines should provide the company with opportunities that less covered companies have not had. If gold prices were to fall, the company would not be affected by the distress costs that other competing companies would suffer, giving the company an advantage during periods of low prices. During this period they would have additional cash reserves to invest while other companies may struggle to obtain expensive debt financing. This is one of the biggest competitive advantages a gold company can have because the main costs in this industry are exploration and acquisition costs. Due to financial strength and stability, the company was also more likely to enter into more favorable contracts. The risk management program was intended to provide… halfway through the document… documents for each period. This diagram assumes positive contango. Exhibit 9 however assumes negative contango and, as we can see, this leads to a lower profit for each period. Since the contract does not have a fixed delivery date, the company does not promise to deliver gold for a specific year. Therefore, there is minimal risk that the company hedges more gold than is possible using this strategy. The American Barrick managed to negotiate agreements giving them a 10-year deadline. If the company were to rollover to expiration and the spot price at that time was greater than the forward price, it could miss out on a very large price increase. However, the company is able to reduce large opportunity costs by using DSC, and the possibility of losing a large price in the expiration year may be outweighed by this fact..