SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Gold/Mining/Energy : Barrick Gold (ABX)
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: ForYourEyesOnly who wrote (1416)10/19/1999 10:39:00 AM
From: Daniel Chisholm  Read Replies (1) of 3558
 
Let's assume that they have a short position (calls/forward sales) of about 11 million ounces sold at an average price of $350. If the gold price goes to $450, then you have a margin call of roughly $1.1B.

Not necessarily. It would depend on the terms and conditions of the "spot deferred" contracts they entered into. Since these are (I think) customized over the counter products made for Barrick by one or more gold banks, there will not necessarily be the requirement of daily mark-to-market variation margin payments like there would be in a regular exchange traded futures contract. I think Ashanti was using exchange traded options, and the near term requirement for cash margin payments nailed them.

In fact, my understanding is that one of the chief difference between a "futures contract" and a "forward sale" is that futures have variation margin cash flow, and forward sales agreements do not. Someone please correct me on this if I am wrong.

So if Barrick ran its hedge program in an intelligent manner, they would have considered the issue of variation margin payments. A competent program manager would make sure that enough of the hedge commitments would not require variation margin cash flows in the event that gold went up.

- Daniel
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News