THC,
I will have to take Barrick's statements as fact, until I learn otherwise. If they're short on veracity, then it's losses for me and lawsuits for them. Again, I know some people have a large bone to pick with Barrick, and with some justification. However, in terms of investment, we must deal with what facts are available.
The forward sales are not straight shorts in the manner of a futures contract where maintenance margin is a real and on-going concern. Most of these miners have the gold in the ground, unless their reserves and resources are fabrications. I don't believe forward sales in general, and Barrick's in particular (they write their own, very favorable contracts for this stuff), require much if anything in the way of margin. Their open calls might be an issue, but these are convertible into spot-deferred forwards.
I'm more concerned with Barrick's lease rates for their forwards, as these terminate sometime in mid-2000. But I would suspect Barrick will receive very favorable rates on renewal, regardless of the market lease rate in effect at the time. I don't think it would be in the interest of the bullion or central banks to kill the goose that extracts their golden eggs, unless of course, their ultimate aim is to destroy Barrick and take control of its operations. I think Barrick has too many insiders for that to happen.
As with his take on Barrick's margin situation, I believe Butler is mistaken in calling Barrick a hedge fund. At most, Barrick is something of a hybrid. A hedge fund is a hedge fund. Barrick mines gold and hedges some of it. Barrick HAS the gold and can predictably and comfortably deliver it through its regularly scheduled production with millions of ounces to spare every year. A hedge fund doesn't have any of these advantages. Barrick merely occupies that space between the hedge fund and the unhedged miner. Some people don't like this. Some people are purists. Other people are pragmatists.
Barrick was, IMO, appropriately pragmatic for the previous gold environment. To hedge a little production is prudent. It's good management. Did Barrick go a little overboard in the previous market? Yes, I think one could make that case. They played the old game perhaps a little too well, a little too agreeably. If it turns out the ECB statement actually has teeth, I would very much like to see Barrick lighten up, but I don't expect and wouldn't want to see them end their hedging program entirely. |
