Hi nickel61,
Yeah, Ashanti got screwed and glued. I think it was their non-convertible call exposure that killed them.
Now, please be so kind as to describe in detail, exactly how ABX's hedge program is in any way similar to the Ashanti situation. Provide any corroborating, factual links if you have them.
I believe ABX has a conversion option on all their forward sales (including the short call options) that allows ABX to convert to spot, at ABX's own discretion. They don't care if prices rise, as they can defer their immediate forward deliveries until a later date or lower prices. In either event, I believe their forwards can easily be covered over the next decade from a minority portion of current annual production.
Now, ABX does have one exposure that I am concerned about, and that is lease rates. In order for these spot-deferreds to work, lease rates have to be reasonable at the time the deferral is exercised, i.e., they need to continue borrowing gold at a rate that allows the forward sale to continue with a net profit through the next lease period. Of course, the higher the spot price, the more headroom they have to pay higher lease rates, as the spot sale would offset any additional lease expense. Barrick's management seemed to think that unusually high and sustained lease rates are unlikely and the lease rollovers can be managed. Time may prove otherwise, but for now I have no reason to doubt them. |
