To all concerned Barrick investors Success!
They have heard our call,or rather the call of the marketplace.
Barrick announces it is polling its shareholders about the desirability of staying hedged in this new enviroment.
Goldbugs rejoice!
As the Barricks of the world unwind gold will return to the $400-$600 price range it should have been in all along.
READ AND REJOICE!
From the Le Metropole Cafe Web page
Cafe Member X
January 14, 2000
1. Barrick sent out a questionnaire to institutional investors asking them whether or not they'd like to see Barrick maintain its current hedging
strategy, namely, maintain a large hedge position irregardless of market conditions. We are also taken to understand that Barrick polled the analysts
after the 'Hedging School' seminars that Barrick staged. Obviously, the company seems to be acutely sensitive to the direction of the wind (i.e.
sensitive to shareholder opinion - which is admirable) and we all know which way the wind is now blowing. What made sense 10 years ago makes
no sense now.
2. There are apparently two camps on Barrick's board - the hedge camp and the non-hedge camp. The hedge camp stands on sturdy ground if only
because they have made the Company so much money over the last decade - how can you argue with success? Careers have been made out of
hedging. That Barrick now seems to be re-evaluating its stance (judging by the questionnaires, etc.) is testimony to how strong this wind is blowing.
(We hear of one investor - a fairly heavyweight guy - who wrote on his questionnaire, in very blunt terms, that he was considering selling all his
shares in Barrick unless the Company cleaned up its hedge book. It didn't take long for the phone to ring.)
3. Any re-consideration by Barrick in regard to its hedging position would be tremendously bullish for the gold markets. It would signal a change in
attitude and a sign of things to come. Over the last decade several hundred tonnes of accelerated supply have hit the market every year as a result
of the increasing practice of hedging. Imagine if that movie were played in reverse? GFMS is predicting that the total hedge book will increase this
year by plus 55 tonnes - imagine if that figure were instead minus 500 tonnes? Ka-ching! Yet 500 tonnes represents only a fraction of the industry's
collective hedge book. Is the industry becoming less blind to its own interests? There are indications that this is so.
Your space has been very tough on Barrick (and for long suffering gold shareholders, this is understandable). It should be noted, however, that for
Barrick to change directions would require considerable guts on the Company's part. Not only are they 'lifers' when it comes to hedging, they are
proud lifers. The "Premium Gold Sales Program" has been a much trumpeted facet of the Company when it came to marketing itself. "We get $120
above spot for our gold - look how clever we are" they at times seemed to be saying. (We now know that this financial alchemy was achieved
through the use of calls and other derivative instruments. We now see the man behind the curtain. It ain't pretty.) For a Company that has so deeply
committed itself to a certain market philosophy (monetize the gold in the ground), it takes courage indeed to re-consider one's stance..
And that is why a re-consideration would make them heroes. It's one thing if a 'gold bull' company like Gold Fields Limited (NASDAQ - GOLD)
renounces hedging - that's a small leap to make (but one, mind you, that has been very good to its relative share price). But Barrick? For them to
come out and say: "Given that the gold price is now beneath the mining cost of much of the world's supply, given that we have seen the lease market
behave in volatile fashion, given that most investors see gold shares as an equity play on the gold price, given these and other reasons, we are now
undertaking to reduce our hedge book over time." For Barrick to make such a statement, well, as I say, they'd be heroes.
Barrick demonstrated leadership a decade or so ago when it pioneered the use of forward sales as a way of enhancing shareholder value. Through
its recent actions and gestures, Barrick now seems to be considering the possibility of showing leadership again; this time by pioneering the trend
away from fat hedge books. I can't say how much such a simple move would re-invigorate the community at this bleak time.
Regards - X
I
|
