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Gold/Mining/Energy : Barrick Gold (ABX)
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To: Enigma who wrote (2271)4/1/2002 8:52:28 AM
From: nickel61  Read Replies (2) of 3558
 
From your ABX 2000 annual report on the bottom of the Financial Highlights page 3. American Barrick total production cost $224/ounce and in a double astrix footnote in very small letters at the bottom of the page "not including amortization of acquisition costs". Yes the cash costs are a lower stated number, but that is not what we were talking about. We were talking about the cost of producing gold in world were not all the mines but are still a cost of doing business.
Accounting allows you to play a lot of tricks and the only recourse of the investor is to stick with the common sense approach. American Barrick also had substantial write offs during 2000 from prior investments in mines that turned out to not be economic. The net reduction in shareholder equity is a simple estimate after all the accounting window dressing of how much this cost the Barrick shareholders.In 2000 your past acquisition mistakes cost you to write off $462 million of your shareholders retained earnings. Or an additional cost of $124.86/ounce of the gold you produced against the total Barrick world wide production of 3,700,000.

SO to figure how much it cost Barrick shareholders to be in the mining of gold business you take the annual reports stated total production cost of $224/ounce

plus whatever the "not including amortization of acquisition costs" are for this production

and then the write down of the retained earnings for that year of 2000 another $124.86/ounce

so the total cost of producing the 3,700,000 ounces of gold that was the only real product of American Barrick in 2000 is somewhere north of <<<<< $349/ounce >>>>>>.

Well above the price that you want the shareholders to focus on:your cash cost but unarguably the amount the shareholders spent on producing what you sold. Will it fluctuate in coming years as your write offs change? Sure, but the fact is when you are arguing that the world price of gold on the market is not undervalued and the most efficient producers can not really produce it for anywhere near the market price there is something fishy with the analysis.

By the way the byproduct credits are already subtracted from the reported numbers according to the annual report.
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