Why are you using the 2000 annual report, when the 2001 report is available, that's the one I used?
Barrick has no net debt,...why do you persist in wanting to include the costs of amortizing those mines that have already been paid for in the total costs for gold production? Who cares what they haven't written off already,...on a net balance sheet basis Barrick has already paid for the new and acquired mines (this includes the Homestake acquisition with their debt). Keeping the loans allows for leverage, and keeps cash available for further investments. If they have paid for all their mines (partially using the contango from their forward sales by the way), the cash costs plus reclamation clearly are more representative of ongoing total costs of production going forward. Amortization have become mere accounting entries, with no effect on the real cost of production.
Writeoffs, in Barricks case, are irrelevant as well to ongoing profitability. The mines became uneconomic or depleted with past or current gold prices. They have been replaced with cheaper to produce reserves with better growth prospects. Reserves have increased, even with the writeoffs.
If the POG goes up, Barrick does better. If POG dies, Barrick does better than its peer group because it understands hedging as a conservative strategy to insure it gets a good profitable price for its gold production. It is not at risk of suffering losses by using this strategy because its strong balance sheet allows it to hedge without resorting to margin. It has pared back on its hedging position in recent years recognizing that the POG appears to have stopped falling, and is in an upward trend. Even still, it continues to get higher than market prices and higher than competitors get, for its gold production. Contango profits are down, but long term interest rates are rising again and lease rates for gold have stabilized, so hedging is still a worthwhile and money making enterprise. This is a conservative strategy, one that insures they will continue to get at least US$360 per oz on their hedged oz. Meanwhile they get the current lower market rates on the rest.
Barrick has a strategy of growth without relying solely on the POG to save it. It continues to increase reserves and annual production, year after year through intelligent acquisitions and exploration. It continues to lower costs and protect revenue generation through partial hedging. It continues to fund internal exploration and juniors looking for and finding next years gold reserves.
Why bitch at Barrick because it is one of the few that understood its industry, and as a result has the best profitability record, balance sheet and costs to produce?
Why not direct your venom at the management blunders that deserve it,...the ones that continue to survive hoping that POG will rescue them by trending higher, and that currently continue to dilute shareholders with large share issues to support unprofitable or marginally profitable businesses. The existence of support for those companies producing huge numbers of ounces at little to no profit are the real demons keeping the POG down. Funny that those poorly run companies are many of the ones whose shareprice are jumping up so much right now. Who said investors are intelligent, or understand the companies they invest in? Who said analysts and newsletter writers are any better,...not me!
When the dust settles on this current mania for gold producing companies, the income statement and balance sheet will do the talking. Barrick and others with strong intelligent management will continue to shine,...many will not. |
