You are spreading the BS about Barrick and gold pretty thick now, basically ignoring what Barrick has really done, and placing the accumulation of gold as the number one thing human beings should do. Neither is true, nor has the latter ever been true at any time in human history.
This Barrick is the part of the "evil empire" BS, gets good press amongst the gold fanatics, but anyone who bothers to spend an hour or two reading the financial statements and talking to Barrick employees can quickly see how simple and smart the Barrick hedging strategy has been, and continues to be.
Barrick has done nothing more than lock in a price for 18 million oz of gold and will book a profit of US$360 minus cash costs to manufacture the AU oz. They can unwind their hedge by simply delivering gold or some other mutually agreed on asset, to their bullion bank (they own the bullion bank, so basically deal directly with the central bank) to satisfy the contract. They have 15 years to complete this task if they want to, small amounts each year. They will not lose as long as their costs to mine and manufacture the gold over that 15 years falls below the US$360 per ounce revenue they are locked in to receive. As their costs have decreased year after year for many years, I don't think they are worried at all.
If the interest costs to lease the gold for a term are less than the interest costs on the corresponding financial security (generally AAA government backed bonds) bought with the gold sale proceeds over that term, they have effectively sold the gold at a higher price than they would have got selling the same amount of gold at the market price at that time. As long as they have gold in reserves that is cheaper to mine than the price they sold it at when they leased the gold, they make a profit. To say otherwise, is to admit you don't understand what they did.
Currently they will make US$360-US$160 (from interview with Barrick CFO on CNNfn today) = US$200 per oz to deliver to the hedge,...that's a profit of US$200 per oz. I question who is shortsighted here. If you examine Barrick's projected costs to mine existing reserves over the next ten years, it does not deter much from the current costs, subject of course to inflation of the cost elements. If POG does rise, they will increase production by bringing on other mines such as Pascua Lama, and thus their 18 million oz hedge becomes a much smaller % of total reserves and annual production. Additionally an increasing majority of their gold sales each year will be sold at what gold advocates assume will be a higher market price.
On the other hand, if POG stays the same as today, rises to US$359, or drops, Barrick is better off than the non hedgers,...which as been the case for the last 14 years, and for most years prior to the gold bubble 30 years ago.
Barrick employees could care less what bankers and others do. Their main activity is to increase revenues, reduce costs, and find additional low cost reserves.
Another way Barrick hedges has nothing to do with Central Banks. They sell call options backed by their reserves and book the proceeds as revenue. Generally the options expire worthlessly, but if the holder wants the gold, Barrick can deliver. This is no different than a holder of any financial asset writing an option on it to increase the revenue they get from it.
I think you should spend more time trying to understand what Barrick actually does in their hedging program, instead of reading that drivel the gold nuts produce copious quantities of. Barrick holds the physical metal, and are only interested in getting the highest revenue they can for it, produce it for the lowest costs, and increase production and profits over time.
This "gold is the only true currency and safe store of wealth" is gold fanatic dogma and BS. The majority of the world's population place food, shelter and land, work saving devices, weapons, social and entertainment activities and many other things far above the "intrinsic?" need to buy a single oz of gold. There is no "intrinsic" value to gold, expect that imagined by some human psychotics. It is simply another metal. It does have a debt associated with it,...possessing it means you must store it, give up earnings from assets you may have bought instead, expend energy to move it, keep it safe from theft by other humans, and hope other people don't steal it from you or the costs to hold it equal the amount you lost. People who bought gold in North America in the early 80's have lost at least three quarters of their investment through devaluation and inflation. An oft quoted piece of dogma by the gold nuts is "an oz of gold always buys a good suit",...which implies it is dead money at best.
Gold is a rich person's bauble, a psychotic's vice, a criminal's currency, and a store of wealth to the uneducated, unmotivated or unprivileged. Far better to purchase something that does have some intrinsic value, and perhaps can generate some income,...land, buildings, companies that generate income (like Barrick), furniture, time with friends and family, entertainment,.....etc.
In summary, Barrick does not speculate on short term fluctuations of POG as the nonhedgers are right now. They run their business as a going concern, and as if they will be in business 10, 20 and more years from now. Their mines deliver gold for a certain cost, and they prudently hedge to lock in the price they will get for a portion of their production to ensure they make a profit,...even if the POG falls below $100 per oz,...as the price has been in the majority of history.
Contrary to popular dogma, history is not on the side of gold fanatics. Expect for a brief gold bubble in the 70's and early 80's, Barricks hedging program over any 30 year period in the last 300 years would have made them more money than a non-hedger (got that from one of Barrick's employees,...why don't you ask one of your fellow gold fanatics to prove him wrong). That statement suggests that gold goes down in more years than it goes up, and the increases take place over brief periods of time, but the downturns and/or static periods run over many more years. Therefore history suggests Barricks hedging policies are correct, and the non-hedgers are ignoring history. |
