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Gold/Mining/Energy : Barrick Gold (ABX)

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To: russet who wrote (2340)	4/4/2002 10:14:02 AM
From: nickel61	Read Replies (2) of 3558

You make one interesting point that I would like to have you rethink. <<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.>> Perhaps you should look at the likly return that they will have on those fixed income AAA credit financial instruments that Barrick has put the proceeds from it's forward sales into. Ask any bond manager what the return on those portfolios of AAA bonds would be if they are held in a period where interest rates for comparable investments changes from US treasuries currently yeilding 5.35% to say a more normal 8-10% interest rate on 10 year US treasuries? I don't really know if the rumors about Enron debt instuments having been a large holding of American Barricks portfolio holdings is true, it may not be, but these fixed income investments would be subject to the same risk to their marketable value as all other fixed income investments should a period of rising interest rates continue back to historic norms. If the Barrick management wants to claim myopically that that is not an issue because they will hold all of the bonds to maturity fine, then just like insurance companies that do the same thing their common stock will be discounted to reflect the decline in market value. Remember the whole reason that the Strong Dollar Policy was effective was that it orchestrated a much lower rate of interest in the US by attracting foreign capital flows to the US Treasury market in unprecidented numbers and allowed the rate of interest to be bought down lower than it would have otherwise been. The exact same thing that was orchestrated in 1990-1993 by Bush I and Allan Greenspan to bail out the US banking system. Except that time is was the banks themselves that bought down the rates through direct purchases with their depositors money instead of making loans. When rates fell they reaped large enough capital gains from their Treasury holdings to rebuild their balance sheets that had been eviserated by the real estate and office building collapse of 1989-1992.

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