This is a good response to the question of recent relative valuation increases.
"Barricks high P/E relative to the other miners a year ago stopped Barrick from appreciating as fast as the lower P/E majors until the others catch up. When the P/E's are comparable, it will be interesting to see if the market gives the unhedged a significant premium over the hedged if the price of gold stabilizes in this range."
A big if, eh?
"Is speculation what you really want your management to do?,...is that not what Enron did with commodities which may have contributed greatly to the need for all the financial statement shenanigans that followed?"
Enron didn't just speculate and cover up, they manipulated the market. One accusation against ABX is they are actively aiding and abetting the gold market manipulators with excessive hedging.
But let's put aside the whole manipulation thing for a minute. Does a farmer hedge 15 years of crop production? Hedging is a bet against your own business. If you dislike your own business so much that you have to bet against it for 15 years in the future, why not just get out and find a better business? Hedging 15 years into the future is a just blatant misuse of capital. Its like pledging your future earnings for an annuity that pays a fixed amount per year. Yes you can live off it, but ultimately, you are just someone's slave, with no dreams of your own.
Betting against your own business means you don't expect natural revenue growth. The market seems to be saying that betting against gold mining revenue growth is wrong right now. Regardless of the historical merits of ABX's hedging strategy, is it right, right now? You imply that the best case for ABX is long term (> 5 years), not short term (1-5 years). You may be right. You say investing in unhedged gold miners is just speculating. True, true. But so is investing in any sector for too long. Tech anyone? And in spite of ABX's hedges these last 5 years, it still went from 22 to 17. Not exactly a stellar long term investment. |
