This seems to contradict your entire position.
Position on what? Barrick continues to have strong cashflows, and is rationalizing its merger with Homestake which is affecting their financial statement short term. Homestake had some pretty lousy hedging on its books for this year, so it will take Barrick the rest of the year to work them and some of their own out of the money hedges off. The entry you point out is off balance sheet, and a reflection of the out of the money hedges of Barrick and Homestake being booked. It is similar to what many of your unhedged producers have had to do as the POG came down in previous years,...they had to write off reserves on their balance sheet to reflect the current POG, and take a loss on their books. An unhedged company gets hit twice when the POG drops,...not only do they have to writeoff reserve valuations, but they make less when they sell gold. This is not true of the balanced hedger. When the POG goes up, the balanced hedger takes a charge on the small amount of hedged gold, but the unhedged portion gets full value. The average gold price attained is still higher than with lower gold prices. Why do you think these off balance sheet charges affect the future survival of Barrick?
Perhaps you should come out from behind the religious zealotry of your GATA priest and church, and Douglas Pollitt's biased analysis (he is on the record as preferring the unhedged too), and present, by yourself, actual numbers taken from Barrick's financial statements to prove your claim that my position is wrong. Pay particular attention to Barricks cashflows, and their net debt position. Perhaps you could predict their total cashflow and net debt at the end of this year given a $310 POG and a $400 POG. You should find Barrick has greater cashflows at $400 than they do at $310. They will take higher off balance sheet expenses if the POG continues to climb, but these just lower the expected value of a small fraction of their total resource, just has the unhedged bunch has had to expense annual charges for the decline of their asset values over the last 15 years. I believe less than 10% of Barricks resources are affected by hedges, and as the POG goes up their total reserves increase in quantity and value, and will cancel out the hedgebook writedowns. The question I have is, have you, or any of those GATA zealots you believe without question done those calculations?,...Barrick has.
I would be very surprised if Barrick takes a run at Anglogold given both companies are fairly valued even with in the bullish gold environment. A successful conclusion is pretty well impossible given that Barrick would be unable to give much of a premium to existing Anglogold shareholders, and the South African government will veto the takeover as they did with the PDG/Goldfields merger. Godsell is pounding the table about hedging (they still have lots) as a marketing ploy to raise Anglos stock price as he knows that the goldnuts will buy your shares if you claim you are unhedged,...note Newmont's shareprice increase even though they still have a significant hedge position as well. Another bubble in the making. The ANALysts and BROKErs are pushing the gold wagon now because tech and bigcaps are out of favor and they can't make commissions and bonuses selling them. Midcaps, cyclicals and banks are running hot. I don't mind helping them out because I rotated early into golds, cyclicals etc., and like a lot of us poor goldbugs, I was on the sidelines, or jumped in at the highs for the internet/tech bubble, so I'm basking in the glow and profits of this bubble, but I'm hedged too, with a big fiat money position in income trusts (gggggggggggggggg)
Finally, most gold producers earnings are stinking up the place, hedged or unhedged. This should improve in the next year as the market has allowed many to float stock issues to allow the consequences of bad management practices of the past to be reversed. Unfortunately the same managements are in place, so financial statements may only improve going forward if the POG goes up. If the dollar falls significantly, which would likely only happen if the world's most vibrant economy (and huge buyer of jewelry) goes into the dumper, what will happen to the demand for gold?
My guess is Greenspan will keep interest rates low, but slowly bleed off the excess US dollars circulating now, and the US economy and dollar will continue to chug along. Gold price will swing back and forth, but average around where it is right now. We can come back next year at this time, and see if russett's great economic predictions come true. I'm sure I can guess with as much accuracy as all the rest of the ANALysts (gggggggggggg)
What will happen if Barrick keeps finding new gold finds from their exploration programs? More money going into these programs now, and the higher POG should start turning resources into reserves and send balance sheets and future ANALysts earnings per share higher, as it is doing again today. Focus will be on cashflow per share now, and hedging writeoffs don't affect that number, only POG, cost of production, and growth of production does.
Barrick looks good as they adjust their hedging to higher gold prices in a slow, prudent fashion, consistent with the current rise in the POG. I suppose they could come out like Godsell and others and rant and rave about winding down their hedgebooks and becoming unhedged. It would be difficult to do that at this moment, given the rationalization of this years Homestake/Barrick hedging program does not allow them to say this and be truthful. But there is always next year, if the POG holds. |
