Russett,
You seem like a knowledgeable guy concerning ABX. I have a question that I can't figure the
answer.
> ... Barrick sold 50 percent of its production at spot gold prices. The remaining 50 percent of
production was delivered through the Company's Premium Gold Sales Program, realizing an
average price of $365 per ounce, a premium of $75 per ounce over the average spot price.<
Just who is buying ABX's gold at $75.00 over spot.
I understand hedging involves forward sales, options, forward rate agreements and I'm no expert
in finance, but $75.00 over spot implies leverage. Particularly when other miners are closing
hedges at a loss, DROOY $32/oz as an example.
Spot Gold...Company's Premium Gold Sales Program(black box)...$75.00 over spot.
I don't know what's in the black box, other than in past quarters, it appeared to print money. -g-
But, here is my concern:
ABX's Premium Gold Sales Program is the equivalent of borrow short and lend long. This is the
first quarter with a sustainable rising POG. A rising POG is deadly enough to borrow short lend
long, but decreasing production into a leveraged hedge is a double whammy.(High Grading?)
ABX has never shown any particular interest into being exposed to spot POG before this quarter.
Why is spot POG an issue now? From 3rd QTR 2001 " " Our strong financial results reflect our
high quality asset base, our low cost production, and the Premium Gold Sales Program, which
together generate the highest margins of any major gold producer," added Randall Oliphant." Spot
POG mentioned?
Net income before non hedge derivative 3/31/2002 3/1/2001
gains (losses) (3) 47 49
Net income 46 87
3) For an explanation of non-GAAP performance measures refer to
pages 13-14 of management's discussion and analysis
Spot POG was up $26 quarter ending 3/31/2002. Production net net, hedging cost 40 million. ABX seems to be seriously troubled by higher POG.
(3) is an ENRON red flag for me. I don't want to have to have understand why non-GAAP performance
measures caused a 40 million loss to the bottom line.
Educate me why this Premium Gold Sales Program isn't going to blow up ABX at POG $375.00?
Thanks.
Steve |
