Thank you for your detailed post. What you describe seems straight forward enough.
The gold carry trade: lease gold, sell into market, invest proceeds in other financial instruments,
replace gold at lower price. Sounds good.
But Barricks' difficulty is in the non-hedged derivative area:
From page 14 Barrick First Quarter Report 2002
****
Reconciliation of Net Income Before Derivative Transactions to GAAP Net Income
3/31/2002 3/31/2001
Net income before non-hedge
derivative gains and losses $47 $ 49
Non-Hedge derivative gains(losses)
(net of tax effects) (1) 38
Net income for this period $46 $87
****
Last year (3/31/2001), spot gold $259, Barricks Non-Hedge Derivative gains
contibuted $38 million on the income statement This year (3/32/2002), spot $290
Barricks Non-Hedge Derivative loss is ($1 million), a $39 million swing on $31.00 spot increase.
So, Barricks drop from $0.16 to $0.09 YOY is a NON-HEDGE DERIVATIVE problem.
It was WORSE:
Barrick took most of its' Non-Hedge Derivative LOSS off the INCOME STATEMENT:
statement: From page 21 Barrick First Quarter Report 2002
****
"During the three months ended March 31, 2002, we exchanged certain gold call options and min-max
gold options at fair value for Variable Price Sales Contracts with identical notional amounts of gold.
While these contracts meet the definition of a derivative under SFAS 133, WE have determined and
documented that the that the normal sales exception included in paragraph 10(b) of SFAS 133 applies
to such contracts. Accordingly, our spot deferred sales contracts and variable price sales contracts are
are not accounted for as derivatives pursuant to SFAS 133.
Our outstanding gold and silver sales commitments at March 31,2002 had an
unrealized MARK-TO MARKET LOSS of $127 MILLION
(calculated at a spot price of $302 per ounce and $4.64 per ounce for gold and silver respectively, prevailing market interest rate and volatilities."
****
The royal WE "have determined and documented.". HO HO HO
The remaining derivative instruments not " determined and documented." have a
fair value of loss of 30 MILLION. page 22 Barrick First Quarter Report 2002
(127)+(30)=(157)/539shares outstanding = (.29)-reported .09=
SHOULD BARRICK HAVE REPORTED A LOSS OF ( $0.20) per share???
So, I'm thinking, maybe Barrick isn't so exposed to higher gold prices. I'll
check previous quarterly releases.
Mark-to-Market gain(loss) on Barrick's Premium Gold Program
Date gain(loss) Spot
03/31/01 $673 $259
06/30/01 $380 $271
09/30/01 $213 $293
12/31/01 $356 $279
3/31/02 ($127) $302*
* Doesn't include page 22 Barrick First Quarter Report 2002
Some observations:
- Is Barrick in compliance with SFAS 133 ( $0.20) loss vs. $0.09
-Thanks to HM , at least now Barrick has some gold exposed to spot.
-Barrick performs better at LOW POG.
-With an increase of $26 POG this quarter,
Mark-to-Market Barrick's Premium Gold Program TANKS.
-Barrick has moved its' Non-Hedged Derivative
exposure off the Income Statement. WHY?? wink wink
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