I believe our differences and understanding of the mining business, Barrick, the exploration plays that Barrick has, and understanding of Barrick financial statements, and even how we think the market works, are large.
I believe you are wrong to compare Barrick's hedgebook to their annual production for a lot of reasons, both financial and specific to the company,....
Few gold companies have stock prices related to their present production, or even several years out,...if they did they are all grossly overvalued right now. Most are valued based on market hype and oz in the ground. How many gold producers do you know whose share price equals their NPV? It's the "cover your arse" number for ANALysts,...so they can blame the numbers if they are wrong. Of course the numbers are only as right as the numerous assumptions they make. As a market participant,...perhaps you would like to share the detailed calculations for NPV for Barrick and a few others you say we all use to value them.
Let's do a simple calculation,...and say in 2005 Barrick production stays at about 6 million oz gold equiv, and the POG zooms to $1000. For most years after 2002, you would book the hedged million oz coming due at say $345 per oz,...and the unhedged would get the spot price of $1000. Then our average price received would be [(1mm*345)+(5mm*1000)]/6mm = $891 per oz. Given their cash costs will only be around $250 per oz (based of present reserves) they will have cost of goods sold of 6mm*(891-250)= $3.8 billion dollars (near one billion per quarter), yet it is your contention that Barrick will stink up the joint,...this is why I get tired of this discussion.
With the exception of this year, few years in the next 15 have much more than 1 million oz coming due in the hedgebook. Most of the rest of the industry cannot get more than a year of forward selling, and very few can roll over a hedge, which makes Barrick unique,...don't you think?
Most of Barrick's resources, are still open. If you want to discuss any of these deposits specifically, we might have an interesting debate later because I owned Sutton, Pangea and Argentina Gold before Barrick attempted to take each one over (Enigma and I battled each other on the valuation of ARP and learned some respect for each other, at least I learned some respect for him (gggggggg)). I also went to school with several of the geologists responsible for the Homestake exploration programs at Veladero, Eskay Creek and others, and have seen many of their presentations and kept in touch. I also have talked to many of the exploration managers, technical people (from the drillers to the mine planners), and financial managers at Barrick. To answer your mine question, I have toured many mines, processing facilities, smelters, and exploration fields in North America. I have not seen Goldstrike in Nevada, but I did visit a few old mines in California and Nevada. I'm a member of both CIM and PDAC, and attend most of their annual conventions and many of their technical sessions.
Barrick owns the bullion bank they deal with, therefore the central bank is their counter party not a bullion bank or other institution. They also really hedge to lock in revenues and some costs. It is not to speculate, and they are not leveraged as many have claimed as they hedge to lock in the POG they will receive for a portion of the gold they will produce in the future. This will eliminate most of the problems mentioned in that paper you pasted on the thread today penned by the CEO from Tan Range. I'm sure you are aware that if TNX comes up with a decent resource in Tanzania, Barrick will likely take them out as they are close to Bulyanhulu.
Barrick is not a static company as evidenced by the large number of acquisitions they have made over the last 5 years. They are also very good at constructing mines, increasing production at existing mines, exploring and assessing deposits, and hedging risks. If gold was $1000 right now, Barrick would have little problem doubling production in five years by building new mines and acquisitions.
I don't think you understand Barrick's hedgebook, and I feel you don't want to spend the time to read Barricks financial reports to get an understanding of the hedgebook. You want very much to insist that Barrick will be forced to deliver the entire hedgebook to the market in a few years, and I know that is not the case. Again I suggest you read over Barrick's year end report several times until you get an understanding of just what they are doing and why.
My guess is that in 5 years if the POG stays where it is, Barrick's production will be about what it is right now. If the price of gold goes to $450 I believe Barrick would double their production. If the POG goes to $600, production may triple or more in ten years. If that happens, why do we care about the 1 million oz Au that might be coming due per year?, it would be a very small percent of total production that got a guaranteed $345 per oz.
Sorry, the above is a bit disjointed and perhaps repetitive, but I don't have any time to review it and must jump to other work. Please read Barricks annual report before replying, it may save us a lot of needless posts back and forth. |
