The market has rewarded Barrick with one of the highest P/E's of all the major gold producers for more than a decade.
The proceeds from the sale of the leased gold were not all put in corporate bonds, this is a false assumption on your part. The proceeds form a multi billion dollar investment portfolio of mainly government backed bonds, highly rated corporate bonds, stocks, and other investments,...not much different than a very conservative pension fund. They are not leveraged,...they do not borrow gold they don't already have in the ground, do you know what a covered short is? They have only exited the corporate bond market to reinvest in lower risk government backed or AA rated bank bonds. Less risk, less interest revenue, less premium above the spot gold price at the time of the sale.
The hedging program is used by Barrick to realize higher than the then current spot prices for their hedged gold, and that will continue to be true in the current world.
In previous posts I have outlined what the historical behavior of the POG has been, even showed a graph of the POG for 100 years from Bob Johnson's website. The POG has been stable or declining, with brief spikes up. In this environment, hedging is the intelligent thing to do. You may suffer pain for a year on part of the hedge, but then things return to historical trends and you make more money than the unhedged.
If gold prices go up to whatever,...Barrick will still get an approx. average of US$350 per oz for the gold they have hedged, as long as the current world order remains. They won't get anything less, unless governments and banks collapse, and certainly their corporate solvency is not at risk unless governments and banks start collapsing all over the place. Their political risk, country risk and mine risk dwarf the financial and counterparty risks associated with the premium gold sales plan,...and every one of the former risks is shared by every other gold producing company, hedged or unhedged. If a big world war or fiat currency disaster breaks out,...being unhedged ain't going to matter,...as every company will be hurting. If something like that happens, they better have some big guns guarding the Goldstrike gold vault were they are hoarding bullion, or the thugs from Kenora, Dryden and Fort Francis will be coming to take it away (gggggggggggggg)
If the banks, fiat currencies, and Governments start failing as gleefully predicted by all the Gata nutcases here, Barrick could write off the complete value of the 20% of the gold reserves they have hedged with those horrible banks and counterparties holding their leased gold proceeds, but they still have the 80%+ (even more once resources start being converted to reserves) that is not hedged,...and as gold will then command some exorbitant dollars per oz (as predicted by Gata nuts), and we will be surrounded by deflation (also predicted by Gata nuts), Barrick will continue to make lots of money. Of course the world will not be the place it is now, and no one will care,...will they? We will be back in the dark ages and you will no longer worry about the blowup of all your investments,...you will be worried about the guy next door with the big gun who is going to blow your head off and take your hidden oz of gold, your wife, your food and everything else.
So given that the world is not falling down around our ears, and most governments and banks and most of the other counterparties will still be around in 10 to 20 years, and Barrick's shareprice, reserves value, balance sheet, cashflows, and income will continue to rise with the POG, and if the POG goes back to historical patterns, Barrick will get more for their hedged gold than the unhedged folks, as they have for 14 years, yes,...they have been, and probably will continue to be smart and be rewarded with a higher P/E,...nice rise today!
Have you checked the hedges at NGX?
By the way, Barrick does tell you what they do in last years financial reports,...why don't you read it? |
