You dumb lazy arse,...the amount of the gold lease interest payments on the deferred gold contracts are reported quarterly in the notes as the average interest rates for each year for all contracts are listed in tables in the notes,...determination of absolute amounts for the quarter or year can be calculated by simple multiplication and addition and is netted out by Barrick when they talk of the average revenue per oz they get for their gold, or the notional value of the off balance sheet gold investment program.
Barrick reports the net notional value of the gold lease asset every quarter, the change in the notional value gets reported on the income statement, and the interest expense for the lease and the interest earned for that quarter are in the final net number.
Barrick reports what they receive per oz under the deferred contracts by subtracting all costs included lease interest expense.
Voila, from the financial statements,...
The future gold production committed under spot deferred contracts in our Premium Gold Sales Program totaled
18.2 million ounces at December 31, 2001. This represents approximately 22 percent of proven and probable
reserves, deliverable over the next 15 years at an average price of $345 per ounce at the scheduled delivery dates.
Fifty percent of planned production in 2002 is committed at an average price of $365 per ounce. The balance of 2002
production is expected to be sold at prevailing spot gold prices. If gold prices, interest rates and lease rates remain at
current levels ($290 spot gold), we would anticipate that our realized gold price would be in the $330-$340 per ounce
range over the longer term.
Note they are anticipating that price taking into account interest rates and lease rates,...something I guess the deceivers at Newmont were not doing.
I notice you post nothing you think up by yourself. I guess you are too lazy to read the financial statements. Barricks statements are easier to read than many other large companies, because they don't do much more than mine gold for profit, and invest money they get from selling gold using deferred contracts, in bonds from banks they borrow the gold from.
Counterparty risk is zero for the deferred contracts and associated bond now that they are collapsing the corporate bond part of the portfolio, because if the bank fails to deliver principle or interest on the bonds, Barrick has written in their contract that they don't have to deliver the gold associated with the bond to the value of the missing payments. Tit for Tat,...very simple, no risk. Too simple for Gata it seems, or your inadequate financial education and laziness to perceive.
There is nothing in your crap from Howe or Gata that hasn't been discussed before,...although you are baffled perhaps by the longwinded bafflegab. There is nothing I see there to worry about except that you will come back to this thread with more Gata bullchit to throw at us.
Howe's article is misleading as far as the investment side of the business being bigger than Barricks gold business. He has failed to include what the unhedged gold reserves in the ground are worth, in the same way that he lists the presold gold as $5+ billion in the investment fund. To compare the same way you would have to say the unhedged gold in the ground is worth $19 billion at todays prices, which makes Barricks gold business asset worth about 5 times what the investment side is when you add on the $5 billion for other balance sheet assets.
Voila from the financial statements,...
Mineral Gold Reserves
Our largest off-balance sheet item is actually our mineral reserves. At more than four times the size of the Company’s
forward sales program, our mineral reserves provide a sufficient means to meet commitments under our forward sales
program.
The pre selling of less than 20% of total reserves created the majority of the off balance sheet asset in the first place,...18 million oz Au x the various prices they sold the gold at + the income they receive from interest = the 5+ billion dollar off balance sheet financial asset,...most of the asset is the proceeds from the 18 million oz borrowed Au, which if priced at say US$300 equals $5.4 billion. This is invested in bonds. At least Howe got that right.
More reading for the lazy from Barrick's financial statements,.....
I Accounting for derivative instruments
(i) Commodity contracts
The Company enters into commodity contracts in the normal course of its business to establish future sales prices
and manage the future cash flow risk associated with price volatility of the commodities produced at its operating
mines. The contracts used are described in note 16 and include spot deferred contracts and commodity options.
Commodity contracts may be designated as cash flow hedges of financial risk exposures of anticipated
transactions if, both at the inception of the hedge and throughout the hedge period, the changes in fair value of the
contract substantially offset the effect of commodity price changes on the anticipated transactions and if it is
probable that the transactions will occur. The Company regularly monitors its commodity exposures and ensures
that contracted amounts do not exceed the amounts of underlying exposures.
Realized prices under spot deferred contracts are recognized in gold sales and by-product credits as the
designated production is delivered to meet commitments.
Purchased call options that are matched with spot deferred contracts with common maturity dates and
notional amounts, which combined mimic the terms, cash flows, risks and rewards of real put options, are
accounted for in the same manner as the real instruments. The option premium paid is deferred and recognized in
gold sales, together with any realized gains, at expiry of the options.
Min-max options, which represent the combination of a purchased gold put option and a written gold call
option with common notional amounts and maturity dates, and for which no net premium has been received, are
designated as hedges of future gold production. The contracts have original maturities in periods prior to those in
which the relevant production is anticipated to be sold, but the Company has the right to postpone the final
maturity date of the contract, with the effect that each time the contract maturity date is postponed the contract
price is adjusted for a premium. Providing that the criteria for an effective hedge continue to be met, and there is a
reasonable likelihood that the Company will be able to renew the hedge as required, the contracts are designated
as a hedge of the sale of future gold production and gains and losses on the contracts are deferred and recognized
at the time of the sale of designated future gold production.
On October 24, 2000 the Canadian Institute of Chartered Accountants (CICA) Emerging Issues Committee
issued EIC-113, “Accounting By Commodity Producers For Written Call Options”. Accordingly, written call
options entered into on or after that date are recognized on the balance sheet as a liability measured at fair value
with subsequent changes in the fair value of the liability recognized in earnings in the period of the change.
Written call options entered into prior to October 24, 2000 are treated as possible future sales commitments.
Providing that uncommitted production exists to meet these commitments, no mark-to-market gain or loss is
accrued prior to their expiry date and premiums received are recognized in earnings at their expiry date.
In the event of early settlement or redesignation of hedging transactions, gains or losses are deferred and
brought into income at the delivery dates originally designated. Where the anticipated transactions are no longer
expected to occur, with the effect that the risk that was hedged no longer exists, unrealized gains or losses are
recognized in income at the time such a determination is made.
Cash flows arising in respect of these contracts are recognized under cash flow from operating activities.
(ii) Interest-rate contracts
The Company enters into derivative financial instruments to manage the interest return component of its Premium
Gold Sales Program, which comprise a portfolio of total return swaps, Libor interest rate swaps and lease rate
swaps. The Company’s total return swaps are accounted for in a manner similar to long-term portfolio
investments, and accordingly, are carried at cost less any provisions for other than temporary impairment. Libor
interest-rate swaps and gold lease rate swaps which are associated with spot deferred gold sales contracts are
accounted for as synthetic hedging instruments, whereby the interest-rate swap modifies the interest return or gold
leases rate costs in the spot deferred contracts from fixed to floating, or vice-versa. Gains and losses are
recognized in the income statement under non-hedge derivative gains/loss upon realization or at the maturity of
the instrument.
J Revenue recognition
Revenue from the sale of gold and by-products is recognized when the product is in a saleable form, a sales
agreement has been entered into that establishes quantities and price, and collectability is reasonably assured.
Adjustments to accounts receivable between the date of recognition and the settlement date used for changes in
the market prices for gold and silver are adjusted through revenue at each balance sheet date.
Revenue from the sale of by-products such as silver and copper is credited against operating costs. Revenue
from the sale of by-products was $40 million in 2001 (2000 - $37 million, 1999 - $42 million).
OFF-BALANCE SHEET ITEMS
The Company does not engage in off-balance sheet financing activities. We do not have any off-balance sheet debt
obligations, special purpose entities or unconsolidated affiliates. The most significant off balance sheet items are our
spot deferred sales contracts, unaccrued future reclamation obligations and our mineral gold reserves, each of which
is discussed below.
Spot deferred contracts
We make use of a number of strategies to reduce risk and improve returns in our Premium Gold Sales Program. As
discussed in note 16 to our consolidated financial statements, we use Over-the-Counter (OTC) contracts. Our spot
deferred sales contracts are designated as cash flow hedges of financial risk exposures and do not appear on our
balance sheet as they simply represent agreements to sell gold that we produce at pre-defined quantities and prices.
Our Premium Gold Sales Program represents a “AA-” rated off-balance sheet asset worth a notional amount of
$5.5 billion, on which we earn interest at fixed rates with a diversified group of counterparties with strong credit
ratings. To improve returns, we have diversified this asset by investing approximately $1 billion or 17 percent of the
overall Program into an off-balance sheet fixed-income portfolio of corporate securities with a number of top fund
managers. We have locked in gold borrowing costs on approximately two-thirds of the overall Program while
maintaining floating lease rates on the balance to maximize the forward premium earned. Third, we sell gold call
options to generate additional revenue. The calls are written at prices at which we would be comfortable adding to
our forward sales program if we are exercised. We have the ability to convert the call options exercised, at our
discretion, including related premium income, into spot deferred contracts, which accrue contango (US$ Interest Rate
– Gold Lease Rate) to the new delivery date. Outside of the gold program, we make use of other hedges to manage
our cash flows, specifically: foreign currency hedges on Canadian dollars and Australian dollars to cover
approximately one or two years of operating costs; by-product revenues, primarily silver, to reduce volatility on our
operating costs and other interest rate hedging through which we have locked in the rates on our $200 million
Bulyanhulu project financing, for the full nine-year term at an all in rate of approximately 8 percent. We also lock in
interest rates on our cash deposits. All other derivative instruments are described in note 16 to the consolidated
financial statements. Our Premium Gold Sales Program has no leveraged options – and no margin calls at any gold
price.
COMMODITY PRICE RISK
Our earnings and cash flows from operations depend on the margin above fixed and variable expenses at which we
are able to sell gold. We expect that in the future, approximately half of our annual gold production will be sold under
fixed-price spot deferred contracts, with the remainder sold on the spot market.
The spot price of gold has fluctuated substantially in recent years and depends on many factors, including
worldwide demand for gold bullion, changes in economic conditions, political conditions, level of gold production
and levels of central bank sales of gold. We enter into spot deferred contracts to establish prices for future gold
production and to hedge against future volatility in gold prices. The key terms of these contracts and the contracts
outstanding at December 31, 2001 are disclosed in note 16 to the consolidated financial statements. These contracts
are accounted for as cash flow hedges and are not recorded on the balance sheet. The contracts are subject to the
provisions of our master trading agreements with counterparties, which define the key terms and conditions. In
particular, we are able to select a delivery date acceptable to us at any time over a period of up to 15 years, enabling
us to sell our production at the higher of the sale price under the contract and the spot price of gold at the time the
gold is produced. We are not subject to margin requirements should increases in the spot gold price result in a large
unfavorable mark-to-market position. The master trading agreements impose various restrictions and covenants on us
including: the maintenance of a consolidated net worth of at least $1.75 billion; outstanding commitments under gold
contracts cannot exceed two-thirds of our proven and probable reserves; we must produce at least 1.5 million ounces
of gold annually; and we are subject to restrictions related to the sale of certain assets.
While the mark-to-market positions under our commodity hedging contracts will fluctuate with commodity prices, as
a producer, our liquidity exposure due to outstanding derivative instruments tends to increase when commodity prices
increase. Consequently, we are most likely to have our largest unfavorable mark-to-market position in a high
commodity price environment when it is least likely for a credit support requirement to occur.
We have run sensitivity tests on the impact on our liquidity if spot gold prices fell to $200 per ounce. Based on
that analysis, if nothing else changed other than gold price, we would expect to have sufficient cash flow from
operations to cover our cash operating costs, sustaining capital spending programs, existing debt repayments and
dividends.
INTEREST RATE RISK
Our interest rate risk exposure primarily relates to changes in fair value of fixed rate debt obligations and borrowing
costs on variable-rate obligations. Additionally, we have entered into interest rate swaps and total return swaps to
manage the contango yield implicit in our spot deferred contracts, which result in increased sensitivity to changes in
interest rates. Contrary to most businesses, we are adversely affected by lower interest rates rather than higher rates.
In higher interest rate environments, we earn higher premiums for our spot deferred sales program because the
forward price is primarily a function of US interest rates, as well as higher interest income on our cash balance. Of
our current debt outstanding, 87 percent of the interest is fixed for the term of the debt, while that balance is primarily
variable-rate bonds which bear lower interest rates.
FOREIGN CURRENCY EXCHANGE RISK
While we operate on four continents, we do not view currency fluctuations as a significant risk because our revenues
and most of our cost base is denominated in United States dollars. Over half of the Company’s production is based in
North America, while most of our Peruvian and Tanzanian costs other than labor, such as diesel fuel, reagents and
equipment are denominated in United States dollars. Australian production costs are primarily denominated in
Australian dollars and therefore we have hedged approximately two years of local cash costs.
CREDIT RISK
In the normal course of business, we have performance obligations, which are supported by surety bonds or letters of
credit. These obligations are primarily site restoration and dismantlement, royalty payments and exploration programs
where governmental organizations require such support.
We believe that the factors given most weight in our “A” credit rating are: our market capitalization; the strength
of our balance sheet, including the amount of net debt; our historical and future ability to generate free cash flow; the
protection afforded to us by our hedging program; the quality and quantity of our gold reserves; and the geographic
location of our assets. Changes in our credit rating would not affect our existing debt obligations or hedging contracts,
but could impact the cost of borrowing under new financing agreements, as well as the length of our trading lines for
new contracts.
We manage and control counterparty credit risk through established internal control procedures which are
reviewed on an ongoing basis. We attempt to mitigate credit risk exposure to counterparties through formal credit
policies and monitoring procedures. We diversify across approximately 20 counterparties having an average credit
rating of “AA”, which are well established bullion banks or large commercial banks. In the normal course of business,
collateral is not required for financial instruments with credit risk. Historically, we have suffered minimal credit risk
related losses. |
