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Gold/Mining/Energy : Barrick Gold (ABX)
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To: nickel61 who wrote (2803)5/17/2002 11:56:01 AM
From: tyc:>   of 3558
 
>>The cost of providing that gold in the future to repay the short loan is an obligation that will have a cost even if only an opportunity cost and that is what the significance of the future market price of gold is.

This is where you lose me. Of course the providing of gold in the future will have a cost.... the cost of production. Of course, the fact that the sale was made at a price that was fixed in the past means that they have abandoned any benefit that higher market prices for gold might provide. But why does that put them "underwater".

When we talk about "hedged reserves", we are simply talking about gold that has been borrowed (and sold) and therefore must be returned. What the market price is when the gold is returned is irrelevant..... it does not put them "underwater" whatever that may mean.

Of course, if Barrick should run out of gold before they return their borrowings, then they are in trouble. Is that likely ? I think this is what your mentor was saying.
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