Production is either SOLD at spot prices, or returned to the lender (i.e the hedge is CLOSED)
Agree with you definitely tyke.
Barrick's hedgebook is different from many junior producers (similar to other seniors like NEM, K, etc), because the juniors (like NGX) leases forward and uses the proceeds to fund capex or operations. Barrick invests the proceeds from the leased gold sale in bonds. This is one of the differences many like Sprott may be failing to fully grasp.
Sprott and others also like to argue that 15 year uncallable gold leases don't exist,...Barrick says they do. I agree Barrick is correct as long as Barrick maintains certain annual production and reserve levels, as Barrick has what in effect is a covered short,...and they fully intend to eventually cover the short with their own profitable production, not with a fiat currency.
These two differences separate Barrick's hedge program from the ones that have blown up. Barrick hedges to lock in a minimum price for only a portion of their gold production, the majority of annual production, and the majority of reserves, are unhedged and free to get the spot price.
Ing is starting to moderate some of his initial comments about Barrick,...I sense he now understands better what Barrick is doing.
Obviously it is better to be fully unhedged in a rising gold market, but there are no absolute guarantees that gold will continue to rise. Anyone who has attended the technical sessions at the PDAC, or the Roundup should realize that there are thousands of gold projects around the world waiting for a slightly higher gold price to be activated. Secondly, only a small percentage of surface and near surface prospects have been explored in the world. The former Normandy president at last years PDAC said near half of Australia's surface prospects have not even been staked yet, let alone been explored using modern prospecting techniques. Then there are the new techniques coming on stream that enable more sensitive, more precise, deeper looking and cheaper ways to explore for mineralization,...Mobile metal ion, satellite geophysics, computer simulation, databases, more powerful magnetic, electrical and gravity instruments,...cheaper mining and processing techniques with higher recoveries and better and cheaper metallurgical methods.
In short,...there are at least 10's of billions of cheap gold oz still in the ground waiting to be found. The only thing stopping its discovery and recovery is the money for exploration that will flood in as the POG rises,...demand causing rising prices will soon result in hundreds of new projects being activated to add to supply. They may be small, but they will be profitable.
This guy made a presentation at a recent CIM convention on his small modular gold processing unit. He is not the only one working on these. He is linked to Noranda as they are looking for ways to profitably exploit all the small high grade surface showings that dot the Timmins-Kirkland Lake-Abitibi greenstone belt.
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