Nothing has changed as we have seen Enigma.
Barrick has neither self destructed, nor have the shareholders turfed out management.
Barrick's forward sold gold are covered many times over by their reserve oz in the ground, and all Barrick has done by this hedging is locked in a price of gold for a portion of production. Much of this price hedging has been done at a price above the current price of gold, as anyone can see if they read this quarters financial statements that state the fact there forward selling program continues to give them a higher price for gold sold this quarter above the average spot price. The gold sold forward is a small fraction of total reserves and annual production, the other 80%+ of annual production gets whatever the current POG is.
Mark to market of a forward selling contract is an accounting exercise that is meaningless when the contracts are covered by reserves and can't be called until expiring. There is no counterparty risk to Barrick for forward sold gold contracts.
The purpose of forward selling is to smooth out price fluctuations in selling price to assure profitability. Barrick and Newmont's forward selling has accomplished this goal, and allowed both to expand further than they otherwise would have in the two decades.
Posters arguing against the logic of forward selling, are advertising their ignorance if the world of mining, and commodity production, as well as with industrial practices in general as most big business hedge international currency risk, and many of their raw material inputs and commodity outputs. McDonalds and Burger King hedge their hamburger meat that is used to make hamburger patties, among other inputs. Bakeries do it, jewelry manufacturers do it etc., etc.
The higher the POG, the higher Barricks NAV goes. They benefit from higher gold prices. Arguments they seek to lower the price of gold go counter to intelligent thought.
As far as investing in Gold producers,....if POG rises almost all producers shareprices will rise, but the marginally profitable producers will rise more as their profits will increase by a higher percentage than the profitable ones,...but at some point they will all group into similar price earnings ratios. I agree that unless Barrick increases its profits by increasing production and decreasing costs it's shareprice will not rise much if the POG stays at current levels. But Barrick is trying to grow production and reduce costs by developing their lower cost gold projects, and closing down the higher cost ones.
There is no law of nature that says the POG will rise, although many posters think there is. POG depends on the laws of supply and demand,...and there continues to be lots of supply to met current demand at these price levels. |
