The contracts must be pretty spread out if only 20% (about 1.1 million ounces) of annual production is needed to fulfill the obligation. 1.1 million ounces doesn't make much of a dent in covering a 17 million ounce short position. How far forward to do these contracts run? And, how will ABX manage to keep cash costs low enough to ensure they don't get upside down in this exposure?
The best source for this information is Barrick's financial statements which can be found on their website.
These contracts are spread out over 15+ years according to Barrick statements. Also in those statements are what contracts come due in any year. This year is a heavy one, probably linked to some hedging that Homestake got into before giving up and selling out to Barrick. Of course this year is almost over. Subsequent years have 1-2 million oz coming due per year.
As far as keeping cash costs down,...their statements about bringing on cheaper reserves in Peru, Chile, Argentina and Australia (cash costs in the US$125 per oz range) are the best indication of how they intend to keep costs down.
Barrick is leveraged to the price of gold, but not as highly as many marginally profitable or unprofitable producers. The best way to show this is by example. A company that is making $1 per oz of gold mined will make another $1 per oz if the price of gold goes up one dollar. That's a doubling of profitability, and will double its eps. Barrick on the other hand will add an extra $4.0 million or so to its annual profit with a climb of $1 in the POG, which is not a very big percentage increase in profits. This is why I'm not recommending Barrick in an increasing POG environment,...but if the POG stays around current levels you will want a producer that is increasing reserves, increasing production, and lowering costs. That's what Barrick tries to do.
An interview with Oliphant a few days ago on ROBtv reflected Barricks views on their shareprice. Currently it trades about 1.6 times book value, and traditionally the market has priced it at 2 times book. |
