In my opinion, and in Barrick's (from their public statements), they will do much better if gold continues to trot up as 65-80% of the gold they sell annually going forward is unhedged and unencumbered, so they will get spot for it which should counteract the decline in production problems they are currently facing (the more gold goes up, the better). The rest of the gold is hedged at a price of US$340 for the next few years, and if their comments on production staying near current levels are true for the same period they will continue to generate profits in the intervening period until the new mines come onstream. Their hedges are spread out over 18 years with them coming due at about 1-2 million oz due each year. If gold continues up, they will deliver to the hedge contracts from production.
The market is not valuing all gold producers on their ability to generate current profits though,...at least not at current gold prices,...so the best plays continue to be the closer to breakeven producers like K with the most likelihood of higher potential percentage changes in profit with higher gold prices. Buyers of gold stocks assume the price of gold will go higher, so they will invest in the momentum plays like G, K, etc. Barrick is a favorite of the funds, but the funds are not the folks that will drive stock valuations up with frantic and frenzied buying, so it would not be my first pick or even close to the top. My bigger producer money would go to K, MNG, AGE, RPD, GLG, IMG (XGD gives nice diversification, but includes ABX and PDG). There are others to chose from,...I would prefer secure producers with the smallest amounts of country and political risk I can find with a solid record of meeting production and cost goals.
A few turtles lathered with a thick dollop of hares to spice it up,...so what speculative hares are you throwing in the portfolio these days? |
