Continuity Schedule of the Change in the Mark-to- Market Value of the Gold Hedge Position (millions)
Fair value as at December 31, 2001 -Gain $356
Impact of realized gains in the period to date (168)
Impact of chanqe in spot price (from $279 per ounce to $347 per ounce) $368
Contango period to date $182
Impact of chanqe in valuation inputs other than spot metal prices
(e.g. interest rates, lease rates, and volatility) $344
Fair value as at December 31.2002 -loss ($639)"
Mark to market and fair value on the hedgebook are accounting paper entries in the financial statements, and have no effect on Barrick's operating cashflow. They represent a measure of the opportunity lost if the entire portfolio were to be liquidated at that single point in time at the contract prices, versus what they could get using the spot price at the same time. Obviously they could get more using the spot than they could liquidating the contracts as many of the contracts were entered into at lower prices,...and the majority of the contracts have not matured so the full contango is not accounted for. This book value paper entry is not a liability or a true cost.
As such mark to market is a snapshot of that specific point in time, and not a measure of what will happen in the future. Barrick's hedgebook effectively locks in floor prices for gold to be produced in the future, with little risk to Barrick. All they need do is deliver the gold into the contract, and the liability, and that portion of the hedgebook delivered into is dissolved.
There are now very good descriptions on the hedgebook on Barrick's website. Anyone reading it would realize how simple,...and I stress simple!!, Barrick's forward selling contracts are, and what little risk there is to Barrick using them. They are nothing like the toxic hedges that almost sunk Ashanti and Cambior.
As far as the silver hedges,...seems like a good move to me based on current silver prices,...I mean how much lower could silver go? Russel may finally get his silver spike.
Comparing Barrick's earnings to G,...I would suggest comparing Barrick's cashflow to G's cashflow on a per share basis,..add in the gold G holds back too,...when I did it I found there is much less difference.
Barrick's increasing costs per oz, and reduction in production in the last two quarters, fully account for the decline in profitability as far as I can see. |
