trotsky (Pyrite, 12:20) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"what am i doing wrong"?
it depends on how big a hedge, and how long dated. it also depends on your ability to actually produce material to deliver into it, and most of all, it depends on things no-one can foresee with certainty. the major one being the future cost of production.
obviously, the 3 Australian mines that were bankrupted by their hedge books and the near-bankruptcies of Cambior and Ashanti in '99 on a measly $80 spike in the PoG show that it is quite possible to do something wrong when putting on a large hedge book.
also, while hedging may make commercial sense in particular instances, or be necessary to finance project debt, from the PoV of the investor it's a drag. an investor buying gold stocks doesn't want the upside to be hedged away - and usually isn't even remotely interested in the down cycle.
Date: Tue Nov 16 2004 14:08
trotsky (skinny@ABX) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"Your making the same mistake as the Butler and Gata, you don't add up all the forwards and say this is it for this year. "
huh? could you point out to me where and when i've said that? as far as i know i've never asserted such a thing. however, let me point out that you're actually wrong about hedges only coming due in certain years. first of all, ABX has hedges going as far out as 10 years, so there's lots of opportunity for things to go wrong ( don't tell me you haven't heard about Centaur Mining, Pasminco or Sons of Gwalia - they have all one thing in common: they were bankrupted by their hedge books ) .
and secondly, ABX employs 'deferrable' hedge contracts, which means if it doesn't like the price it would be getting in a given year, it simply defers the delivery commitment, hoping that gold prices will fall ( how about that? a gold miner that's hoping that gold prices will fall! ) . of course in a gold bull market, that's the equivalent of throwing good money after bad.
i note you haven't even touched upon my warning regarding production cost escalation - but THAT's the most important issue one needs to consider with a hedge book so vast and so long dated.
lastly, i don't believe they will go broke, but i do believe that their hedges are storing up trouble for the future. note also that high grading has apparently damaged recoveries from their flagship mines in Nevada ( i refer you to recent earnings reports which show a steady deterioration ) , so they really have to add new profitable production fairly quickly if they want to avoid the trap SoG fell into.
in any event, why would an investor want to buy stock in a company whose fortunes depend on the price of its main product falling? it makes no sense whatsoever. when buying gold stocks, one wants exposure to RISING gold prices, and not no exposure, or a hobbled exposure ( which is the best one can say about ABX and the effect the rising PoG has on their bottom line ) .
when gold prices are falling, one is better off NOT investing in gold mining shares.
the hedging philosophy of Harmony or Goldcorp ( which is 'eschew hedging and give investors what they actually WANT' ) makes a lot more sense than this convoluted financial shrubbery with its 50,000 footnotes that can be found in the ABX earnings report.
Date: Tue Nov 16 2004 13:47
trotsky (art_vandila@BGO) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
there were no surprises in the report. cash flow has turned positive, which is obviously a good thing, as is the imminent restart of Refugio.
i like the fact that they've decided on a timing based trading strategy with their Rand denominated puts. that's a lot better than what the likes of ABX and PDG did ( who failed to take hedge profits at the lows, in spite of ample opportunity to do so ) . operational improvements at Petrex looking good ( management is delivering on the promise ) .
imo among the juniors BGO continues to have the biggest 'blue sky' potential on account of Kupol ( the find of the century ) and Cerro. the stock market usually rewards such potential with hefty premia. if you're investing in gold stocks you can't afford to be entirely without BGO imo.
Kupol alone makes BGO a potential takeover target to boot - it's the kind of deposit the major producers lust after.
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