You have to look at everything Barrick does before you can conclude much. They are hedging many of their costs such as energy, US dollar risk,...even things like tires etc. buy long term supply contracts with big manufacturers. They are doing what a prudent long term miner would do,... keep costs and revenues as constant as possible for many years to guarantee a certain profit per oz. Not all input costs can be hedged, but most can, except perhaps labor, bribes and taxes,...but geographic and political diversification helps there. Mine risk is still there, but good people have a way of getting around mine problems.
They continue to close out their hedge book,...the total reserve vs hedge book reserves increase with the price of gold because more in the ground resource AU oz become reserve oz at higher prices.
Top it off by the fact that rising interest rates mean more contango per oz in the hedged oz portfolio per year (yes, they hedged against rising interest rates in several ways). Not all the bonds are in US dollars,...they have an international bond portfolio and they have hedged against US dollar risk,.....don't forget they have borrowed in $US too,... so in toto you get a nearly risk free miner against many important risks.
True rampant inflation would get them eventually, but what government could allow rampant inflation in the world today and still be alive in a few years? I would hope that went out in the Mulroney/Reagan/Thatcher era.
I think I would argue that if you do what Barrick has done, you are a true miner,...keeping input costs low, revenues as high as possible, diversify to reduce risk. Anything else would be speculation of one form or another, which is not necessarily a viable long term business strategy,...if economists can't figure out what is next for interest rates, POG, currencies, economic output etc., who can? |
