Barrick is looking at PDG resources of gold,...measured, indicated, extrapolated and blue sky. Most ANALysts look at reserves under the strict criteria of 43-101 or whatever, which in my view is extremely shortsighted. If Barrick used such criteria in their work they would be paying in excess of US$250 per oz Au in the ground when I think they price most of their deals in the US$50 or less region based on their interpretation of resources. When one has a three dimensional diagram of drill results together with rock types, zonations, geochemistry and geophysics etc around a deposit,...one can see a lot more than an pack of ANALysts looking at reserve data. PDG may have 60 million oz Au reserves on the books, but the modeling guys can probably come up with triple or quadruple that amount, but the exchanges won't let them talk about those in newsreleases. That doesn't mean they don't talk about them at technical sessions at conferences and conventions and other places.
The mark to market loss will be carried on the books, and proper accounting would cause its carryover on to Barrick's books,...but Barrick is mainly using shares to buy PDG so it's all funny money until you look at eps in the quarters to come.
There are many ways to fudge out the mark to market loss,...it depends on how the deal is structured,...each mine is an individual entity and the mark to mark loss is an asset/liability that can easily be wiggled and jiggled to disappear when everything gets amalagamated into Barrick. I'm not sure Barrick will do it that way. I think they might continue to show it. Placer has continued to show hedging mark to market losses in their books from companies they amalgamated.
Mark to market accounting of the type of hedging Barrick and PDG have done is jiggery pokery in any case. If I read Barrick's last financial statements right, they only have 6 million oz hedged currently (without PDG),...about one year's production. Not sure what Placer has right now.
Barrick is a big company getting bigger. As long as supply/demand for Gold continues in the current manner or gets better, Barrick will have little to worry about with the hedges and mark to market funnymentals, unless of course you anticipate high double or triple digit inflation with no commensurate increase in the POG,... which would be a very weird world :-) |
