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Strategies & Market Trends : The coming US dollar crisis
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To: ggersh who wrote (22654)9/9/2009 12:39:45 PM
From: RockyBalboa  Read Replies (1) of 71456
 
While it is not a big hit compared to its sales and operating profits it still drew some criticism; and I guess particularly because they needed to to to the well to pay off the ticket; they don´t have that kind of cash on their balance sheet.

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Barrick Gold (ABX) will issue $3B in stock to eliminate all of its fixed-price gold hedges and a portion of its floating hedges, taking a $5.6B hit to third-quarter earnings.

To get an idea of the magnitude of this event, let us look at a few key facts:

Barrick Gold has a market cap of $35B.
Quarterly revenue run rate is close to $2B.
Quarterly net income run rate is in the range of $400-450M.
Gold production and sales of 7.6 M oz in FY08.
Proven and probable reserves had a Gold content of 138.5M oz as of 31-Dec-09 with a life of 18 years.
Total production cost per oz of $568 of which the cash cost is $452 and the rest is relatively fixed non-cash cost.
At $1000 per oz of gold price, the operating profit (revenues less production cost) based on FY08 production works out to be $3.3 B. The $5.6 B hit is 1.7x this computed earnings from gold of $3.3 B.

Valuations per oz of gold reserves are lower that that of competitors partly due to a higher cost structure and probably partly due to expectation of this huge loss. Hence, the marginal negative reaction.

However, this just goes to prove how a management cannot sit on derivative positions and high production cost but needs to be proactive. A trader would have cut losses and costs to stay afloat and stay competitive.

The snapshot below gives the recent financial performance of this company...

seekingalpha.com
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