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Gold/Mining/Energy : Silver prices -- Ignore unavailable to you. Want to Upgrade?

To: David R. Schaller who wrote (2018)	7/7/1999 9:13:00 PM
From: Claude Cormier	Respond to of 8010

<< but environmental issues can arise. Underdeveloped countries can tighten controls. Labor unions can strike. ...Third world countries can lay claim to the property & its assets. >> Of course you are right. But these event are not frequent. A company like Barrick is diversified geographically. Hedges are still only 14% of their total reserves. And the fact that they entered into spot defered contracts allow them to delay deliveries of gold form production if needed. So there risks are very small. I view a sale of 14% of your assets in advance of production as a very safe covered short sales. << What constitutes a short position in your mind? When Barrick borrows & then sells $4,000,000,000 worth of gold it seems intuitively obvious that they don't expect to replace it with gold at a higher price than they received. >> Of course, that is why they entered into spot deferred instead of fixed forwards. << They want the price to go down ..not up. >> Not true. They don' really care where gold prices go...as their profit is the differential between their costs and the prices established in their contracts. <<This to me is exactly analogous to an investor borrowing securities, selling the shares and then hopefully replacing them at a lower price.>> Nope. The investor must absolutely buy back the securities at lower prices otherwise he is in trouble. Barrick, does not have to buy gold. It already has it at a cost already far below the priced he sold the gold at. Average costs for the Barrick Gold reserves are well below $50 per ounce. << I don't fault Barrick for pulling every trick they can come up with to make a buck. But lets agree as to what it is they're doing. 2/3rd's of their profits come from interest earned on the sale of a borrowed asset.>> Not exactly that. These interest revenus are considered as part of the gold revenues and increase the price received for the gold they sell by as much. This is possible only because Barrick has 70M ounces in reserves and produces 4M ounces per year. It is an integrated operation. The gold they sold is indeed a borrowed asset, but the loan is sfully collaterized by Barrick gold reserves. Beside we are talking only 350 tons here sold over a period of a few years. What is the problem... There is much more gold that came from Korean scraps in 1Q98 alone. CC