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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Bobby Yellin who wrote (42521)	10/9/1999 10:33:00 AM
From: Alex	Respond to of 116927

Gold industry too cagey by far When will we get full disclosure from producer hedgers? By PATRICK BLOOMFIELD The Financial Post ÿÿThere is never a dull moment in markets these days. No sooner had the upward leap in gold prices confounded and confused the wiseacres among us than those dratted dot-com stocks -- another favourite target of those same wiseacres -- staged their own comeback. ÿÿCall it the revenge of the nerds on those who play with words. ÿÿSignificantly, yesterday's dot-com rally eventuated just as the starter's flag was going to come down for Wall Street's third-quarter earnings season -- not a quarter when results from these stocks have been particularly noteworthy in the past. ÿÿA prudent investor can never take anything for granted. That also goes for a boomerang of a business practice called gold price hedging, which leads us to the two prime questions of the day. ÿÿWhen are we going to get full frontal disclosure on the hedging books of all the gold producer hedgers? And when is Barrick Gold Corp. (ABX-T) going to offer us its half-cent's worth. ÿÿThere was some talk of Barrick, which reputedly has a whole floor dedicated to its hedging and derivative operations, issuing a statement yesterday. But that had not happened when this column was penned and the talk had turned to a conference call next week. ÿÿThe only certainty to date is that what disclosure we have had from the industry is not enough. Only a full statement of producers' hedging and derivative portfolios is going to satisfy gold share investors and analysts. ÿÿIronically, the U.S. Financial Accounting Standards Board has a new accounting standard out requiring U.S.-listed producers (which would include leading Canadian producers) to record derivative financial instruments on their balance sheets as assets or liabilities -- at fair value. But that becomes effective only for the first quarter of financial years beginning after June 15 last, which lets any company with a calendar year-end off the hook until 2000. ÿÿTwo companies have had a go at telling all, but by no means to universal applause. Ghana-based Ashanti Gold Fields Ltd. (ASL-N) , the producer that set the original cat among the gold price pigeons by disclosing it had had margin calls, sought to pour oil on troubled waters in a conference call with analysts yesterday afternoon. ÿÿBut I gather it wound up with as many unanswered questions as answers. ÿÿCome the end of the day, Ashanti's global depositary receipts were still down $1 3/8, or 25%, to $4 1/8 (US). ÿÿThe point that was reinforced during the conference call was the extent to which that Washington central banker agreement to cap future gold leasings and their use of derivatives caught everybody in the market flatfooted. ÿÿSeems Ashanti's people had taken the precaution of testing their forward exposure for sensitivity to changes of as much as $50 (US) an ounce in gold prices. ÿÿBut that was not enough to avert what gold markets have done to the company's hedging book today. ÿÿMeanwhile, Canada's Cambior Inc. (CBJ-T) , which was known to have had a fairly significant forward selling book, disclosed yesterday it has hedging positions of 2.7 million ounces at an average price of $318 (US) an ounce and has sold call options (giving the buyer the right to receive the optioned gold) for 1.9 million ounces at an average price of $315 (US) an ounce. ÿÿThe details of the statement, particularly of the call options, imply more than a little potential for liability, so long as gold hovers at current levels. ÿÿBut, here, too, gold-market watchers say they have not been told enough. This helps explains why Cambior stock shed $1.91, or 40%, to $2.83 yesterday. ÿÿIt is ironic that shareholders in gold producers such as Cambior, which have waited years for the gold price to turn, should have to rue the day that the turnaround materializes. ÿÿBut that is what can happen if a proactive hedging program meets up with market volatility on the upside. It is also fair to say that these same producers' determination to play the gold bullion markets on the downside helped pour coals on their own heads. ÿÿAnother irony is that their call option exposure can now do as much to help cycle gold bullion prices higher as their forward hedging knocked prices ever lower in the months and years past. ÿÿWatch this space. canoe.ca