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Gold/Mining/Energy : Barrick Gold (ABX) -- Ignore unavailable to you. Want to Upgrade?

To: Enigma who wrote (1411)	10/19/1999 6:33:00 AM
From: ForYourEyesOnly	Read Replies (3) \| Respond to of 3558

Barrick is well known as having the biggest short position in the world. That is NOT innuendo. Let's assume that they have a short position (calls/forward sales) of about 11 million ounces sold at an average price of $350. If the gold price goes to $450, then you have a margin call of roughly $1.1B. Think they can cough up that much cash? For a preview of what will happen to ABX and your shares (I assume you own some), read the recent press releases from Ashanti. Enjoy the bull market......!!!! THC May 18,1999 Mr. Peter Munk Chairman Barrick Gold Corporation Royal Bay Street, Suite 2700 PO Box 119 Toronto, Canada M5J 2J3 Dear Mr. Munk: I am writing this open letter to you in the hope of reconciling recent public statements by you and your company. As you know, I have written to the Securities and Exchange Commission concerning what I feel are misleading public statements and improper business practices by Barrick. While of course, those allegations by me are related to the issues I am now writing to you about, I ask you to view my words solely with an eye towards your fiduciary responsibility to the shareholders and employees of Barrick. Your recent public statements concerning gold market participant behavior and your outlook for the future price of gold are distinctly opposite to Barrick's current posture. First, you have denounced speculative short selling of gold and central bank selling as the reasons for the depressed gold price. While, no doubt there is truth in your words, you have conveniently ignored the role of Barrick and other mining companies in the leasing/forward sale scheme. Sir, your role is pivotal. Second, if you sincerely believe your gold price projection of $300 to $400 per ounce over the next year will come to fruition, Barrick's current short position of 11.5 million ounces will render as much as a $1.5 billion deterioration in value (based on today's $275 gold price). Considering that you reported record net profits for 1998 of $300 million (after tax), a loss of such magnitude would appear very serious. It is true that speculative short selling of gold has had a depressive price influence. But it is the miners, such as you, that are at the root of this problem. While you will claim only to be hedging, the type of hedging you are practicing is the problem. In no other commodity (except silver), nor at any time in history has there been such a distorted and manipulative practice as the borrowing of central bank metal for the purpose of selling short. It is an abomination. Don't you see that you have lent the appearance of credulity to this practice of selling short physical material by creating the impression that the miners can replace the shorted material through production? Only a fool or a charlatan could accept the premise that years of collective world production could be available to satisfy these short sales in a deficit. Why would anyone need to physically borrow and then sell short an item to effect a hedge? Why not just sell a futures contract or buy a put? We both know the answer to that in Barrick's case. It is obviously to play with the proceeds of the short sale and to take advantage of the difference in interest rates between the lease rate on metal and money market rates. According to Barrick, you earned $200 million on this in 1998, and I can understand your reluctance to jettison such a moneymaker. But sir, you are supposed to be a gold miner, not a hedge fund. At $400 per ounce, you would need 7.5 years of $200 million of arbitrage earnings to cover the mark to market loss. At $600 per ounce, you would need almost 20 years to cover the almost $4 billion loss on your short position. That, of course, assumes no problem in continuous arbitrage profits, something that shouldn't be assumed - restudy LTCM. I don't think the majority of your shareholders and employees realize this, do you? While I am sure you will counter that you don't have to cover your short sale in a price spike (your 10-year extension loophole), waiting a gold price spike out may be the worst thing to do. A more important question is when is the ideal time to cover? If it's not at 20-year lows, when is it - at 20-year highs? Or perhaps, when a regulator orders you to? The reason most miners haven't covered their hedges at such attractive prices can only mean one thing - they're not hedging, they're speculating - just like the hedge funds you and they resemble. Leaving aside the wisdom of short selling a physical item to effect a hedge, how did the notion of selling more than one years production come about? You know, in the U.S., commodity law prohibits a commercial entity from selling more than one year's production on those futures with a speculative position limit. While the lobbyists have succeeded in exempting the metals from this decades old rule, the reasoning behind the law is sound - how can anyone project beyond a year? More importantly, the law also states those selling more than one years production would have an undue influence on the markets - precisely the effect that Barrick and the other short selling miners have had. I ask you sir, is your short selling revolving around central banks borrowings designed to circumvent commodity law and common sense? Be assured that the world is growing aware that the miners are the chief culprits in the leasing scam - without the miners, there would be no leasing and short selling. You must know by now the effect that Barrick and the other short selling miners have had on the gold and silver markets. No other market in the history of the world has had to deal with years of real production dumped uneconomically as the gold and silver markets have had to endure these past ten years. While I admit you have reaped the ill-gotten gains of this manipulation, conditions do change. Are you prepared to explain to your employees and shareholders why your short position should not be closed out forthwith, and book the reported $800 million short sale profit, in light of your public prediction of the gold price? Or will you continue to risk billions in order to protect the income generated by your hedge fund operation? You know, your "hedging" has paid off because you have succeeded in causing gold to declined and interest rates have remained stable for the past few years. Will you bet the company on that continuing indefinitely? If my words have not been clear enough, or if there is still doubt whether to cover your manipulative short position forthwith, please consider this - why not let your shareholders vote on the issue? Most investors gravitate towards a mineral producer when they want exposure to a price rise in that mineral. Do your shareholders and employees know that you have bet the company against a price rise? Very truly yours, Ted Butler