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

To: Mark Bartlett who wrote (44406)	11/1/1999 9:20:00 AM
From: Enigma	Respond to of 116761

What is your problem with Barrick's hedge book - that can't be answered or posed by yourself?

To: Mark Bartlett who wrote (44406)	11/1/1999 10:53:00 AM
From: Zardoz	Read Replies (4) \| Respond to of 116761

The very impatient Mark Bartlett gets his answer. Mark asked:What are the ranges? The only black boxes I will invest in, are those where I can get honest third party confirmation, they truly work - where can I get that with Barrick? I know it's tough reading news releases, but someone has to do it. "We expect to produce 3.65 million ounces of gold this year at $125 per ounce, the highest production at the lowest cost in our history," said John Carrington, vice-chairman and chief operating officer. "All operations are achieving excellent results, lowering unit costs through productivity improvements. They are generating cash margins of $250 per ounce, the best ever." "For the nine months, Barrick realized an average price on its gold sales of $385 per ounce, a premium of $112 per ounce over the average spot price of $273, generating $317-million in additional revenue. At quarter end, Barrick had 14 million ounces sold forward, and stands to realize an average price of $385 per ounce on production through the year 2001." First off. Barrick is not short 14 MTOz, it is sold forward; call this a propagated Ted Butler fallacy. This is not a future, or a swap. It CAN'T be called early, it can't be forced early. It only needs to be deliveried at the appropiate day in the futute. Gold goes to $2000/Oz, it would only need to be delivered. With the appropiate fixed lease rates paid back. If you look at the above you can see that the marginal cost of production is low, and thus the POG has what can be expressed as further downside risks. Which is why I made the statement before that the rally was a futures related rally, not substantial. To ask what are the ranges for ABX, I say they are immaterial. As only the delivery of said gold is important. If we assume the premium gold sale is accurate at $385, then Barrick only begins to have some form of loss of return above that price. Call it a lack of participation. But even then, that's only a small issue, because this is important: "The company consistently sells forward about 20 per cent to 25 per cent of reserves under its premium gold sales program to maximize revenue and minimize gold price risk over a three-to-four year horizon. These contracts give Barrick the flexibility to sell its gold at the contract price or the spot price, whichever is higher. At the same time, the company can capture the benefits of a rising gold price as 75 per cent of reserves are unhedged." Well what a small portion is really hedged. I could go on for a lot longer, but I really suggest you READ the Barrick nine-month results. "The premium gold sales program is unaffected by the recent rise in gold prices. The program's gold borrowing costs are locked in at low rates into mid-2000. Because of the company's financial strength and quality asset base, the company is also effectively free from margin calls. " After all, from today's action, it seems moot. Hutch