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

To: nickel61 who wrote (1688)	12/30/1999 11:36:00 AM
From: Enigma	Respond to of 3558

Go back one - edit.

To: nickel61 who wrote (1688)	12/30/1999 11:56:00 AM
From: Enigma	Read Replies (1) \| Respond to of 3558

OK - this is from the Barrick Home Page - let's have a point by point rebuttal: "What is the current status of Barrick's hedge program? Barrick's Premium Gold Sales Program is a fundamental component of the Company's approach to the gold mining business and has been for the past 12 years. The Company has always managed this Program on a conservative, disciplined basis. This Program was developed to allow Barrick to fully participate in a rising gold market, yet be protected in times of declining gold prices. Barrick presently has 14 million ounces of its reserves sold forward, which means the Company earns interest today on gold that is still in the ground. The Company also has sold 4 million ounces of long term calls at an average price of $360 per ounce which are spread evenly over the next decade. These calls can only be exercised on expiry and would be used to enhance the initial starting price of spot deferred contracts to be added to the hedge position. Barrick can at its sole discretion, convert the call options to spot deferred contracts. In addition, the Company has a short term call option program. The number of options outstanding vary depending on market conditions but are always covered by quarterly production. Barrick has locked in significantly higher gold prices over today's $290 per ounce spot price through 2001. If the gold price rises above the contract price, the spot deferred contract is simply rolled forward and the ounces are sold into the market at spot. Thus, Barrick is able to realize the higher of the contract price of the spot price. These contracts currently incorporate a gold lease rate of 2% which the Company has locked-in, into mid-2000. Also, Barrick is effectively free from margin calls or any other credit constraints. Only if the gold price rose above $600 would there be a minimal margin call/cash deposit on a small portion of the ounces in the Program. The fact that Barrick is the only company in the industry with an "A" credit rating in combination with its strong balance sheet and quality assets has allowed it to produce a unique hedge position with very flexible hedge lines. The Company can choose to roll contracts forward for up to 15 years if the spot price is above the contract price. (Note: Each year the contract is rolled forward, it earns an additional year of interest and therefore the realized price increases.) The impact of a rising gold price on the Company's off-balance sheet mark-to-market is not of concern. Though the mark-to-market value of the hedge book may decline, the realized price remains the same and the value of these underlying hedged ounces rises by the same amount as the gold price. As long as gold prices rise, so does the value of the overall Company because the majority of its 55 million ounces of reserves are unhedged. For example, with every $25 rise in the gold price, these unhedged reserves go up in value by about $1 billion. This Program has earned the Company additional revenue each year, totaling $1.5 billion in premiums since its inception 12 years ago. The purpose of Barrick's Premium Gold Sales Program is three fold: to earn the most possible for each ounce of gold the Company produces; to provide shareholders with insurance that the value of these ounces is protected in the event that gold prices decline; and to provide the opportunity to participate in increases in the gold price through flexible program"