Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: nickel61 who wrote (1941)	1/16/2000 7:47:00 PM
From: Exsrch	Read Replies (3) \| Respond to of 3558

Nickel61, <<And who in their right mind would buy a hedge portfolio with gold currently selling below the full cost of production a 10,000 tonnes short position and the dollar losing market share rapidly?>> Actually alot of investors would. Why? Several reasons: - ABX's track record of hedge portfolio that has been profitable for 10+ years with sustainable earning under volitile AU prices. You said earlier they are earning $95 premium per ounce right? Until when? - CANTANGO income can be derived irrespective of spot gold (if you don't understand CANTANGO and why it is irrespective of AU price, that is why you probably don't understand HUTCH or DD). The economic decision for ABX to stop hedging is the classic breakeven analysis (as a function of CANTANGO income). Let me explain in sequencial order of events: 1. Hedge one ounce of gold (for example) by borrowing against one ounce of reserve. 2. Lets assume that AU spot US$280 3. Current cost of extraction is US$305 (your figure for total production cost at ABX) 4. Sell leased gold at spot of US$280 than invest US$280 in conservative financial assests. 5. If original principle (one ounce spot of US$280)plus the interest earned (over lease period) is greater than the cost of extraction (US$305) plus leasing costs by the time the lease expires than ABX continues to hedge. The above example is a conservative interpretation. Why? theoretically ABX could hedge till spot went as low as production cost (or fixed costs) because it could yield continuing positive cash flow till that level if interest on CANTANGO was significantly high enough. This I must admit is somewhat impractical; however, given ABX's cash costs they could continue to hedge as a function of amount of CANTANGO and prevailing interest rates to a spot price significantly lower than today. The thinking here is incomplete. For that I apologize; unfortunately, my son and daugther are beating each other silly so I have to run. Cheers, Exsrch