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

To: Enigma who wrote (49418)	2/21/2000 4:09:00 PM
From: Ken Benes	Read Replies (3) \| Respond to of 116768

Time for a little quiz. Since 1993 Barrick has tripled production. Pick the correct answer: a) barricks share price has tripled; b) barricks share price has doubled; c) barricks share price has remained the same; d) barricks share price is less than its high of 1993. The correct answer is D. The additional 1.5 million ounces that barrick intends to produce annually in the next two years does not guarantee increased shareholder value(appreciation in price), in fact not only will there be increased supply by the amount of 1.5 million ounces, you could expect an exponential increase in supply when factoring in the forward sales predicated by the increase in production. In most businesses this would not be a prudent course of action unless the demand exists to absorb the increased production. Yes barrick is in an enviable position to have this option to increase production, however, in the real world of gold prices, it may not be the more prudent course of action at this time. We are currently in a transition phase of the market where buyers are adjusting to the reality of higher prices. As gold seeks a true equilibrium price in the 350 to 370 range there are certain realities that have to be addressed. Primary is the effect of above ground gold on prices and the method those stores of gold work there way into the market. There is nothing that a producer can do to thwart outright sales by a central bank, but they do have leverage when you consider the leasing market. The producer has an option to engage in new forward contracts, close out existing position, or do nothing. At this time, the optimum course of action would be to retire existing short positions reducing the amount of gold available in the spot market. The producers have the additional option of curbing new production putting further constraints on supply and in the process still get increased market valuation based on the increase of in ground reserves This is distinctly different than in other industries. A producer of microprocessors is charged with a liability if they idle producing facilities while a producer of gold may be credited with 20 to 30 dollars per ounce for every new ounce of reserves they have in the ground. The dillution comes when production( including above ground sources) overwhelms demand. Growth for barrick is not limited to increasing production, they have the option of increasing their reserve base, which will add value to the company without effecting the market price of gold. It is the responsibility of the shareholders of barrick and other producers to monitor the companies and if those companies are insistent on increasing production, the investor should liquidate their position. As demonstrated this month, when push comes to shove, the producers will acquiese to the wishes of the shareholders. It is the shareholders responsibility to evaluate the proclamations of the producers in order to distinquish a bit of sophistry from overt actions. Keep the pressure on the producers, they are truly the weak link in the gold markets, the speculators are counting on them to drive the price of gold lower. Ken Ken