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Gold/Mining/Energy : Agnico-Eagle Mines Ltd. - AGE (U.S. AEM) -- Ignore unavailable to you. Want to Upgrade?

To: Robert J Mullenbach who wrote (916)	6/7/2000 2:11:00 PM
From: Robert J Mullenbach	Respond to of 1612

Looks like no rush to sell today, I am hanging tight on profit. maybe just a little shake out before rise, Maybe this baby is going to fly because of new accounting rule by June 15. I zinc soooooo.!!! AEM has nothing to hide with Hedges. ( LOL ) XXXXXXXXXXXX here is the Poop, usagold.com NEW ACCOUNTING PROCEDURES COULD FORCE SHORT COVERING (Report posted 6/5/00) When most analysts are asked, they respond to gold's surprising breakout Friday with comments about the weaker dollar and prospects that the Fed might be tempted to cool its heels this summer with respect to interest rates, but the real reason for gold's lustrous showing late last week might have to do with a little known change in accounting rules for public corporations scheduled to go into effect June 15, 2000. Called by Salomon Smith Barney's resident gold expert, Leanne Baker, an "Accounting Nightmare", SFAS 133 will force derivative players to mark their derivative positions to market. That could lead in some cases to the posting of huge losses by some mining companies. Currently, derivatives' positions are shown as footnotes to financial statements because the profit or loss has technically not been claimed in most cases. The "book" losses do not flow to the profit and loss statement or balance sheet. Obviously, if you have a losing position and you don't want it to cloud the financial picture for your employer, the tendency would be to roll it and hope for the best. It is a much less complicated world for traders if they do not have to recognize their losses, but instead continually build a short position leading to the critical mass potentiality we have talked about here so many times before. Ms. Baker says that the negative mark to market losses for some mining concerns are "spectacular." With the implementation of SFAS 133 on the fifteenth, all books will become open books and stockholders of the mining companies will be able to see exactly where they stand, and what might happen should the gold price rise and jeopardize these positions. I might add that this new "Derivatives' Effect" will apply to all markets across the boards. Its implementation could change the way Wall Street does business when investors, regulators, accountants, and stockholders have been clued-in on what's been going on in the shadow of the previous standards. Says Baker: "Important departures from current practice will be marking- to-market of the time value of options through the income statement-rather than straight-line amortization of the premium paid or received. Forward contracts will be treated more favorably--with mark-to-market fluctuation flowing through equity on the balance sheet. However, this will introduce equity volatility and has the real potential to throw off credit ratios-- complicating the lives of analysts, bankers, and shareholders. Under SFAS 133, the recent gold rally and plunge in mark-to-market value of mining companies' hedge books would result in huge hits to net income from call options sold and to equity from sub-market forward contracts. Current rules allow these effects to be disclosed as a simple footnote to the financial statements, but if the gold price stays in the $320 per ounce range--or trades higher as we expect--the SFAS 133 derivatives -related damage to company income statements and balance sheets will be staggering." The bottom line here is that mining companies are not going to want to be exposed as the primary enemy of the very product on which they depend for a profit and the implications that this eat-your-young strategy might have on future stock values-- not if most gold stockholders have their way. Secondly, no management team will have wanted to show that the company balance sheet has suffered a serious hit because they gambled against gold, instead of acting to bolster its value. They could very well be attempting to clean up their positions before the SFAS 133 standards are imposed apparently for the second quarter reporting period, which could mean more big jumps in the gold price between now and D-Day (Derivatives' Day). Keep in mind that many mine company presidents went out of their way to assure their stockholders after the first quarter reporting period that they were not among those with huge hedge books geared in terms of net effect to driving the gold price lower. Most made the case that there hedge books were prudently run, etc. The time has come to turn over that hole card for the whole table to see, and it could get interesting. At the very least, we are going to see some deeper analysis of these hedge book positions. Questions will be asked; answers made part of the public record. I would refer you to Ms. Baker's longer (and prescient) treatment of the issue in our Gilded Opinion section and leave you with this final quote from the study she wrote titled: "A New Millennium Gold Rush" published in October, 1999: "We have long argued that derivatives positions in gold were lopsidedly short and disproportionately large for the underlying market. At its core,our positive view on gold in 1999 has been based on a belief that gold market liquidity was less than participants blithely assumed--and that when speculator and producer shorts were inevitably forced to cover, the results could be spectacular.... The carnage in the gold derivatives market resulting from a 25% jump in prices is astounding to us, especially against a backdrop of double- and triple-digit percentage gains in oil, copper, aluminum, and nickel; resurgent inflation signals; dollar weakening; and looming Y2K concerns. Stress testing of portfolios and "Value at Risk" (VAR) measurements captured only normal market and trading variability and failed to provide a meaningful assessment of comprehensive risk in the event of an "exogenous" shock--such as the European central banks' announcement. Particularly nettlesome were complex structured derivatives-- forward contracts with embedded contingent options--and leveraged option strategies that could not be unwound quickly. The practice of selling out-of-the-money call options to finance put purchases backfired as well. Even basic spot deferred contracts were tarnished as gold breached reference prices and climbing lease rates eroded forward premiums. We question whether managements understood their exposures and conclude that any positions put on this summer in a $250- per-ounce gold price environment were misguided at best, and disastrous at worst."