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

To: nickel61 who wrote (2288)	4/1/2002 9:21:28 PM
From: russet	Read Replies (1) \| Respond to of 3558

At this price we would all agree that there are few viable new mines that will be found and that there will be little new exploration done. This is something I would argue with. Lots of people in the mining industry will say no more new elephant gold fields will be found, only to turn around and talk about their latest project which could have 10 million+ oz of cheap resource in it. No where is this more apparent than in the "round the world" technical sessions given at the PDAC or similar mining convention. The fact is that explorers have really just scratched a small amount of the surface of the earth's crust for ore. Many places on the earth are still off limits for serious exploration. Those that aren't have still seen little exploration using modern exploration techniques. Many people talk of Goldcorp's Red Lake mine as if it's one of a kind. In fact it is one of many,..past present and future. Goldcorp flaunts double digit oz Au per tonne in veins. Newmount took over a grassroots exploration project from Normandy that touts 100 oz Au per tonne veins with meter+ widths. Did you know that during the last decade, Australia added 258 million oz Au to their resource base, 72 million oz from new discoveries. Large tracts of prospective ground in Australia have never been looked at with modern techniques,...a large percentage of this ground is not even staked. Robert Champion de Crespigny, former president of Normandy Mining, PDAC 2002. Asia, Middle East, Africa and Australia have barely been touched, yet show good signs of exceptional exploration potential. Camps thought to be exhausted in North America, Europe and South America are being found to have millions of additional oz Au capable of being extracted at total costs below $250 per oz thanks to technological advancements. Why they aren't being brought on line has more to do with the large up front costs and the long process one needs to go through to plan and commission a mine. These are significant barriers to entry to the average company. Only the biggies can bring many of them on line cheaply and efficiently, but why should they if it only serves to depress the price of gold? The biggies can still pick and chose only the cheapest, least risky projects to develop. If you don't like what you see now, wait a year or two and something else will come along that's better and cheaper to develop and mine or technological advancements will make uneconomical resources money makers. Personally I think there is tens of billions (maybe hundreds of billions) of cheap to extract oz Au still to be found in the ground. I don't think you should count on a sustained rally in gold year after year to save poorly managed companies from rationalization. There will be lags in production increases to allow for good price increases, but that will cause a flurry of new exploration and production to be developed and brought on line only to be followed by declines in POG prompting new bouts of rationalization in the industry. With the above framework,...perhaps it is easier to see why Barrick and other hedgers do what they do. That doesn't stop them from restructuring the hedges to take advantage of the majority of increased profits allowed by a rise in the POG. In the rather remote chance that the POG were to skyrocket and maintain that price for a decade or more, Barrick would lose 18 million times the price increase over US$360,...assuming they didn't buy call options. Such a sustained POG scenario requires that demand and supply are not price sensitive and the increase is nearly instantaneous and I still can't think of any scenario where that might occur without considerable advanced indications. Perhaps someone can help me with that?