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

To: russet who wrote (2369)	4/4/2002 5:24:52 PM
From: nickel61	Respond to of 3558

You are wrong and right about this one my friend. The market price would decline just like it does for a bond or bond fund, and the value that the stock market would ascibe to this portion of the value of Barrick as a going concern would decline just as it would for a portfolio of bonds in the market place or as in the example I used of valuing an insurance company which really is little more than a bundle of bonds held to maturity. The lower value of the fixed income payments would come from the fact that now in a rising interest rate enviroment there are better(i.e. higher) returns out there. The way the market adjusts for this is to reduce the stock value of the company that holds them. But you are also right in that the cash flow would stay as you origionally thought it would as long as you held to maturity. If I have a bond portfolio that is traded as a closed end bond fund for example and will hold all it's bonds to maturity, the value of that fund will rise and fall in the market place in relation to how it's interest coupons compare to what is currently available in the interest rate marketplace at that moment. If you buy a million dollar ten year bond with the intent to hold it to maturity and interest rates for ten year money go from 5% to 10% while you are holding it the market price for that bond if you had to sell it will be almost cut in half. As long as you can hold you will get the interest rate you expected. The way the stock market adjusts for this very real loss of value is to mark down the value of the stock of the company that holds that portfolio of bonds, much like they do insurance companies in my example. In Barricks case though rising gold prices and rising interest rates at the same time would have the offsetting effects of the new higher value on ABX's unhedge reserves and as you have pointed out they would be able to add significantly to their reserves at higher prices and to open mothballed mines to further increase production. I admit that this might well swamp the dampening effect of the lower value for the bond portfolios.