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

To: nickel61 who wrote (2956)	5/21/2002 5:37:08 PM
From: russet	Read Replies (1) \| Respond to of 3558

Your professor in the ivory tower was the one that said to take a longer time period, not me. It was his ASSumption that Barrick would not be so successful over a longer time period. It is my contention, and Barricks, that your professors ASSumptions are not applicable to Barrick, indeed most of what you say as well is easily dismissed by information found in Barricks financial statements. Kitco has a gold chart from 1833 to the present. http://www.kitco.com/scripts/hist_charts/yearly_graphs.cgi Given how Barrick runs the current hedge program, they would on average make more money than spot for the years from 1833 to the early 1970's with the current lease rates versus bond interest rates,...I assume current bond rates are close to what existed over this period. If you can't prove otherwise (bond rates that is) this period alone proves your assertions are false, and mine are correct. But we will continue. Between 1972-1974 the POG started a climb from the $40's to $180 over a year and a bit where Barrick would have pared back the hedging program and sold more gold at spot, just as they are doing today. Costs continued to be very cheap per oz during this period so they would have continued to make profits as their average revenue per oz would be much higher. From 1974-1978 the POG went down, sideways and back to the $180 level so Barrick would have had four years to make above average spot prices with a hedge program. From 1978-79 it was starting to be clear inflation was rampant, interest rates were soaring, and the gold price was starting to spike up. Barrick would once again be paring back on the hedge program, perhaps buying gold calls to increase their leverage on the increasing gold price. The contango made on the presold gold would be increasing as the gap between interest rates and gold lease rates would be widening so that would help Barrick continue to be profitable as the hedge was being wound down. A ever increasing percentage of gold production would be sold at spot. Costs would be increasing but the average revenues would still keep ahead of it as more gold would be sold at spot than delivered to the hedge each year. The big spike from 1979-1980 was short in duration, but by this time even more gold would be sold at spot than delivered to the hedge each year than the last few years, so their average gold revenue per oz would have allowed them still to make a profit (see newsrelease below). Later on in 1980, when it would become increasing evident that the gold price had peaked, the hedging program could be restarted with high contangos and locking in very high prices for gold in the $600's. From 1981 to the present, the POG drifted sideways to down on average, and we know most of this period well because Barrick was hedging through 15 years of this period and became one of the most successful gold companies in the world. So let's see,...from 1833 to the 2002 a total of 170 years, about 164 years the average POG was sideways to down year to year and Barrick's current hedging would have given them prices above spot due to contango over several year intervals. 164 out of 170 is 96% of that 170 year period. So who is mathematically challenged? Once again I suggest the only thing blowing up here is your logic and math skills. Barrick Gold Corp ABX Shares issued 537,813,627 May 8 close $32.75 Thu 9 May 2002 In the News The Globe and Mail reports in its Thursday, May 9, edition that Barrick Gold says it plans to simplify its gold hedging strategy and make it more conservative. The Globe's Allan Robinson writes that Barrick says it will no longer invest cash from the forward sale of gold in a corporate bond portfolio, but will instead invest it with major financial institutions at a slightly lower rate of interest. The hedge portfolio is currently worth $5.5-billion of which about $758-million is in fixed-income corporate bonds (all figures U.S.). Barrick plans to reduce its call option position by at least 50 per cent or three million ounces by the end of the year. Its spot deferred hedge position of 18 million ounces or 22 per cent of reserves will stay unchanged. Since 1996, the hedge program has generated $1.7-billion in additional revenue above the spot price of gold. Barrick says it expects to sell half of its gold production at the spot price and half at its hedge price of $365 an ounce. Gold traded Wednesday at $308.20, down $3.40. ?Every $25 increase in the average spot gold price will increase Barrick's earnings by about $70-million or 13 cents a share. Barrick has eliminated further writing of call options. Barrick has made 1.6 Billion more hedging their gold since 1996 than a similar unhedged gold producer for the same amount,...that's a lot of capex for new mines. Every $25 increase in the average spot gold price will increase Barrick's earnings by about $70-million or 13 cents a share. Gold is currently trading at about $316, but Barrick is averaging $365 per oz on their hedged gold. Selling at spot is pulling their average down.