Once again silly short sighted reasoning abounds in Nuckels statements.
Barrick is on the record as to the nature of their main hedge, the forward selling of 18 million oz of gold. There is no margin call in the contract relating to changes in the POG, there is no margin used in the contracts as repayment is in gold only, something Barrick has in abundance in the ground. Arguments that the rising price of gold will somehow blow up the hedge and bankrupt the company are nonsense as long as Barrick continues to produce enough gold to cover the contracts that come due each year,...and right now they have no problem doing that, and in the next 15 years will continue to do that as contracts coming due annually are covered 2 to 3 times or more by production, giving them plenty of exposure to an increasing POG.
There is little counterparty risk on the forward contracts as the bonds bought with the proceeds of the forward sale of gold are AA graded or better, and unless you expect a collapse of the world's economic system, your reasoning makes no sense.
Additionally the relatively small amount of gold sold forward is covered many times by the much larger gold reserves, so writing down the notional value of the hedge book has little meaning. They will not pay back the loan with a fiat currency, they will pay it back with real gold, so the inflation in the price of gold in dollars is irrelevant. That's why all gold companies with such a hedge put it "off balance sheet" in the first place. Tracking its relative value to the POG in dollars is irrelevant to the company or its investors, and has no material effect on the company's cashflows or ability to survive. All the hedge does is set the minimum price in dollars the company will receive for a portion of their gold in the ground in the future, and the minimum price increases as interest is received from the bonds, so it increases over time until the gold is delivered to close the contract.
It is clear, for your (and GATA's) agenda on this thread to succeed, you must somehow convince everyone that Barrick is doing something other than a covered forward sale of their gold in the ground to gain interest from an otherwise non income generating commodity metal in the ground. The problem is, Barrick clearly states they are not, and the auditors agree with those statements, and so do the counterparty banks, and so do all credible analysts with a basic understanding of math who bother to read Barrick's financial statements.
Why don't you tell your friends, the raving professor emeritus from Nfld, or the anti hedger from Tan Range to come over here and post specifically to Barricks forward selling. I'd be glad to set them straight too.
Small wonder why an owner of Tan Range wants to present a case for a rising price of gold, and a decreasing supply of gold in the world,....not that he doesn't have a huge reason for attempting to manipulate the POG upwards to bolster the shareprice and perceived value of Tan Range before a buyout occurs,...the buyer most likely to be Barrick itself. Consider also the nature of the Tan Range agreement with Barrick, which is a good motivating factor to increase the shareprice before Barrick tries to eat them up in the event something economic is found.
Tan Range/Barrick Agreement
Pursuant to the terms of the Barrick Venture Agreement, Barrick agreed to provide funding to Tan Range totalling $4 million in the form of share subscriptions and the exercise of a share purchase warrant.
In June 1999, Tan Range/Barrick signed a Heads of Agreement, outlining general terms by which Barrick could become involved with Tan Range to further explore and develop the Itetemia property. The agreement was finalized in November 1999, at which time Tan Range/Barrick executed a joint venture agreement under which Barrick subscribed for $1,000,000 of Tan Range common shares at a price of $0.70 per common share. Barrick subsequently subscribed for an additional $1million of Tan Range shares at a price of $0.85 in April 2000 and a further $1 million of Tan Range shares a price of $1.00 per share in October 2000. Barrick exercised its share purchase warrant in June 2001 and provided an additional $1 million at $1.35 per share. The agreement specifies that 80% of the funds received from Barrick in these staged share purchases be used to advance the exploration and development of the Itetemia property. Tan Range/Barrick have formed a management committee to prepare and carry out the exploration budget, as agreed upon, with Tan Range appointed as the project operator. Currently diamond drilling is underway at the Golden Horseshoe Reef, with the target intercept projected at below a vertical depth of 500 meters.
Barrick retains the right to participate in any sale or issue of further securities by Tan Range, provided it holds at least 10% of the outstanding common shares, subject to certain exceptions. At the end of July 2001, Barrick did not hold 10% of the outstanding shares of Tan Range.
Upon completion of the expenditure of funds provided by the exercise of Tan Range warrants, Barrick is required to advance funds for the purpose of furthering exploration and development activities in respect of the Itetemia property. On or before, the fourth anniversary of April 30, 2001, Barrick may deliver a production notice and feasibility report; in such event:
Barrick shall acquire an undivided 60% interest in the Itetemia property; and Barrick must commence commercial production within 12 months of such notice at a rate of 100,000 ounces of gold production per annum (18 months where it chooses to process the ore on site) or make payments to Tan Range equal to:
US$500,000 on or before the first anniversary of such 12 (or 18) month deadline;
US$750,000 on or before the second anniversary thereof;
US$1,000,000 on or before the third anniversary thereof;
US$1,200,000 on or before the fourth anniversary thereof; and
US$1,200,000 on or before the fifth anniversary thereof;
and a further sum of US$1,200,000, after adjusting for inflation, every anniversary thereafter. Barrick may acquire the 10% interest held by Stamico and cause the Stamico Venture Agreement to be terminated, in which event it shall obtain a 70%, in lieu of a 60%, undivided interest in the Itetemia property; otherwise, Tan Range is required to assume responsibility for the Stamico 10% interest.
Upon a production notice, Barrick is obligated to arrange financing to bring the Itetemia property into production, which it may arrange through the use of internal funds or external funds, with Tan Range to repay its portion of the costs from its share of the net proceeds of production. The costs of arranging the financing are required to be repaid by Tan Range in proportion to its interest in the Itetemia property. In addition, should Barrick provide a completion guarantee to a third party lender, then Tan Range is obliged to pay to Barrick, on a monthly basis, 1/12 of 1% of the amount attributable to Tan Range that is contingently liable under the guarantee. Neither Barrick nor Tan Range may assign any interest in the Barrick Venture Agreement without the prior written consent of the other. Tancan obtained the written consent of Stamico to its execution of the Barrick Venture Agreement on November 17, 1999. |
