To: ItsAllCyclical who wrote (20631 ) 10/25/2002 11:14:08 AM From: Jim Willie CB Read Replies (1) | Respond to Jim Sinclair clarifies the Newmont hedgebook lossesvery large addition to long-term debt ($145,000,000) is the financed ("no margin") margin call. The revenue effect of the underwater gold short is booked to the gold price (as a reduction in potential revenue) and not realized as a loss yet? That is proper in today's accounting world treatment of such an event would increase debt now, but not yet decrease revenue. That appears to me what, in accounting terms, has happened. I believe that the losses on the open hedges will not be realized until the point of delivery of gold against the gold derivative sale or financial closure of the commitment. That is how the accounting directive approaches these gains or losses. As gold rises, which I firmly believe it will, these losses will grow and margin financing will continue to become larger. Therefore the long-term debt of these gold producer hedger entities will continue to grow. At the same time, future revenues will be compromised further. Eventually the balance sheet of the major gold producer will deteriorate in terms of liquidity vs. liabilities. At some point, the major gold producer hedgers practicing this approach to handling the gold derivative short positions and accounting in this manner will, IMO, suffer credit downgrades "as to counterparty risk" just like JPM. It is my opinion, based on experience, that you cannot count on banks continuing to loan huge amounts to finance a bad commodity positions regardless of present agreements. Bank ownership is changing.
