As far as investing in Goldcorp or Barrick,...I would buy neither,...but that is a vastly different discussion than saying Barricks (or Newmonts, Anglogold's, K, etc.,) hedges will blow up. These hedges bear little similarity to Ashanti's or Cambior's, but some writers continue to ASSume they do.
Writers have declared that Barrick would blow up at $300 gold, $320, $340,...and now some twit says they will blow up if gold goes into backwardation for some period. Public statements by Barrick, and Barrick's financial statements say they won't. Barrick's forward selling contracts are extremely simple, and uncallable until the end of their term unless Barrick suffers some sort of large collapse in their production or in their reserves numbers.
These writers continue to demand that Barrick's forward gold leases are callable by the bullion bank at some higher price of gold,...Barrick has stated several times publicly they are not. The contracts are covered by gold in the ground. Barrick has contracts to deliver 18 million oz Au to several bullion banks (including some Canadian players) over the next seventeen years. Barrick has stated this too, publicly many times, and no bullion bank counterparty, or Barrick employee has challenged this statement. Indeed, any Barrick employee I have talked to publicly or privately has supported the Barrick position, even after they were laid off after takeovers of Homestake and other absorbed companies. The contracts can't be called, so Barrick can deliver to them little by little using less than 20% of annual production,....which means that Barrick will get the spot price for at least (on average) 80% of annual production so the vast majority of annual production will fully participate with any rise in the POG. The small hedged portion will get an average of $340 per oz for 17 years.
I am in marginally profitable producers and near producers like K, ELD, WRM, NGX, etc., etc. (there are dozens of examples), for the same reason you are in G, leverage on the POG. Marginally profitable producers at $340 gold will expand their earnings far faster than major producers like Barrick, Newmont,...and G,...so their eps, cashflows and share prices should double, triple, quadruple, etc., with much lower percentage increases of the POG than G, Barrick and Newmont,...at least that's the expectation of goldbugs, and me,...and that's all the matters because the stock market does not reflect reality, but the voters (speculators) expectations and emotions, a fact best captured with technical analysis, promotion, and insider information.
As far as Barricks chart,...their production has been declining and their mine operating costs rising significantly. This has lowered their cashflows and profits wiping out the increase in earnings coming from the rising POG. As well they are spending billions to build new mines, and for further exploration. All these are what is reflected in Barrick's charts. I would not recommend anyone buy Barrick until their new mines are closer to startup. It is likely that production problems will continue in the near term for Barrick, and uncertainties over the BS about the lawsuit and hedging will continue to depress the stock.
Those speculating on Goldcorp should know that this is the most promotional gold stock in the world. Costs are projected to increase shortly, based on the mineplans I reviewed a year ago. They may increase reserves, but production may decrease in the near term. These profit depressing effects may be countered by a strong rise in the POG, or they may suffer some mine production problems, or need to spend some money lengthening shafts etc. Time will tell. The only thing that is bigger than their promotion so far, has been their luck. When do the labor contracts expire again? |
