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

To: Dundee Maples who wrote (3317)	1/20/2003 3:01:30 AM
From: russet	Read Replies (2) \| Respond to of 3558

Barrick writes their forward selling contracts with several counterparties, and JP Morgan is only one of these and represents a small percentage of total hedging contracts. They borrow gold from the counterparty who gets the gold from a Central Bank. The counterparty bank then puts the proceeds from the sale of the gold into a bond portfolio which currently stands at a value of about US$ 5 billion and represents the proceeds of the gold sales. Barrick receives monthly interest payments from the coupons on the bonds, and pays interest to the counterparty to borrow the gold. If the counterparty goes belly up for whatever reason, and in the process absconded with the bond portfolio, Barrick is not obligated to return the gold that corresponds to that bond portfolio. Therefore there is no counterparty risk to Barrick. You should be able to see that the demise of the counterparty bullion bank would even be favorable to Barrick should gold continue to rise in price as Barrick might lose the bonds but keep the gold to sell at a much higher price. I would be more worried about the expenses associated with mine operations, overhead expenses, and headgrades than I would the derivative program as these are far more important in the short term to the income statement and earnings per share than the derivative program. In the longer term their ability to add to current low cost production is key to increasing eps and share price,...just like every other gold miner out there.