Monday, December 21, 2009
Barrick Rings the Bell
"Barrick Gold Corp. accelerated plans to eliminate hedges against declines in gold prices, jumping to capitalize on months of gains for the precious metal and freeing up the company to develop even more. ... Tuesday's move by the Toronto-based moner, the world's biggest gold producer, helped boost the metal's price briefly to a record intraday high of $1,200 an ounce. Gold settled at a record close of $1,199.10, up 1.5%. ... Barrick and other miners for years protected against the risk of declining gold prices by selling part of future production in advance at fixed prices. ... Higher gold prices present some challenges for Barrick and other big miners. And moves to escape the hedges can have a bearish element in gold market. ... Barrick said it expects that it will provide an instant boost to its reserves--the amount of gold it can say it posses underground--which now is 138.5 million ounces. ... Barrick is investing $100 million more in a mine in Montana that it had initially planned to close last year. ... Barrick instead is focusing on developing its own sizeable pipeline of mines and is considering whether gold prices will be strong enough to let it accelerate its plans, Mr. [Aaron] Regent said. ... Barrick in September said it would spend $5.1 billion to eliminate its hedges within a year, by buying gold on the open market and by paying off previous contracts", my emphasis, Phred Dvorak at the WSJ, 2 December 2009, link: http://online.wsj.com/article/SB10001424052748703735004574570232904103054.html.
I don't see why Barrick and other miners sell any more gold than necessary to pay the bills. Gold stock investors buy miners as leveraged gold proxies. Why sell gold for paper, instead of storing it? As for "hedging", see Tom Selling 21 July 2009 comment: http://skepticaltexascpa.blogspot.com/2009/07/tom-selling-on-derviatives.html. ABX should drive its investment bankers (IBs) out and stick to mining. ABX has 983 million shares outstanding. Therefore, every $100 increase in gold's price yields ABX $9.00 billion in net revenues (138.5 million X $100 X 65%). Assuming it is paid over 20 years and no extramarginal ore become intramarginal, this is $450 million in annual net revenue for ABX, discounted at 7% real or, $4.837 billion, or $4.92 per share. ABX, you idiots, stop this hedging nonsense no matter what your IBs say. Hedges are not just against gold price declines, but increases.