Comments on: Adventures in hedging, Barrick Gold edition http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: SouthSeaStu http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/comment-page-1/#comment-6604 Thu, 10 Sep 2009 09:17:59 +0000 http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/#comment-6604 Ditto. Barrack appears to be the stooge of the banking cartel keeping gold down. $3 billion is a small price to pay. For details of how and why Antal Fekete gives great detail.
http://www.professorfekete.com/articles% 5CAEFHaveGoldBugsBeenBarrickedByTheUS.pd f

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By: John http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/comment-page-1/#comment-6602 Thu, 10 Sep 2009 06:42:43 +0000 http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/#comment-6602 There’s no ‘simple math’ here, but a belief that the price they are paying to close out the hedges – $990/oz or so we assume – will turn out to be cheaper than the price they receive to deliver into them over the next few years. Is it a silly idea? They’e been doing this for about six years (the started with over 20 million ounces) and so far have largely (and overall) been proved right. Of course there will come a time…

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By: the Shah http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/comment-page-1/#comment-6578 Wed, 09 Sep 2009 21:48:14 +0000 http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/#comment-6578 What’s not to understand? They are getting their shareholders to pay $3b USD to free up 5,000,000 oz from their hedge books at $600USD, then they can turn around and sell for at least $950USD. Simple math… and no interest hanging over their heads like from a bond issue (granted they raised $750m USD earlier this year in bonds). So they will dilute 10% to add 20% to their cash-flow, so again, what’s not to understand?

If you don’t understand why the biggest gold miner in the world needs to hedge prices they you shouldn’t be writing finance. I think that the lower price range of the hedge speaks to how fast prices have shot up from the $500-600USD range (less than two years ago) to the $900-$1000USD (roughly since last summer), or up from ~$300 USD since 9/11. Or maybe that just speaks to how poorly the USD is doing compared to world currencies, give that Barrick is a Canadian company.

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By: Taunter http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/comment-page-1/#comment-6575 Wed, 09 Sep 2009 21:19:56 +0000 http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/#comment-6575 You didn’t think earnings management stopped when Jack Welch retired, did you?

In fairness to Barrick, there is a certain logic to hedging what you produce: essentially guaranteeing yourself a specific profit over extraction cost. The problem is that when you use traded instruments, the full hedge is carried at its market price but you only accrue offsetting earnings as you deliver metal. So if the hedge becomes dramatically underwater – ie gold RISES – the negative value is immediately carried onto your balance sheet. Given enough time to produce the gold to match the hedge, you could unwind it, but in the meantime you trip all manner of covenants and risk the firm. You put it off and put it off, but at some point you need to bite the bullet and get rid of the hedge at any price.

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By: Gari N. Corp http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/comment-page-1/#comment-6574 Wed, 09 Sep 2009 21:06:15 +0000 http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/#comment-6574 Two reasons. Barrick’s banks may have told it it had to hedge. The second is that earlier price spikes might then have looked like the top of the market.

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By: davekaps http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/comment-page-1/#comment-6571 Wed, 09 Sep 2009 20:33:24 +0000 http://blogs.reuters.com/felix-salmon/2009/09/09/adventures-in-hedging-barrick-gold-edition/#comment-6571 Barrick was hedging as an agent of the gold cartel to suppress the price of gold. This was a higher priority than turning a profit for their shareholders.

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