Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Barrick Gold Earnings Report Doesn’t Add Up

Commodities / Gold & Silver 2009 Nov 05, 2009 - 08:35 AM GMT

By: John_Handbury

Commodities

Canada’s news may not always get in the limelight, but yesterday’s earnings report from Barrick Gold struck home with me. It just doesn’t seem to add up.

Barrick Gold, the world’s biggest gold company, undertook a strategy to hedge on its gold production by locking in on future gold prices. 


As any farmer knows, hedging makes good business sense since it provides predictability for the revenues and therefore safety for business investments and costs to achieve that production.  Unfortunately for Barrick, this hedging strategy has not been beneficial in a bull market, and they have reportedly lost over $5 billion in potential profit because of it.  Now they are so bitter, and so confident in the future direction of gold prices, that they have made a management decision to forego hedging.

Relevant news clippings from Kristine Owram of Canadian Press are:

“The Toronto-based gold miner, which reports in U.S. dollars, said its quarterly loss included a non-cash accounting charge of $5.7 billion related to its hedging program”.

"We made this decision to gain full leverage to the gold price on all future production based on an increasingly positive outlook for gold," said Barrick chief financial officer Jamie Sokalsky.

“Sokalsky said the company has so far raised a total of $5.1 billion by issuing equities and long-term debt”.

"By eliminating the gold hedge book, the company will fully participate in future gold price movements," Sokalsky said.

The article goes on to say;

“Sokalsky said … as of Wednesday had eliminated 1.1 million ounces of gold hedges, or approximately one-third of its hedged position”.

Something smells funny here.  The above statement infers a total hedge position of 3.3 million ounces.  So how did Barrick lose over $5.7 Billion, which would be about $1,700 per ounce?  Hedging means taking short positions, so to de-hedge their gold positions will mean buying all the short positions back.  Even if the company had lost $300 per ounce, which would be excessive and moronic, the net loss is only about a Billion dollars.

It appears that this $6 Billion “non-cash accounting charge” relates to more than just their hedging losses.  One possibility?  They intend to buy some of the 400 metric tonnes of gold that is being offered up by the International Monetary Fund (IMF).  $5 Billion would be enough to buy almost half of it outright, or all of it on 50% margin.  Barrick may be worried that if the IMF floods the market with this much gold, it will suppress the price, and therefore their profits.  Maybe they think they can sell it into the market better, without depressing prices. If this is the case, Barrick will go from a gold hedger, to a gold hoarder. Let’s just say if this happens, it will certainly give gold prices a big one-time lift.

By: John Handbury Independent Trader

© 2009 Copyright John Handbury - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

John Handbury  Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in