N. American Gold Report

advalorem

For those who follow stocks in the commodity world....

Citi N. American Gold

roadrunner

I read the first page and their 3 major reasons of why Newmont is better than Barrick. I'm not sure how 9 BILL in hedged gold back at around $350/oz. makes Barrick a better value even if the price of gold is dropping. Assuming Barrick has equivalent mining costs to Newmont, one of them has to eventually sell 9 MILL ounces of gold at $350/oz, regardless of what the price is. I think that speaks better of Newmont. I also think their analysis of the other 2 points of ABX vs. NEM leaves out some important factors. If Citi really wanted to recommend good gold miners I wonder why they ignored the middle tier producers altogether. I can think of 5 solid producing and unhedged gold miners I'd rather own as a multi-week/month trade or long term hold have before ABX or NEM.

roadrunner

advalorem

Are you sure about the Barrick current hedge position? I don't have my numbers in front of me, but they were/are coming down dramatically.

There is also the issue of the 2009 Ant-Mining act that may be implemented within the US. David Morgan in silver-investor.com had a great interview in the April issue.

I prefer the producing juniors myself: with self-financing in place. Blue chips I would go with GG, AEM, Franco Royalty, RGLD....the PAAS/SSRI in the silver space are the two known commodities.

I also like MGN up in Montana, SVM in China (both AMEX); and 20-30 more prominent juniors.

roadrunner

Barrick's hedge of $9 BILL is accurate and recent to the best of my recollection. No doubt it has come down quite a bit over the past few years. One analyst's review of Barrick was that in light of it's large estimated in-ground reserves of $123 BILL, the $9 BILL was not that large. Anglo (AU) is the next largest hedger at $6 BILL. Barrick does meet the definition of unhedged to be part of the HUI. That definition is fairly lax allowing a miner to hedge up to 1.5 yrs of production to qualify as unhedged. In the case of ABX that would be about 10-11 MILL ounces or $8.5-$10 BILL.

I've not done a whole lot with juniors since to get access to most of them you have to trade on the Toronto exchange. I too like AEM and GG, as well as NEM, AUY, EGO, IAG, BVN, and then GSS, KGC, ABX. The GDX etf is fairly heavily weighted to ABX, NEM, and GG as well as some of the usual laggards. So if you want more exposure to some of the quicker moving intermediates, you have to purchase them individually making your own mix. One of my biggest concerns is geo-political/environmental exposure. It doesn't take much for a foreign country to change their mind about handing out or renewing permits or just deciding to nationalize a mine. Even the US congress is working up a bill that would put a dagger into the hearts of US miners (gold, silver, coal, etc.). If that eventually goes through you'd be better off in those miners with no US-based exposure. This would seriously hurt Newmont for instance.

roadrunner

rgCoinGuy

Your huge icon is freaking me out, how did that happen?

advalorem

Info on ABX's hedge removal is below...

HUI Gold Stocks (Barrick Zero Hedges) Scott Wright February 27, 2009

"..........Barrick Gold (ABX-NYSE): Barrick Gold is the largest gold producer in the world. Its incredible portfolio of 27 operating mines, 10 development projects, and numerous exploration projects is spread across a geographically diverse landscape spanning five different continents. With an annual production volume of 7.6m ozs, Barrick mines 40% more gold than its nearest competitor. And to support this impressive production profile it holds the largest gold reserves in the industry, a whopping 139m ozs. At gold’s current price Barrick is sitting on over $125b of economical reserves. But even though Barrick is the king of the gold mining industry, its 25-year history hasn't always been rosy. Barrick has had to tackle some serious adversity to gain a top spot in the HUI. In fact, because of its precarious hedging history it is actually one of the newer members of the HUI. For a long time Barrick employed a hedging policy in which it sold forward about 25% of its reserves. When gold was in the doldrums at the turn of the century this strategy was actually profitable, but once gold got some legs these hedges would prove catastrophic to shareholders. Barrick’s early 2006 mega-acquisition of Placer Dome didn't help its cause either. Now this was the move that vaulted Barrick over Newmont to become the world's largest gold producer, but Placer Dome's notorious hedgebook only added to the pain. Ultimately whether it was Barrick’s underperformance to most other gold stocks or the fact that it was selling a big chunk of its gold hundreds of dollars below spot, Barrick finally came to its senses and closed its production hedgebook by mid-2007. Though settling its hedges would prove to be quite costly, with a price tag of over $2b, it was the best move for Barrick Gold shareholders. ABX was added to the HUI shortly after it closed its production hedgebook and is now one of the highest-weighted HUI components........"

advalorem

A link to ABX SEC Filings:

Barrick Gold Corp 40-F for 12/31/08

roadrunner

I got through about 1/4 of that Barrick report when it kicked me out and asked me to sign in for SEC information. ???

I don't know if I'd use Zeal as an authoritative source of Barrick's hedgebook. Somewhere in my reading on ABX the past 2 months I ran across the $9 BILL number. It could have been on their last quarterly report issued in February. In any case I'd be shocked if they really had eliminated their hedges as I keep running into Barrick "hedged" references in articles referencing them. One reference by GFMS in Nov. 2008 lists the total hedges at $17 BILL and with Anglo and Barrick as the 2 "leaders." Here are 2 links that suggest ABX still carries a big hedge

hedge book 1

Barrick with 9.5 mill ounces hedged at $325 - as of Sept 2007

This last one using the $950/oz value from a few weeks ago would suggest a $9B hedge book. The article states that they will be closing this over the next 10-15 years. Possibly Scott Wright was suggesting that they are no longer adding to their position but working to reduce it. He stated they closed it out in mid-2007. Barrick had at one time 24 MILL ounces hedged and reduced that 16 MILL. The $2 Bill figure came from a much lower price of gold as they were reducing further. At what appears to be 9.5 MILL ounces left, it's still significant.

roadrunner