The Golden Truth: American Barrick (ABX) Is Doing What? Did I Read That Correctly?

Tuesday, September 8, 2009

American Barrick (ABX) Is Doing What? Did I Read That Correctly?

American Barrick, one of the world's largest mining companies, announced today that they will issue stock to raise $3 billion in order to entirely eliminate their very infamous gold hedge contracts. These hedges were put in place several years ago when gold was around $300 per ounce. Here's the news link:

This Tells Us Gold Is Not Going Lower

This is an extraordinary move considering that Barrick is using $3 billion in cold, hard shareholder cash and is taking a total charge of $5.6 billion, in what amounts to public admission of the Company's failure to anticipate the ongoing bull market in gold and silver. If Wells Fargo were to address its $122 billion pay-option-ARM portfolio in this manner (let's assume it's worth 50 cents on the dollar, which is probably generous), they would announce a $61 billion write-down, to be immediately funded with a $32 billion stock issue. I guess if you're a big bank, it's just easier to ignore the loss, take $30 billion from the taxpayer, pay out several billion in bonuses and announce on CNBC that "it's all good."

What's even more extraordinary about this move is the implied message that Barrick is sending to the world about where they think the price of gold is headed. They wouldn't be spending $3 billion in shareholder capital upfront to get rid of these hedges if they thought the gold bull market was over and the price was about to fall. This move by Barrick is a signal to the world that they believe the price of gold is going much higher in price and they are willing to spend several billion in order to reap to full benefits of much higher gold prices in the future.

For anyone doubting the legitimacy of the gold bull, would you rather place your faith in the idiots on CNBC or in the smoke signals being sent globally by one of the world's largest gold miners?

2 comments:

JoshThursday, 10 September, 2009
Dave what the hell is Barrick doing in the HUI if it is hedged ??
Am I missing something ?
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Dave in DenverThursday, 10 September, 2009
Josh, good question. At least ABX is eliminating their hedges. Several other HUI stocks hedge: AU, CDE, and AUY for sure. I suspect BVN probably has some hedges going as well. AU is systematically getting rid of its hedges, CDE I don't know what they're doing and I just found out AUY had hedges on, but I think it might be on their copper.
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Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.