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This
will be an ongoing section dedicated to
any updates should the Pascua-Lama project
of Barrick continue to experience legal
troubles and delays. Also, I will include
any other feedback on this page related
to the Barrick saga. Even though this is
a silver-focused website and Barrick considers
itself a gold company, the amount of by-product
silver produced by Barrick is substantial
and makes it a significant silver producer. In addition, Pascua-Lama holds
almost 800 million ounces of silver in reserves
(representing about 4% of worldwide silver
reserves
according to figures from the U.S. Geological
Survey). Furthermore, while Barrick has hedged
a significant portion of future gold production from Pascua-Lama,
it has not hedged any of the silver.
Prospector Wins Initial Court Ruling on Barrick's Pascua
Lama
November
16, 2006
By:
Jon A. Nones
Courtesy:
Resource
Investor
SILVERAXIS.com
Feedback:
Nov
16 2006 - Jon A. Nones has written
an article basically presenting Barrick's
side of the legal battle over Pascua-Lama,
something which has been dismissed and is
not well followed within the resource
community. I think the information presented
is par for the course. What is interesting,
however, is a comment by "johngoldbug"
at the bottom of the article. This comment
presents an alarming counter-argument to
Barrick's position. I don't have the time
to fully research, but I was able to run
across a few items on the Internet which
at least makes one think that Barrick might
have understated its problems at Pascua-Lama
by a wee bit.
As the situation progresses,
there may be a few things we can learn from
this. First, exploration and mining are
inherently fraught with risk. Slam dunks
can turn into air balls due to events that
might
start out looking like tiny problems.
Second, hedging can be good and hedging
can be bad. In the case of Barrick, should
the Pascua-Lama project get substantially
delayed, some alarming problems might surface
as a result of Barrick allocating a large
portion of its hedge book to future production
from Pascua-Lama. Barrick already has a
tendency for arrogance, which could make
the disclosure of future problems not as forthcoming
as investors might like. If Barrick were
to lose investor confidence and be unable
to raise funds to acquire projects or expand
existing ones, its major shareholders (mostly
institutions) might start to panic that
it will not be able to deliver
against the hedge book. And at higher gold
prices, Barrick's hedge book could get too deep
in the red to be simply bought out for cash. The
launching of an SEC investigation would
really get the ball rolling.
I
have argued strongly in the past that Barrick
negotiated some great features into its hedge contracts--Barrick
calls them "Master Trading Agreements"--to give it flexibility even if the
hedges
were to sink many billions of dollars into the red
on a mark-to-market basis. In fact, since
only a small percentage of gold reserves
are hedged, Barrick can presumably
sell some of its mines as a way to close
the hedge book. What I hadn't factored in
before is the possible loss of investor
confidence along the way.
A hedge book otherwise under tight control
could become a raging monster under such
circumstances. I view this as a long shot, but I still find
it interesting that the hedge book, which
was supposed to make it safer to operate
as a gold miner, has instead made it much more
risky to do so.
In
effect, the risk to Barrick comes from the potential
exposure to an Enron-like scenario. What made Enron
collapse was the attempts to hide problems,
not the problems themselves, which could
have been dealt with in due course.
The loss of confidence in Enron was just
that: stakeholders no longer believing whatever
the company said. That started the string
of dominos toppling and the rest was history.
I hope
Barrick doesn't travel down this same path
for the sake of the gold and silver mining
industries.
I
will update these comments in the future
as warranted.
Nov
22 2006 - See discussion about Barrick's
sale of gold mines and its hedge book below.
Dec
5 2006 - Pascua-Lama Project
Receives Argentinean Approval - Market Wire. Barrick announces environmental
approval from Argentina, putting Pascua-Lama
one step closer to development. No information
on any legal challenges.
Barrick Says NovaGold
Fails to Respond with Facts
November
17, 2006
By:
Company
Courtesy:
Press Release by Barrick
SILVERAXIS.com
Feedback:
Nov
17 2006 - This
is actually a press release by Barrick.
In my years of following mining stocks,
I have rarely seen this type of low blow
sequence administered by a major to a junior,
and never in the context of a takeover attempt.
Barrick already seems to have emerging issues
with its Pascua-Lama project in Chile and
Argentina (see above) and now this? Barrick
is likely to have done the research and
in possession of intimate knowledge about
Novagold which means that the points they
are raising about Novagold's lack of disclosure
are probably valid in some part. But what are they trying to do,
knock NovaGold's price down so they can take over
the company at a cheaper price? This is
truly bizarre and the possible result of
either desperation or just the first
public indication that there is a duel to
the death being waged between these two
companies. Expect fireworks, legal battles
and the like in the coming months. Based
on these developments, and not speaking
as a silver investor but rather as someone who has
a portfolio of gold stocks, I would own
neither Barrick or Novagold without further
clarity as to where this is going. What
a shame.
Gold
Fields OK'd to Buy South Deep Mine
November
22, 2006
By:
AP
Courtesy:
Yahoo!
SILVERAXIS.com
Feedback:
Nov
22 2006 - As previously mentioned
in the section dealing with Pascua-Lama,
Barrick can at will close out part if not
all of its hedge book for cash by simply
selling some of its gold mines. The reported
amount being paid by Gold Fields for a 50%
stake in the mine acquired from Barrick
is $1.5 billion. Barrick not closing out
its hedge book at the present is a calculated
decision.
Barrick
Gold looks beyond yellow metal
February
23, 2007
By:
Lisa Wright
Courtesy:
The Toronto Star
SILVERAXIS.com
Feedback:
Mar
2 2007 - Barrick is apparently getting
too big as a gold miner, one more trouble
facing this troubled giant. I view this
as another sign of desperation even as Barrick's
gold hedging is proving to be much less
of a problem than most (almost all) supposed
experts and gurus had warned.
Barrick
Gold Seeks to Sell its Stake in Former Takeover
Target NovaGold
April
5, 2007
By:
Canadian Press
Courtesy:
Resource Investor
SILVERAXIS.com
Feedback:
Apr
9 2007 - Barrick seems to be acting
mighty confused, first seeking to buy Novagold
and then attempting to sell the stake of
the company it did acquire in the failed
takeover bid. This appears to be part of
a desperate, disparate corporate strategy.
Barrick Unloads 14.8% Stake in NovaGold
April
20, 2007
By:
Jon Nones
Courtesy:
Resource Investor
SILVERAXIS.com
Feedback:
It's
hard to imagine anything more silly than
what Barrick has done in unloading the shares
of Novagold. The NG share price got hit
by a couple of bucks but now in my opinion
represents a great buy thanks to Barrick.
Barrick:
Sep Pascua Lama construction start uncertain
- Argentina, Chile
June
21, 2007
By:
Pable Gaete
Courtesy:
BNAmericas
SILVERAXIS.com
Feedback:
The
problems mount for Pascua Lama as the project
is now effectively out of radar range. One
has to wonder if the recent Mendoza ruling
to ban toxic chemicals in mining might have
something to do with the delays Barrick
is apparently experiencing in getting its
permits. In any case, this continues the
troubled saga of the world's largest
(by market cap at least) gold producer.
Barrick
Defends Pascua Lama, Accuses "Professional
Activists"
July
18, 2007
By:
Julian Beltrame
Courtesy:
Resource Investor
SILVERAXIS.com
Feedback:
More
troubles for Barrick at Pascua Lama.
NovaGold
Receives Ruling on Donlin Case
July
18, 2007
By:
Company Press Release
SILVERAXIS.com
Feedback:
Barrick
finally has something go its way as a judge
decides that it is too early to determine
whether or not the mining giant will be
able to meet the November 2007 deadline
to earn an additional back-in right of 40%
in the Donlin Creek project.
Barrick
opines on gold supply and price, Donlin
Creek, Pascua Lama, Pueblo Viejo
August
3, 2007
By:
Dorothy Kosich
Courtesy:
Mineweb
SILVERAXIS.com
Feedback:
This
is perhaps one of the more bullish fundamental
developments concerning the mid to long
term future of gold. Apparently, Barrick
has been "researching" future
gold demand and supply and has concluded
that in 5-7 years there could be a 10-15%
drop in mine supply from current levels.
This was revealed in the earnings conference
call for the second quarter 2007 results
as reported in the Mineweb article above.
I find this particularly amazing consider
the incredible amount of money that has
been thrown at exploration over the past
2-3 years, especially given Barrick's
reputation in the gold industry (see Have
Gold Bugs Been Barricked By the U.S.?
by Prof. Fekete). Certainly Barrick might
be expected to be the last to make such
a statement if it truly is in cahoots with
central banks to suppress the price of gold.
Barrick
may cap spending on Pascua-Lama after delays
February
22, 2008
By:
Uncredited
Courtesy:
Bloomberg/Mining Journal
SILVERAXIS.com
Feedback:
We've
talked before about the possibility
that Barrick may not be able to bring Pascua
Lama into production and thus its multi-million
ounce "allocated" gold hedge may
become a naked corporate forward sale once
more. If the viability of this project starts
to become doubtful, watch the accounting
shenanigans as Barrick may have to recognize
its hemmorhaging derivative losses for financial
statement or debt ratio purposes. Perhaps
these gold forward sales will be allocated
to the Cortez project in Nevada, which Barrick
just fully consolidated for $1.7 billion.
In any case, there will be some big losses
to recognize. And if gold goes ballistic in
a monetary crisis, these losses may conceivably
become unbearable.
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