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XMFSinchiruna (26.40)

The Fortis Hedging and Financial Gold Report



March 07, 2008 – Comments (4) | RELATED TICKERS: ABX , IAG

Before you buy a gold miner, check this report to see its hedge position... it's a very important factor in projecting cash flows going forward.  In general, companies have been scrambing to buy their way out of hedge positions, but some have done better than others.  Barrick Gold, for example, has a large hedge position at extremely unfavorable prices compared to most competitors.  As I pointed out in a January post, Barrick execs sold massive quantities of company stock recently, and this left me wondering why.  I now suspect it could have something to do with these unfavorable hedge positions.

Here's the Fortis report:

I was disappointed to see IAMGold had quite a hedge position... I am long that stock, but will be watching their hedge position going forward.

4 Comments – Post Your Own

#1) On March 08, 2008 at 1:28 AM, dwot (28.99) wrote:

Yes, Barrick's hedge is at $300/oz or something.  They have no hedged current production, but when new mines are built they have these obligations.

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#2) On March 10, 2008 at 2:11 PM, XMFSinchiruna (26.40) wrote:

Thanks for the clarification dwot!  And for anyone who hasn't explored dwot's blog, it's consistently the best original research and commentary within the CAPS blogosphere.  Even on occasions when I disagree with her, I still find myself giving her mad props for the quality of her reaesrch.  Fool on Dwot!

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#3) On March 10, 2008 at 9:48 PM, dwot (28.99) wrote:

Thanks Sinchiruna :).

I kept looking into gold stocks because I wanted to buy some, they needed at least $900 gold to justify their prices before they've all jumped. I think they stay well ahead of their true value.

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#4) On March 11, 2008 at 8:12 AM, XMFSinchiruna (26.40) wrote:

Well... you're still my favorite fool to disagree with.  :)  I think the majors are mostly fully valued, and I don't own any NEM,GG, ABX,etc... but in the intermediate and junior miner spaces, I think most issued are vastly undervalued.  The triple storm approaching of higher spot prices going forward, increased production or commencement of production coming on-line, and their lower cost profile relative to many larger players makes these groups extremely attractive IMO.

Look at ECU Silver and tell me that's now both a value AND a growth play.  :)  SLW has increasing silver production at fixed costs of $3.50 / ounce, and has traded at about 1.2X silver spot for most of this bull run... and yet suddenly is lagging silver by quite a margin... SLW would be fully value at today's spot prices at around $22... In the $17s it's a steal.

In the gold space, Yamana and Agnico Eagle have been garnering lots of investor attention, and so are catching up to their value rapidly, but names like Gammon Gold have been left behind,  Gold Fields has been unduly punished for a power supply problem in S. Africa that has been almost fully resolved.

There will soon be few value plays to choose from in the sector, as there will be a wave of new investor interest as gold breaks through $1,000 and the full nature of the derivatives meltdown becomes known to the average investor (getting there).  But for the investor just looking to get started, thankfully, there are still some great deals.  AEM will be over $100 by year's end.


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