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--- Begin Message ----Caveat Lector- 9:51p ET Wednesday, February 12, 2003Dear Friend of GATA and Gold: Here's more commentary from the Globe and Mail in Toronto about the sacking of Barrick CEO Randall Oliphant. It notes that Oliphant can hardly be alone at Barrick in responsibility for the company's big hedging program. But maybe a point not made in this commentary is important amid this week's decline in the gold price. That is, Barrick's board probably would not be replacing Oliphant so noisily unless it believed that the trend in the gold price is now emphatically up, not down. More on that point shortly from our friend Jim Sinclair. CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. * * * Barrick gives Mr. Hedge the boot By MATHEW INGRAM Globe and Mail, Toronto Wednesday, February 12, 2003 Online Edition http://www.globeandmail.com/servlet/ArticleNews/front/RTGAM/20030212/w math0212/Front/homeBN/breakingnews Live by the hedge, die by the hedge. It's not as catchy as "live by the sword, die by the sword," but the point is the same: Once you become identified with something, if it falls out of favour, chances are that you will too. Barrick Gold's now-departed CEO, Randall Oliphant, is the latest example. Having become synonymous with Barrick's hedging strategy, his star has fallen along with the market's interest in that strategy. There have been other things that have made life difficult for Mr. Oliphant lately, mind you, including missed production targets and weak results. If nothing else, Mr. Oliphant's sudden departure reinforces the fact that Barrick is joined at the hip with its founder and chairman Peter Munk, and if Mr. Munk sees you as superfluous — however integral you might have been beforehand — you might as well polish up your resume. The man Mr. Oliphant replaced, Paul Melnuk, suffered a similar fate. Certainly, Barrick's stock has been in the doghouse lately, largely because of its hedging program. But, apart from the fact that he is the chief executive, is it fair to give Mr. Oliphant all the blame for that? Not really. For one thing, although he is often given the credit for it, Barrick's hedge program is hardly the work of a single man. In fact, the man who has replaced Mr. Oliphant — Gregory Wilkins — was Barrick's chief financial officer in the late 1980s when the hedge program was created. Nevertheless, as he rose to become chief financial officer in 1994 (replacing Mr. Wilkins) and then chief executive officer in 1999, Mr. Oliphant became the public face of Barrick's hedging program. When Barrick consistently turned in better results than most of its major competitors, Mr. Oliphant got the credit, and when critics complained about the company's hedging approach, Mr. Oliphant was there to explain everything. So is the market's dislike of Barrick's hedging program well-founded? In some ways, yes — in other ways, no. Much of the criticism comes either from wild-eyed conspiracy theorists who see the company as in cahoots with some sort of global cabal, or from those who don't understand it. At the same time, however, the market correctly sees Barrick as benefiting less from rising prices than some other non-hedged companies. Hedging is something many commodity companies do, including oil and natural gas producers, because it protects them from swings in pricing. Aggressive hedging, in which large amounts of a company's future production are "sold forward" to lock in a price, makes sense when the price of a commodity is in a downward trend, as gold was for much of the 1990s. During that period, Mr. Oliphant looked like a genius. Just as some oil and gas companies have found themselves underwater on their hedges, however, so some gold producers wound up in serious trouble due to their hedging — including Cambior Gold and Ashanti Goldfields. Both were forced to buy gold at high spot prices to fulfill their contracts, and that helped to give gold hedging a black eye. Barrick has consistently — and correctly — pointed out that it is protected from that kind of event because of the way its "spot deferred" hedging program is structured. Since it is one of the globe's largest producers, it has been able to negotiate long-term futures contracts on very favourable terms with "bullion banks." Those banks loan Barrick gold, which it then sells forward, and then the income is invested. These loans are then later repaid with gold produced from Barrick's mines. Theoretically, if the price of gold rises above the price of these contracts — most of which are held at about $350 (U.S.) an ounce — that creates a liability for Barrick. However, the company has the right to push its obligation forward by up to 15 years, thereby delaying the point at which it has to provide the gold. That allows it to sell more of its production into the spot market to take advantage of price jumps. Mr. Oliphant has argued that Barrick is just as happy when the price of gold goes up as when it falls — since it is not only able to capture some of that increase through spot sales, but also sees the value of the gold it has in the ground increase, boosting the company's value. That glosses over two things, however. One is that Barrick can't defer its contracts forever, and the other is that Barrick's annual production isn't enough to defray all the liabilities that are implied by its hedges. Are some of the criticisms of Barrick's hedging program valid? Yes. However, it allowed Barrick to make more than $2 billion it would otherwise not have made, cash which it used to make a number of worthwhile acquisitions. In the end, of course, all that matters is that Mr. Oliphant has become synonymous with both hedging and missed targets — and with a declining share price — and that is enough to do him in. ---------------------------------------------------- To subscribe to GATA's dispatches, send an e-mail to: [EMAIL PROTECTED] To unsubscribe, send an e-mail to: [EMAIL PROTECTED] ---------------------------------------------------- RECOMMENDED INTERNET SITES FOR DAILY MONITORING OF GOLD AND PRECIOUS METALS NEWS AND ANALYSIS Free sites: http://www.jsmineset.com http://www.theminingweb.com/ http://www.gold-eagle.com/ http://www.kitco.com/ http://www.usagold.com/ http://www.GoldSeek.com/ http://www.goldenbar.com/ http://www.silver-investor.com http://www.thebulliondesk.com/ http://www.sharelynx.net http://www.mininglife.com/ http://www.financialsense.com http://www.goldensextant.com http://www.goldismoney.info/index.html http://www.depression2.tv www.minersmanual.com/minernews.html Subscription site: http://www.lemetropolecafe.com/ Eagle Ranch discussion site: http://os2eagle.net/checksum.htm ---------------------------------------------------- COIN AND PRECIOUS METALS DEALERS WHO HAVE SUPPORTED GATA AND BEEN RECOMMENDED BY OUR MEMBERS Centennial Precious Metals 3033 East 1st Ave. Suite 403 Denver, Colorado 80206 www.USAGold.com Michael Kosares, Proprietor US (800) 869-5115 Canada 1-800-294-9462 European Union 00-800-2760-2760 Australia 0011-800-2760-2760 [EMAIL PROTECTED] Colorado Gold 222 South 5th St. Montrose, Colorado 81401 www.ColoradoGold.com Don Stott, Proprietor 1-888-786-8822 [EMAIL PROTECTED] Investment Rarities Inc. 7850 Metro Parkwa Minneapolis, Minnesota 55425 http://www.gloomdoom.com Greg Westgaard, Sales Manager 1-800-328-1860, Ext. 8889 [EMAIL PROTECTED] Lee Certified Coins P.O. 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