Barrick moves on Anglo, explaining Anglo''s boosting gold before covering shorts


By Thom Calandra
May 1, 2002

SAN FRANCISCO (CBS.MW) -- Gold shares may not pause
in a powerful rally that has made miners the top performing
stock market group of the past three months, analysts and
fund managers say.

Nearly all of those who follow gold companies or invest in
them on behalf of clients expect further, strong gains this
year. Even Wall Street analysts, caught with their pants
down on the metal's relentless rise, are scrambling to
raise their price targets for bullion. The latest was Michael
Dudas at Bear Stearns, who raised his 2002 gold price
estimate to $310 per ounce from $300 and set a 2003
forecast of $325 per ounce.

"It's getting crowded in the bull pit," quipped Andy Smith,
precious metals analyst at Mitsui Metals in London.
"Worryingly so. Like Japanese grandmothers, analysts
buy at the top, usually."

Gold stocks in North America, South Africa and Australia,
after putting in a first quarter that made them the world's
best performing industry, ahead of consumer electronics
companies, are flirting with three-year highs.

"The stocks have been way ahead of the metal, so they
are certainly entitled to a cooling off period," says Robert
Bishop at The Gold Mining Stock Report. The price of an
ounce of gold this week lost several dollars, falling below
the $310 mark bullion surpassed last week, then quickly
rebounded Wednesday. Spot gold at noon ET was selling
for $310.20 an ounce, up $2 for the day. Gold mining shares
in Canada and the United States were up 5 percent for
the day to their highest point since October 1999.

"Gold's action has become critical to the future of the gold
stocks," says Bishop, who ranks Newmont Mining, an
unhedged producer and the world's largest gold company,
as his top investment choice. "Six months ago, a year ago,
gold hardly entered the equation -- except insofar as its
changed fundamentals supported much higher prices.
Today, the gold stocks need gold to continue to rise."

In some cases, gold stocks are selling for as much as 12
or more times operating cash flow -- a lofty level achieved
by several companies, among them Barrick Gold, a
hedged mining company that sells part of its ounces in
the so-called "forward market" with the use of options,
futures, and other artificial contracts.

Barrick failed to meet Wall Street earnings expectations
Wednesday. In their conference call, Barrick executives
fielded numerous analysts' questions about the company's
hedged sales of gold, a strategy seen by some as risky
if bullion prices rise sharply. Those questions, from JP
Morgan, Goldman Sachs, and others, were met by Barrick
executives who assured investors they were monitoring the

Barrick said that for the remainder of this year it will sell half
its gold production in the so-called "spot-deferred market"
and half in the spot market. The company said its delivery
of the metal for hedged sales fell a net 200,000 ounces.
Investors increasingly are demanding that gold companies
sell their ounces in the spot market, thus reducing any global
selling pressure of the metal and eliminating complex
accounting practices linked to hedged sales.

Barrick and others use "written calls," options contracts,
and other derivative devices to hedge against possible
falls in gold's price. Douglas Pollitt of Pollitt & Co. in Toronto
says Barrick's confusing account statements may make
investors nervous. "The real story here is how they are
turning their written calls into Variable Price Contracts,
which no one really understands," Pollitt said after the
Barrick conference call. "Why not seek absolute

Meanwhile, bullion money managers, who have seen
their holdings appreciate 40 percent and more this year
alone, say they expect a rocky but profitable road for
gold and gold equities now that the metal is safely
above $300 an ounce.

"The history of bull markets is to shake as many out
along the way as possible," says John Hathaway,
manager of Tocqueville Gold Fund and one of the
metal's biggest proponents. "I expect bone-rattling
corrections from time to time and without warning. As
they used to say on bubblevision, the trend is your
friend ... buy the dips."

Hathaway's New York-based fund is up 54 percent
this year, making it and other gold mutual funds the
biggest gainers among domestic mutual funds in the
United States. Hathaway's largest holdings are mostly
unhedged miners that decline to second-guess the
price of gold by selling their production forward.
Hathaway is on record with projections of a $1,000
gold price, in part because of America's swollen
current account deficit and future vulnerability of
the dollar.

Money manager Adrian Day, who has been investing
in mining companies on behalf of clients for 20 years,
is confident gold will add to its gains. "With several
fundamental factors turning a little softer -- Middle East
tensions cooling a little, the Japanese stock market
recovering, U.S. accounting shenanigans off the front
pages -- gold could pull back a little," says Day at
Global Strategic Management in Maryland.

"But this is all short-term, and it would be a dangerous
game for most investors who are not significantly
overweight gold to sell now and aim to buy back later,"
says Day, whose favorites are the unhedged miners
that sell all of their production in the spot market.

"If gold moves up this year to $350-$360 -- which is
certainly a realistic expectation as the dollar starts to
fall -- then the major unhedged gold stocks will move
much higher," says Day.

The world's largest unhedged miners, Newmont Mining
and South Africa's Gold Fields Ltd., have seen their shares
outpace the gains of hedged miners such as Barrick by
a wide margin this year. Barrick shares have gained a
mere 30 percent this year against gains of 50 percent for
Newmont and 160 percent for Gold Fields.

"Although Barrick has the second lowest cash costs of
the eight senior gold miners, their total costs are the
second highest," said Day, the fund manager, after the
Barrick conference call Wednesday. "And their total
costs are getting worse, albeit slowly." Barrick, second
largest gold miner in the world after its purchase of
Homestake Mining, expects to produce 5.7 million
ounces of gold this year at an average cost of $167 an
ounce vs. $152 an ounce last year.

With sharp gains in market capitalization for large,
unhedged gold miners comes some of the respect
reserved for blue chips. Gold Fields, for example, will
leave Nasdaq and list on the New York Stock Exchange
on May 9. The South African miner, whose primary
listing is in Johannesburg, is now that country's largest
gold company when rated by amount of gold "in the
ground," 85 million ounces.

Gold Fields will hold its quarterly earnings call Thursday.
The company is expected to ring the opening bell at the
NYSE on May 9.

Gold shares as measured by the Amex Gold Bugs Index
of unhedged companies rose 4.2 percent by midday