Executive Summary
Gold is a particularly volatile commodity that has not been traditionally hedged against price risk, but over the years many firms in the industry have adopted risk management strategies with great enthusiasm. Particularly zealous is the American Barrick Resources Corporation. The company embraced risk management and even incorporated it into one of its main business objectives. Over the years American Barrick has grown into a successful and fast-growing firm, however after discovering abundant ore deposits in a recently purchased mine the company is particularly exposed to price risk. The price of gold and interest rates are at historically low levels and American Barrick is unsure of how to proceed.
Introduction (objective)
Peter Munk, the founder of American Barrick had after experience and past failures come to the belief that high liquidity and low leverage were key tenets in a successful business. The increased flexibility obtained by following these guidelines should provide the company with opportunities that less hedged companies did not have. If gold prices were to fall then the company would not be affected by the distress costs that other competing companies would experience, giving the company an edge during times of low prices. During this time they would have additional cash reserves available to invest while other companies might be struggling to gain expensive debt financing. This is one of the major competitive advantages a gold company can have because the major costs in this industry is exploration and acquisition costs. Because of their strong financials and stability the company was also more likely to enter into more favorable contracts. The risk management program was meant to provide in...
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...ises for each period. This diagram assumes a positive contango. Exhibit 9 however assumes negative contango, and as we can see this leads to a lower profit for each period. Since the contract does not have a permanent delivery date, then the company does not promise to deliver gold for any one particular year. Therefore there is little risk that the company hedges more gold than is deliverable using this strategy. American Barrick was able to negotiate agreements giving them a 10-year maturity. If the company were to rollover up until maturity and the spot price at that time is greater than the forward price than they could miss out on a very high price rise. However, the company is able to lessen large amounts of opportunity costs by using the SDC and the chance of missing out on a high price at the year of maturity may very well be counterbalanced by this fact.
The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor.
Here we are 118 years removed from this attempt to create a monopoly of the gold market and we still have some of the same issues going on to this day. The 1869 Black Friday scandal might have been prevented if the Sherman Antitrust Act of 1890 was in place, but that would come 21 years too late to have prevented this financial scandal but did prevent the creation of one oil company. So, in 1869 there was no current laws or over site that would have prevented anyone from cornering the market.
The Senior Hearst quickly made himself wealthy through his investment in mining operations in the United States. Doing all of the research into these sites himself he owned some of the largest claims in the nation, “including the Comstock Lode in Nevada, the Ontario silver mine in Utah, the Homestake gold mine in South Dakota and the Anaconda copper mine in Montana” (Loe). The Comstock, Homestake and Anaconda claims would become three of the largest mining discoveries in American history. (Swanberg)
Kreindler & Kreindler was Morson’s attorney for a lawsuit against the government of Libya after Morson’s mother died in the terrorist bombing of Pan American Flight over Lockerbie, Scotland in 1988. Morson is a resident of Massachusetts (CourtListener, 2009).
Rawls, James J. and Orsi, Richard J. (eds.) (1999). A Golden State: mining and economic development in Gold Rush California (California History Sesquicentennial Series, 2). Berkeley and Los Angeles: University of California Press. p. 187.
1. Birkenfeld was adamant that his prison sentence was unfair when compared to the fact that no one else (e.g., Olenicoff or UBS bankers) went to jail. Did he have a point? He should have thought before he acted you cannot pick and choose the things you want to disclose. Life is not fair and it’s especially not for criminals. This is a tuff question because no he did not have a point but in retrospect if you lock up every individual who chooses to report a crime then no one will report it. He got off pretty well if you ask me, he did receive 104 million.
Smith-Baranzini, Marlene, Richard J. Orsi, and James J. Rawls. A Golden State: Mining And Economic Development In Gold Rush California. Berkeley, California: University of California Press, 1999. eBook (EBSCOhost). Web. 26 Mar. 2014.
Obviously, financial establishments can endure breathtaking misfortunes notwithstanding when their risk management is top notch. They are, all things considered, in the matter of going out on a limb. At the point when risk management fails, be that as it may, it is in one of the many fundamental ways, almost every one of them exemplified in the present emergency. In some cases, the issue lies with the information or measures that risk directors depend on. At times it identifies with how they recognize and impart the risks an organization is presented to. Financial risk management is difficult to get right in the best of times.
Would you risk everything just for a chance to strike it rich? Even with the advancements in the business, it is still a guarantee that you will spend a lot of money getting started, and the payback is not guaranteed. Gold mining, no matter where you are in the world, is a risk-reward job and could either make you one of the happiest people in the world, or it could make you live out the rest of you life in a mountain of debt. Like what is said at Bering Sea Gold “Gold Mining in general is dangerous and not a get rich quick occupation.”
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
The execution of our investment strategy occurred in three stages. First, we invested in t-bills and bonds according to our original set out investment plan. This was to decrease potential losses and risk associated with the declining equity market. Therefore, we invested about two hundred thousand of our funds into these low risk assets to maintain buying power. Due to inflation, we did not want to lose buying power by leaving funds in an account without earning interest. Further, we invested a small portion of funds into the commodity market. With a slumping equity market and a positive outlook on the gold commodity, we invested in Gold Corporation at the same time we invested in income assets.
Miles and Snow’s typology is centered on four types of businesses; each with its own strategy. These business types are those of prospectors, defenders, analyzers, and reactors. A prospector tends to be a firm which often introduces new products to the market (p.196). These businesses can be described as risk takers, typically being some of the first firms to introduce a new product to the market. Prospectors are flexible and meet industry changes head-on by rising to challenges and creating new and improved
After the financial crisis of the late 1990s, the demands for risk management tools have increased. The investors have been effectively utilizing such products as KOSPI 200 futures and options, 3-Year KTB futures and USD futures to meet their hedging needs.
The mining industry is a billion dollar industry that has been around for years. In calendar your 2016 a net profit of $US20 billion was the aggregated profit for global miners. The year before, 2015, the mining industry had a record high gearing ratios, 49%. The industry took advantage of better operation conditions to pay down debt, reducing the gearing ratios to 41%. Many company front line executives took advantage to reduce debt and fortify their company balance sheets. The results of reducing company debts resulted in minimum funds for capital expenditure
... stock fluctuations. If a financial advisor cannot be afforded, it would have been in the best interest of the investor to read more on the stock market news regarding what stocks were predicted to have a profitable growth. The investor could have stayed with energy and renewables, just cold have chosen different corporations then the ones chosen.