You are here
The strange books of Barrick Gold, and a warning to Newmont Mining
10p ET Wednesday, May 15, 2002
Dear Friend of GATA and Gold:
The danger of gold derivatives is tonight's
Reg Howe's partner in Golden Sextant Advisors
LLC, Robert K. Landis, has written a brilliant,
incisive, and wickedly funny essay examining
the financial books of Barrick Gold. While he
is a lawyer, Bob shows great gifts as a financial
and investigative journalist. You can read his
Meanwhile, James Sinclair, chairman and CEO of
Tan Range Exploration, a legend in the gold
business, a great friend of GATA, and a
shareholder in Newmont Mining, has written an
open letter to Newmont Chairman Ronald Cambre,
warning about Newmont's possible exposure to
Sinclair's letter is appended here.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
JAMES SINCLAIR'S LETTER TO NEWMONT MINING
May 15, 2002
Ronald Cambre, Chairman
Newmont Mining Corp.
Dear Mr. Cambre:
Allow me to introduce myself. I am James
Sinclair, chairman and CEO of Tan Range
Exploration, TNX on the Toronto Stock
Exchange. I was chairman of Sutton Resources
from 1989 to 1995, when I personally funded
that company into the development of the
Bulyanhulu property before its sale to
Barrick Gold. I have written three books on
commercial metals, precious metals, and
economics. I am enclosing my last book quot;Boom,
Insights, and Visions into Wealth Creation in
the 21st Century.quot; I am also enclosing an
article from Forbes magazine written in
December 2001 reviewing my career in gold.
My background prior to 1989 was as the owner
and operator of metals trading, commodity
clearing, and metals arbitrage group firm
known as the Sinclair Group. Some consider me
a leader in the understanding of the
economics and markets for gold.
The reason for my letter is to alert you to
certain characteristics of the present
hedging market in derivatives that might not
have been outlined yet to the head office of
Newmont. I am one of the few who have hands-
on practical knowledge of the derivative
market. I am not a Harvard mathematics
professor or a computer specialist. I am a
derivatives trader who knows the difference
between a loss and a gain.
As a stockholder of Newmont I believe that we
need to expunge all those derivative
contracts from our books immediately. Many
were acquired as the product of the desire
for non-recourse development loans during the
long gold bear market. If these are
contractually required, may I suggest two
alternatives. One is to go recourse on the
loans so that the derivatives can be lifted.
The second alternative is to do a convertible
bond financing and replace the development
loans you have acquired as a result of your
acquisition of a too-aggressive Australian
hedging gold producer.
I am primarily concerned about counterparty
risk on these arrangements as they have no
clearinghouse facility. A clearinghouse
facility requires the writer of a derivative
to pay in if the market moves against him,
thereby reasonably guaranteeing the financial
performance of the contract. These
obligations to you have no such facility and
are therefore only promises to pay.
I am extremely worried about our industry. As
an example, Ashanti has a $77 million loss on
its hedge book at $303 gold. At the recent
high of $315, Ashanti was BROKE. The travesty
is that the gold banks are financing these
huge losses into the future, assuming that
the present strength in gold is transitory.
I believe that it is a new bull market. I
believe at $354 the gold hedging derivative
instruments will fail. That is not good for
Yet the new financial management of the major
gold producers sits smugly quiet as they
march into a total disaster for themselves,
their shareholders, and our industry as a
Please demand hard answers from trusted
members of your staff on the following
questions concerning your recently acquired
derivatives. They will take the cloak of
disguise off the instruments you now own. I
do not believe you will like what you will
1. What percentage of the funds that you have
taken into earnings or deferred earnings
(originating from your hedge transactions in
the past five years) are free from the
necessity of maintaining your present hedge
2. In derivative contracts with derivatives
dealers, does the right of quot;offsetquot; exist?
That means: Should the dealer enter
insolvency while owing money to us, can we
charge that indebtedness against what we may
owe the dealer?
3. Have we dealt with a well-known
substantive investment or commercial bank, or
with a subsidiary of that entity? If the
answer is a subsidiary of the investment or
commercial bank, in what nation is the
subsidiary domiciled? What are the
legal/capital/bankruptcy laws of that
domicile? This information is necessary to
assess real credit risk.
4. Is the subsidiary of the investment or
commercial bank entitled to an automatic fund
forwarding from the parent to cover the
quot;trade debyquot; of that subsidiary, if the
subsidiary fails? If not, then we would have
to cover the failed commitments, as margin
calls do not wait for litigation outcome.
5. If we have dealt with a subsidiary of the
investment or commercial bank, have you seen
the balance sheet of that subsidiary and
audited amount of total nominal value of
derivatives granted by that entity to others?
Without this, no reasonable calculation can
be made of our credit risk involved with this
6. If we have dealt with a substantive
investment or commercial bank in hedge
derivatives, has our Board of Directors been
apprised of the condition using an audited
statement of the nominal value of all
derivatives granted by that institution? If
we have not, then regardless of the hundreds
of millions or billions in capital that these
above firms have, no meaningful qualification
of risk has been (or can be) made.
7. Can we trade the entire transaction of the
hedge book with any dealer we wish, or are we
obligated to one quot;granting dealerquot; when
changes or closure are required or desired?
If we can't take our position in totality (or
leg by leg) to any dealer, we have severely
limited our liquidity and tied ourselves to
the financial condition of our counterparty.
8. Assuming we used leased gold contracts as
part of our hedging program, do either
ourselves or the dealers have the obligation
of returning the gold, re-leasing the gold,
or replacing the gold at the end of the
standard term of lease (which is one year)
required by all central banks? Does our Board
of Directors realize that no matter what our
contract says with the gold bank, the leased
gold needs to be re-leased, replaced, or
covered at the end of each year regardless of
the fact that our hedge position may go out
as far as 10 years forward?
9. Regarding the hedge instruments: A) Were
all the trades transacted over-the-counter,
or on a listed exchange? B) Is there a
regulatory body presiding over all these
transaction? C) Are the prices of these
instruments in the public record somewhere?
D) Was the price of these instruments
determined by computer modeling? E) Is there
an open market for each leg of these hedge
10. Regarding legal considerations: A) Are
you familiar with the legal precedent set in
the early 1990s in U.S. District Court for
the Southern District of New York whereby the
validity of a derivative transaction is
determined by the capitalization of a
transaction versus the nominal value of the
transaction? B) Are you familiar with the
legal precedent concerning the validity of a
commodity transaction being determined by the
timely (and industry standard) execution of a
If every hedging gold producer chairman of
the board, where the buck ends, would ask
these questions, I believe the answer would
go a long way toward putting an end to the
use of financially weak instruments. I
believe in free markets and the right of any
commodity-producing company to hedge. But
hedging has to be done intelligently in
instruments that have guarantees that they
will function. The instruments now being used
for hedging are extremely dangerous in a
world where the best names today can be the
bankrupts of tomorrow.
Please be informed that the total size of the
nominal value of all gold derivatives on the
books of the commercial banks of the 48
countries reporting to the International
Monetary Fund is at gold $285 =
$278,000,000,000, of which the total amount
of all the gold hedged by all the gold
producers of the world is only 11 percent.
Convert the total nominal value of all the
commercial banks' gold derivative position
into ounces of gold, and your figure is over
900,000,000 ounces of gold represented at
nominal value by the commercial bank.
Sir, a disaster is in the making, therefore
please get Newmont out of harm's
James Sinclair, Chairman
Tan Range Exploration
RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Centennial Precious Metals
3033 East 1st Ave.
Denver, Colorado 80206
Michael Kosares, Proprietor
US (800) 869-5115
European Union 00-800-2760-2760
Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889
Miles Franklin Ltd.
3601 Park Center Building
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
Contacts: David Schectman,
Andy Schectman, and Bob Sichel
Resource Consultants Inc.
6139 South Rural Road
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
Dr. Fred I. Goldstein, Senior Broker
HOW TO HELP GATA
If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.
Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541
By credit card (MasterCard, Visa, and
Discover) over the Internet:
Donors of $750 or more will, upon request, be sent a
print of Alain Despert's colorful painting symbolizing our
cause, titled quot;GATA.quot;
GATA is a civil rights and educational organization
under the U.S. Internal Revenue Code and contributions
to it are tax-deductible in the United States.