ABX ...a little digging Wave Signals Commentary Mike Drakulich December 4, 2003 First, I am NOT a "fundamental analyst" and that is not where my analytical skills lie. However, when I see a situation like ABX, and look at that stock and its performance vs NEM, I wanted to do a little digging. Everyone I think knows that the major reason for the ABX dramatic under performance has been its hedging program, as gold is in a major Gold Bull market. And we now know that the hedging program is over, and that Barrick plans to reduce that their current 16 million ounce hedge position to zero. Psychology is SO important in a market like Gold, and I think both individual and institutional investors have avoided ABX because of the hedge program. I think that VERY likely to change over time. Now what is SO intriguing to me is that the "dreaded hedge" is gone just as ABX stock broke a major long term down trend line last week (see chart), and that is NO coincidence IMO. Let's also realize that in this gold Bull market there really are not all that many large "quality" gold stocks that many institutions can buy. And over time institutions and investors will be looking for "quality" gold stocks as more and more move to at least "decent" gold exposure in their portfolios (that has barely begun IMO). ABX has the only A rated balance sheet, no debt, and around 1 billion in cash. And it has approximately the same gold reserves as NEM, around 87 million per the last reports I have seen. So let's subtract their 16 million of remaining hedges and that gives them 71 million of reserves, about 18% less than NEM. This year ABX is expected to produce about 5.4 million ounces vs 7.3 for NEM, about 26% less. And ABX and NEM have very similar "mining costs" per ounce. So, how do we "value" a gold stock like this? By reserves in the ground? or by annual production? Both IMO, since these are established and healthy long term ongoing concerns. So if we priced Barrick at somewhere between 18-26% below NEM as a VERY general guideline, it "should/could" trade near the 37-41 level based upon that "simple" analysis. And PLEASE keep in mind this is a very simple comparison, but I think it is useful in looking at where ABX has the "potential" to trade. ABX has been universally hated by gold bugs for years because of its hedging policy. And an ingrained attitude like that will NOT be changed overnight, it will take weeks and many, many months, perhaps a few years. But there has been a fundamental change, and the long term chart patterns also strongly suggest a major breakout (see chart). We have recognized this early, and I believe on a long term basis, assuming an ongoing gold Bull market, ABX is very attractive. I welcome any feedback/comments on my "logic" and reasoning, and welcome any more pertinent "facts" on how we can quantify the ABX/NEM valuation scenario. *** These are solely "opinions" of the author. Mike Drakulich Email: wave@pacifier.com MIKE DRAKULICH     FREE 2-WEEK TRIAL Mike is editor of the Wave Signals Email Newsletter and has been timing the markets for his subscribers since 1988. This service covers the major Financial markets, and is sent out (by email only) at least 2-3 times a day, during market hours. Trading vehicles used are Futures, options, stocks, and a trading program focusing on ETFs(exchange traded funds). The ETF trading program has proven very successful and popular. A Rydex based mutual fund timing section is also offered. If you would like a FREE 2-week trial simply email Mike.