The idea is so wonderfully simple, it seems incredible in retrospect that it took this long for a mining company to take the oil bull by the horns.
Do high oil prices have you down? Buy an oil company. Of course, it helps if you're the world's largest miner of one of the world's most precious resources.
Canada's Barrick Gold
With a market capitalization of $43 billion, and estimated 2008 gold production of 7.6 million to 8.1 million ounces of gold, Barrick enjoys a scale of production that makes a move into the oil business a no-brainer. Oil represents about one-quarter of total operating costs for Barrick, so producing its own crude for significantly less than it would pay in the market acts as a long-term hedge against rising input costs. Production from this new asset is expected to supply about one-fourth of the company's oil needs, and a significant portion of natural gas consumption.
Considering the company has a power plant in Nevada and investments in a wind farm in Chile, it's clear Barrick Gold is serious about getting energy costs under control. Barrick is not alone. Competitor Newmont Mining
Barrick made no bones about this move being in response to investor concern. With even low-cost producers like Kinross Gold
Further Foolishness:
- Agnico-Eagle enjoys some Foolishly low production costs.
- Consolidation within the industry should help with costs.
- Gold investments are not for the timid Fool.
