To:Dale Schwartzenhauer who wrote (329)
From: John Barendrecht Tuesday, Jul 8, 1997 10:25 PM
Respond to of 80051
Tuesday 8 July 1997
Gold stocks lose their glitter
Southam Newspapers TORONTO - Gold mining stocks took another beating Monday as jittery investors bailed out and the price of bullion continued its steep downward slide.
Analysts warned that high-cost Canadian gold producers may have to shut down some or all of their mines and predicted the slump could also accelerate corporate merger and takeover activity. The toll was already being felt in South Africa, where Randgold Exploration announced on Monday it is closing its Benoni mine because of the price drop.
"It's a real bloodbath," said Victor Flores, gold analyst at Marleau Lemire Securities Inc. in Toronto.
The Toronto Stock Exchange's gold and precious minerals subindex fell 4.14 per cent Monday, losing 325.31 points to end the day at 7529.89.
The index has dropped a total of 10 per cent since last Thursday and it has fallen more than 30 per cent so far this year.
The price of gold bullion dropped deeper into its 12-year low Monday, with a closing price in London of $318 US a troy ounce, off $6.90.
If the price dips below the $300 mark, it will be uneconomic to produce gold for about 60 per cent of the world's gold companies, said John Ing, president of Maison Placements Canada Inc. in Toronto.
Big losers on the TSE were Vancouver-based Placer Dome Inc., down $1.20 to close at $19.25, Cambior Inc. of Montreal, off $1.05 for a $14.50 close, Romarco Minerals Inc. of Toronto, down $1.07 to close at $2.58, and William Resources Inc. of Toronto, which closed at $1.25, off 53 cents.
Gold has been in a slump for the past several months, mostly due to continued low inflation and roaring stock markets, but recent events have been particularly brutal.
Last Thursday, Australia's central bank announced it had sold 167 tonnes of gold in the past six months, prompting a plunge in its price.
Stock markets in the United States were closed for the July 4 long weekend on Friday and so reaction was delayed until Monday.
Much of the dumping of gold stocks was due to speculative activity by traders, said George Milling-Stanley, manager of gold market analysis at the World Gold Council's New York office.But he agreed that investors are anticipating more central banks will dump gold, particularly in Europe, where some countries need to raise cash to meet strict qualification standards to join the common currency, the euro. "It's a vicious spiral, no doubt about it."
Junior exploration companies, already having a hard time raising money in the wake of the Bre-X fraud, are going to be hit hard if the low prices hold, Milling-Stanley said. "Mining companies' fortunes have been hit for a loop by this."
Toronto-based Barrick Gold Corp. took the unusual step of issuing a news release Monday to reassure investors that it is protected by its low operating costs and an ambitious hedging program in which it locks in the price of its gold.
"Barrick is fully protected with the largest hedge position and the lowest operating costs in the industry," Barrick chairman Peter Munk said in the release. "Our cash flow, earnings and dividends are unaffected through the year 2000 despite the present turmoil."
Barrick's hedge position guarantees a minimum average price of $420 US per ounce and its cash operating costs are under $200 per ounce.
Barrick stock has fallen almost 30 per cent over the past four months.
It closed at $27.80 on the TSE on Monday, down 40 cents, but lost $2 US a share on the New York Stock Exchange.
Analysts say companies with cash production costs above $250 per ounce could be in trouble.
And low share prices could make them easy prey for bigger companies looking to expand.
"We have about $700 million in cash and this is exactly the kind of buying opportunity we've been waiting for the last few years," said Pierre Lassonde, president of Franco-Nevada Mining Corp. in Toronto.
Market Data 
Markets 
AI
