To:John Barendrecht who wrote (323) From: mikesloan Tuesday, Jul 8, 1997 7:43 PM Respond to of 80051
Sagging prices sends shudders through gold industry July 8/97
TORONTO (CP) - As the price of gold wallows in the dumps on world markets, Canada's precious metals industry is bracing for an imminent shakeout. Gold fell to a 12-year low of $318.10 US an ounce Monday in New York after surprise selling of Australia's gold reserves. It rebounded a bit Tuesday, closing at $320.20 US, up $2.10 US on the New York Mercantile Exchange. But that's still a long way from the $400 US level, reached only last year. "More than 50 per cent of the world's production is uneconomic and Canada is probably the fifth-largest producer," said gold expert John Ing, president of Maison Placements Canada in Toronto. "A lot of our gold miners are producing at a loss. There will be mine closures, deferrment of some programs. This will likely force mergers within the industry and ... further contractions are expected." Mike Curran, senior gold analyst with Midland Walwyn, agreed. "A lot of (investors) just want to clear their books and start fresh in the fall. They just don't want to look at their losses anymore." Junior mining companies will be the hardest hit because of shrinking cash flow, Curran said. But Ing suggested that even some of the big players, such as Vancouver's Placer Dome Inc., could get whacked. Placer spokesman Hugh Leggatt bristled when told of Ing's warning. "John is no friend of Placer Dome and he's not well-informed about us." he said. "We are in good shape among all producers because we have a low-cost profile - in the lower third of the world average." Leggatt said the gold price would have to fall to $250 US an ounce before Placer would start to feel real pain. The company's average cash production cost in the first half of last year was $246 US an ounce. "That is going to be cut by about $20 US an ounce in the results for the first half (of this year), which we will issue later this month." But Legatt conceded that two of Placer's 13 mines are vulnerable at current price levels - the Detour Lake mine north of Timmins, Ont., and the new Kidston mine in Queensland, Australia. Placer is second only to Toronto's Barrick Gold Corp. in Canadian gold production. Barrick is North America's second-largest gold company with 11 mines producing more than three million ounces of gold a year. Barrick chairman Peter Munk said earlier this week that the looming shakeout caused by weak gold prices "will separate the boys from the serious players." His company has the industry's lowest average costs at $200 an ounce. Amid all the posturing and gloom-and-doom scenarios, the contrarians on Bay Street are saying gold will make a quick comeback. "Summer is historically a doldrum time for the golds," said Curran. "We're still optimistic the gold price will turn around in the fall." That means investors will be rewarded if they ride out this short-term storm, he said. But the factors pushing gold prices down - low inflation and a strong stock market that offers better value - seem firmly entrenched, said John Hainey, a gold analyst with Toronto's Eagle and Partners. And even if those factors change, there's still widespread worry that some European governments will dump gold reserves to raise money to cut their budget deficits and ensure admission to the European Union's proposed single currency in 1999. "I don't see much change in these factors, unless we get a steep (drop) in the stock market, which may send people out of stocks and into gold again," Hainey said. "There's no doubt that all these factors will change - the question is when ... If somebody bought gold stocks right now and was prepared to wait (for at least a year), they would do very well. Gold will always surprise you." The slight rebound in gold prices Tuesday helped Canada's two biggest gold producers rebound on the Toronto stock market. Barrick shares gained $1.65 to close at $29.45 while Placer Dome closed at $20.10, up 85 cents. http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=1723748
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