Toronto Stock Exchange (January 02, 1989)

That economic post-Oct 19th miracle helped create another miracle — the base metals boom. Unprecedented in history, nickel, copper and late-comer, zinc, soared to record highs. In fact, prices are still so high that these much maligned `base’ metals have gained a lustre which is outshining gold.

The bottom line is reflected in the indices. Metals and minerals closed at 3203.45 pts, just a shade off the 1988 high of 3231.95 pts. The same can’t be said for golds, which closed at 5288.79 pts — just a shade above the 1988 low of 5281.78 pts. To add prespective to just how bad a year its been for gold equities, on Dec 22, 1987, the gold and silver index closed at 7562.52 pts.

It was all down hill from there. Gold bullion, which hovered around $480(US) per oz last year, traded today at $412.85 on the second London fix.

The stock of the year must by Inco Ltd. which rained more than $1 billion in special dividends on its shareholders in a burst of early Christmas giving. The issue closed at $31.88, a price which reflects considerable shareholder support for the company’s controversial poision pill and special dividend plan. At current nickel prices, management comes out looking like winners.

Falconbridge Ltd. was also in the limelight, but for different reasons. The big mining company is being swallowed whole by Noranda Inc. in a creeping takeover which should be concluded sometime in 1989. The issue was steady at $26.38.

Another winner was Cassiar Mining which bought a B.C. copper mine from Newmont, and then paid back its capital investment in six months — now that’s leverage. The issue closed out the day at a new high of $5.88.

Another issue flirting with uncharted waters is Cominco Ltd., which is readying its big Red Dog zinc project for production in the 1990s. Cominco traded at a new high of $25 before closing back at $24.63.

Staid New Quebec Raglan, which is controlled by Falconbridge, raced to a new high of $4.90 before settling back to $4.60. Raglan controls the highest grade nickel deposit in Canada in the remote Ungava area of Quebec. At current prices of $8(US) per lb, one ton of Raglan ore has a gross value of more than $600(C) per ton.

Other strong base metal issues included Mineral Resources International at $4.75 and Teck A shares which closed at $18.

A different stoy entirely is told by the precious metals sector. Whereas 1987 was the year of the mine opening, 1988 was the year of the closing. Many a junior and senior, running on high octane hype raised fabulous amounts of money for mine developments. Many of these projects soured and were forced to close. For many mining investors, especially speculative players, 1988 was the year they lost money “the old fashioned way”, by relying on hype not common sense.

The most infamous is the Beacon mine in Quebec, owned and operated by since-departed D’or Val Mines. The Beacon closed in less than a year forcing D’or Val to merge with an affilate to form Aurizon. Where D’or Val once soared with the eagles above $6, Aurizon today pecks with the turkeys at 37 cents

Noramco Mining Corp, once much-loved by institutional investors as the flagship of Bruce McDonald and Gordon Keevil’s new mining empire, has been relegated to the ash heap by most. Once near $18, Noramco can be had for 95 cents The much-touted Golden Rose gold mine opened and shut in less than a year.

Two others which cannot be ignored are St. Genevieve and Abermin. Both had big plans which failed to materialize. St. Genevieve raised bundles of cash from European investors in 1987. At one time when the issue was over $10 and being aggressively recommended by U.S. tout sheets, a Montreal broker quipped he wouldn’t pay $1 for it. He offered too much. It trades for 75 today. Abermin had nobler intentions, but got hammered by the start-up grinch who wreaked havoc with grade, reserves and the metallurgy at its 50%-owned Tartan Lake gold mine in Manitoba. The shortcomings caused problems with Abermin’s loans forcing the issue to a new low of 17 cents

Despite all the negative news, gold remains above $400 an oz — a price well above average mining and milling costs. Major companies continue to make good money and the incentive is to find issues with value.

Our New Year’s Eve resolution? We plan to put more reliance on due diligence rather than hype. And most importantly, we don’t know of very many people who lost money selling too soon.

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