Toronto Stock Exchange Interest rates hike, falling gold ravage

Investors scrambled to salvage what little they could following a week-long slump which culminated in a savage 64-pt drop yesterday and today. Last month’ s rally, which set a post-October 19th crash high, appears to have been what everyone feared most — a bear trap.

The current plummet, which saw 35.04 pts clipped from the TSE index today, is being blamed on another round of interest rate hikes by the Federal Reserve Board in the U.S. The Bank of Canada followed quickly with its own rate increases, in defense of the dollar. The bottomline has been a major sell-off in the equity markets. The composite index closed at 3,274.93 pts.

Rising interest rates have also taken what little steam was left in gold. Today’s second London fix was a dismal $427.20 per oz. According to the Bank Credit Analyst, which has been bearish since October 19th, interest rates have yet to reach their cyclical high. “Much higher rates are necessary to slow growth to a sustainable non- inflationary pace,” the BCA’s August report concludes. In other words, things could get much worse before getting better.

Bullion’s weakness was reflected in the gold and silver index which declined by 75 pts to 6,093.55 pts. Metals and minerals were also losers, slipping 45 pts to 2,809.42 pts — despite record earnings by most major base metal mining companies.

Few were spared in the gold sector. Casualties include American Barrick Resources, which fell to $21.88. The company has opened up its newest mine north of Kirkland Lake, Ont., which is expected to produce more than 80,000 oz of gold per year. Echo Bay Mines was also easier closing at $21.50 on volume of 259,315 shares.

Majors Lac Minerals and Hemlo Gold Mines were also softer, closing at $13.38 and $14.25 respectively. Second quarter results at Hemlo were hurt by a 16% drop in production from the Golden Giant mine. However, new stope development is expected to quickly alleviate the shortfall.

Dickenson Mines A shares were also easier at $5.88. According to sources, production costs for the first six months at the company’s Arthur White mine at Red Lake, Ont., were around $550 (C) per oz — or breakeven. Cambior Inc., which opened a new 40,000-oz-per-year mine in Quebec, dipped to $14.88. The company appears to have timed its sale of an interest in the White mine very well. Dickenson paid more than $50 million for the stake.

Tightly held Metalore Resources bucked the downtrend, trading up to $32. Informed sources tell us that the company is holding important discussions with Placer Dome concerning Placer’s participation in Metalore’s gold property near Beardmore, Ont.

Scintilore Explorations took a massive beating, crashing to a low of $3.10 today before recovering to $4. The issue is off $1.13 on the day and a whopping $3.13 for the week. The Hemlo prospectors, whom Scintilore is suing, were allowed by an Ontario Court to continue receiving royalties from the David Bell mine, one of three gold mines at Hemlo.

Nor-Acme Gold Mines perked up to $1.60 on news that the control block had been sold to principals of Nor-Acme’s partner, High River Resources, a VSE-listed company. The sale was made by Nor-Acme’s President Lew Parres, one of Manitoba’s best known prospectors.

LynnGold, which was renamed from SherrGold just last month, continued weaker at $2.90. However, operations at the company’s MacLellan gold mine are dramatically improving. For the second quarter, the company realized net earnings of $1.4 million or 11 cents per share. Gold production increased to 15,837 oz and costs have come down.

Operations at Rayrock Yellowknife Resources remained unchanged in the second quarter. Earnings totalled $3 million and gold output 16,479 oz. The issue was steady at $8.50.

Falconbridge Ltd. was the volume leader, trading more than 12 million shares in a couple of days. The issue fell $21.63. Inco Ltd., which has already earned more than $300 million this year, was also affected by her market malaise. The issue closed at $35.50 — down 75 cents on the day.