Central bank selling pricks ears of producers

The issue of central bank selling resurfaced during the Feb. 13-19 report period, after Germany revealed its intention to unload some of its reserves.

On Feb. 19, Bundesbank President Ernst Welteke told Bloomberg News that the bank now favours the more lucrative interest-bearing securities over gold. The interest gained, in turn, could be used to pay down the country’s federal debt, which was 698 billion euros in Sept. 2001.

Next to the U.S., Germany holds the largest volume of gold, with some 111 million oz. in the vault. In May, the bank plans to sell about 350,000 oz. as special coins, adding to the nearly 400,000 oz. sold in 2001.

In London, reaction was swift, with bullion dealers knocking $3.05 off the spot price to fix the yellow metal at US$294.20 per oz. on the morning of Feb. 20. Gold had lost only 15 in the preceeding five trading days, underscoring the psychological effect central bank selling has on the market.

Welteke said the bank will adhere to the 1999 Washington Agreement, which limits, to 400 tonnes, annual central banks sales by the 15 signatories. Providing some stimulus was the Bank of England, which, only months before, had launched its infamous gold auction series.

Canada’s major producers all stumbled with gold: Barrick Gold, which revealed its own surprise, sank 70 to $28.35; Placer Dome tanked $2.33 to $18; and Kinross Gold slipped 12 to $1.55. Barrick now plans to sell half its production on the spot market and the other half into hedging contracts, rolling over the unused ones.

In a similar vein, U.S.-listed Newmont Mining has taken control of Normandy Mining and merged with Franco-Nevada Mining. Newmont, now the industry’s largest producer, plans eventually to unwind its own and Normandy’s hedge book and remain unhedged. On Feb. 20, Franco shares were replaced by Newmont exchangeable shares, which bowed at $36.10, only to rise 70 over the day.

The biggest news from the Canadian base metals sector was Teck Cominco‘s announcement that it would slash its zinc output this year by 55,000 tonnes by reducing concentrate shipments from the Red Dog mine in Alaska and idling smelting and refining activity in Peru and Trail, B.C. Teck ended the period down 29 to $13.71.

Aur Resources rose a dime to $3.80 as it released strong results for 2001 that included: record earnings of $21 million; record copper production of 245 million lbs.; record operating cash flow of $79 million; record copper production and low operating costs at its Quebrada Blanca mine in Chile; and the reduction of the company’s bank debt by $14 million to $156 million.