STOCK MARKETS — Base metal, diamond stocks both take a

Concern over second-quarter earnings and weak metal prices took its toll on base metal producers during the week ended July 20. For far less tangible reasons, the diamond stocks also took a beating.

Of the base metal stocks, Inco was hit particularly hard. The giant nickel producer shed $2.75 to $26 as the price of nickel dropped another 9 cents to US$2.22 per lb. amid rising inventories and stagnant demand. Inco is expected to announce a substantial loss when it releases second-quarter results at the end of this month.

Noranda also took it on the chin, shedding 88 cents to $20.75. Affiliate Brunswick Mining & Smelting, reporting a $4.2-million second-quarter loss compared with an $11.5-million profit last year, lost 75 cents to $7.50. Copper and zinc both ended the week unchanged at US86 cents per lb. and US43 cents per lb. respectively, well down from US$1.14 and US60 cents at this time last year.

The share sell-off prevailed across the metals sector and wiped out earlier gains by producers whose fortunes were expected to improve with a turnaround in the economy. The Toronto Stock Exchange’s metals and minerals index lost 87 points.

“Patient, non-ideological investors can expect gains eventually from the beleaguered mining stocks,” Donald Coxe, a chief strategist at Nesbitt Thomson, wrote in The Globe and Mail recently. “If the boom in East Asia continues unchecked, global inventories of metals will some day stop growing. But that could seem like an eternity.”

Ray Goldie at Richardson Greenshields says the latest losing streak can also be attributed to seasonal trends. His charts show a peak in June followed by a steady decline through to November.

One exception to the rule is bankrupt Curragh, which managed a 13 cents gain to 60 cents. Criminal charges against the company, stemming from the Westray coal disaster, have been dropped. Curragh has also been granted some breathing room on its financial restructuring and is now scheduled to file its Plan of Arrangement on Aug. 6.

The diamond stocks performed poorly during our report period. Observers cite traditional summer doldrums, profit-taking and a dearth of news from the Lac de Gras area as reasons for the carnage.

But a recent sell recommendation from newsletter writer Paul Sarnoff was “the straw that broke the camel’s back,” claims John Kaiser of Pacific International Securities. Sarnoff’s Gold Stock Advisory says there is too little evidence to give the Lac de Gras diamond play credibility and suggests that investors bail out.

“The article’s many factual mistakes and misconceptions about diamonds . . . reveal that Paul Sarnoff knows very little about the topic,” refutes Kaiser. For our report period, most of the diamond stocks took a hit, including: Dia Met Minerals, down $6 to $41.50; Aber Resources, down 70 cents to $3.40; Lytton Minerals, down 45 cents to $4.50; and SouthernEra Resources, down $2 to $6.25.

One exception was Montreal-listed Ecudor Mining, which jumped 54 cents to $1.69 on rumors that the company has found a diamond-bearing kimberlite on a property north of Ottawa. Sudbury Contact Mines, exploring for diamonds in northeastern Ontario, added 21 cents to $1.85.

The gold sector also continued to decline, with the TSE’s gold and silver index off by 100 points over the week. Today (July 21), gold closed at US$392.40 per oz., down $2 from last week.

Despite reporting a 52% increase in earnings for the three months ended June 30, American Barrick Resources slipped $1 to $30.88. Placer Dome lost 38 cents to $25.63 on a volume of 6.4 million.

Conducting a feasibility study on its copper-gold property in Argentina, International Musto Explorations hit a new high of $6.38 before slipping back to $6.25 for a gain of 38 cents.