Bank of England sale knocks stuffing out of gold

In the wake of a third gold auction by the Bank of England, gold bullion prices fell heavily over the Nov. 24-30 report period, sinking US$6.45 to US$291.40 per oz. on the London morning fix of Dec. 1.

The Bank’s auction of 804,000 oz. on Nov. 29 brought in US$293.50 per oz., but prices plunged when traders found out there had been bids for only twice the gold on offer. Previous auctions in July and September had been oversubscribed five, and then eight times.

The biggest identified buyer was South African producer Anglogold, which announced it had bought the gold to cover short sales maturing over the next 10 weeks. Most of the other buyers appear to have been bidding for physical gold, rather than clearing off hedge positions.

Physical gold was not as scarce as it was in September, when lease rates briefly soared past 10%. Three-month leases are now near 1.7% on an annualized basis.

Predictably, share prices of most major gold producers took a beating: volume leader Barrick Gold lost $1.20 to hit $26.50; Placer Dome fell $1 to $16.75; Kinross Gold slumped 30 to $3.05; and TVX Gold was off 21 to close at $1.42. Only Franco-Nevada Mining bucked the trend, rising 10 to $27.

In a bid to reduce its growing debt, Cambior announced it is seeking buyers for both its gold and non-gold assets. The embattled company’s standstill agreement with lenders and hedging counterparties has been extended to Dec. 10. Cambior recovered 4 to $1.60 after touching a multi-year low of $1.23 during the period.

Financial pressure also intensified for fellow gold producer Greenstone Resources, which slipped a penny to 11. The company says lenders have stripped it of most of its cash and that its San Andres gold mine in Honduras could soon cease to operate as a result of insufficient working capital. Such a fate befell Greenstone’s Cerro Mojon mine in Nicaragua, where most operations halted in August. Greenstone is well over $100 million in debt and attempting a restructuring.

With base metal spot prices showing little movement over the week, Canada’s major base metal producers represented a mixed bag: Inco fell 85 to $27; Falconbridge gained 50 to $22.75; Noranda was off 85 to $17.40; Rio Algom was up 20 to $17.45; Teck‘s B shares fell 25 to $13; Cominco shot up $1.35 to $25.60; and Boliden rose 5 to $4.

The most heavily traded junior was Toronto-based Tahera, which ended the period unchanged at 6 in advance of the release of a positive prefeasibility study for its Jericho diamond project in western Nunavut. The study suggests an open-pit mine at Jericho could produce 2.7 million carats over eight years, with processing to take place at a plant to be built at the Lupin gold mine, 28 km away. At presstime, Tahera had soared above 19 for a 1-day gain in excess of 225%.

Another Toronto-based diamond explorer, Rex Diamond Mining, posted strong gains for a second week, rising $2.65 to $7.60 after reporting the discovery of a third kimberlite pipe at its Tenoumer permit in Mauritania in northwestern Africa. Testing of grab samples from two of the pipes indicates that one is diamond-bearing whereas the other is barren. Drilling to obtain more representative samples and test other magnetic anomalies will begin shortly.

Quebec City-based Lithos jumped 34 to 93 on the Montreal Exchange after the Dynamic QSSP Fund announced it would buy up to $4 million worth of new Lithos shares priced at 55 apiece. Lithos says the money will allow it to boost its annual lithium carbonate production to 750 from 50 tonnes by improving a plant now under construction in Shawinigan, Que.