Toronto Stock Exchange Gold sector hammered by strong U.S. dollar

The second London gold fix was established at $361.50 (US), a 3-year low. Earlier in the week, bullion actually dipped below $360 before managing to get back over that important level. Continuing high interest rates and a strong U.S. dollar combined with growing perceptions that inflation is under control, have kept the gold bugs at bay. In fact, many investors are finally looking at the underlying value of most gold issues and are coming to the realization that the average price-earnings multiple of 29 on the TSE is still too high.

Spot copper prices took a dive to $1.09(US) per lb. The decline hurt copper producers such as Metall Mining, which just bought a major copper mining facility in the U.S. Metall gave up 50 cents to close at $11.50.

Audrey Resources, which is building a mill at its Mobrun copper- zinc deposit in Quebec, slipped a nickel to $3. Geddes Resources, which is more speculative owning a large undeveloped copper deposit in British Columbia, was unchanged at $1.45.

Senior gold issues came under fire. American Barrick Resources closed at $23.50; off 63 cents from $24.13. Echo Bay Mines managed to buck the downtrend, advancing to $15.63.

Agnico-Eagle Mines is finding a pest in Invesfor, a Quebec investment group which holds a 6% stake in Dumagami Mines. Agnico plans to merge with Dumagami, which it controls. Invesfor wants two Agnico shares for each Dumagami share. Agnico is near its low at $9.75 whereas Dumagami was steady at $12.63. A study by Invesfor concludes that Dumagami’s shares, under a depressed gold price scenario, are worth more than $14.

Speaking of depressed prices, just glance at the wreckage of juniors littering the new low list each day. Today was no exception. Galactic Resources dipped to $3.30 in light volume. The company, however, is making money from its Ridgeway gold mine in South Carolina. Queenston Gold Mines was also a loser, trading at a new low of $1.19 before managing to close at $1.21, up a penny for the day.

Skyline Explorations, which owns the Johnny Mountain mine in northern British Columbia, needs cash to keep operating. The issue fell to a new low of $4. At current gold prices, many high cost operations are in a precarious state. One such mine is the Kerr near Virginiatown, Ont. Owned by Golden Shield Resources, it will likely be forced to close unless gold prices firm up appreciably. Shield was unchanged at 18 cents .

Falconbridge Ltd. was the volume leader today as more than 800,000 shares were traded. Gordon Capital was a big mover on the buy side. The issue was easier at $30.63. Inco Ltd. was also active as more than 240,000 shares exchanged hands. The issue advanced to $35.88.

Noranda Inc. was unchanged at $22.13 despite the sell-off in spot copper. Minnova remained firm at $18.75.

Jascan Resources remained halted at press time. The company has had its hands full trying to deal with a takeover threat from partner Atlantic Goldfields. Talk is that both companies are close to resolving their differences. The issue last traded at 44 cents .

Canamax Resources was unchanged at $3.05. A story on our front page suggests the company will be merged with Canada Tungsten. From the perspective of Amax Inc., which controls both companies, such a merger might make sense. Unfortunately, long-time Canamax shareholders will likely find plenty to complain about, if and when such a move occurs.

Black Hawk Mining is finding more appeal in nickel than gold these days. The company has the right to buy a 75% interest in the Minago River nickel deposit in Manitoba from Canamax. Hosting in excess of five million tons of 1.3% nickel, the deposit is a potential mine. The purchase price? A modest $250,000. The issue was unchanged at 27 cents .

]]>