Toronto Stock Exchange Low volumes, sluggish trading keep lid on

Trading on the markets was characterized by another week of sluggishness as both volumes and prices remained weak. On Toronto, the composite index gave up 3.86 pts to close at 3,179.62 pts. Volume was an uninspiring 19 million shares.

Gold bullion, which recovered briefly to $460(US) per oz during the week on positive inflation news from the U.S., quickly lost ground to $453.90 on the second London fix. The decline was reflected in the gold and silver index which slipped 98.99 pts to 6,495.05 pts. Metals and minerals were also easier at 2,711.69 pts.

Two schools of thought have emerged following the lacklustre performance displayed by the markets over the past two months. With indices testing post-October crash lows, the market could be preparing for another massive selloff as investors, panicked by the shrinking market liquidity and possibly higher rates, run for cover. An equally opposite scenario sees the current high level of investor pessimism as extremely bullish. Combined with the immense cash reserves held by institutions — and again a looming liquidity crisis — very little would be required to trigger an upside buying binge. With two such radically differing scenarios, it’s little wonder that nervousness is the order of the day.

Inco Ltd. was back in the limelight, moving strongly to $35.38 on volume worth more than $10 million. A union contract at Sudbury, Ont., remains to be negotiated and the deadline is month-end. A potential shutdown will have a positive impact on nickel prices. Street talk is that Inco, which is getting cash-rich, is looking at making a major gold mining acquisition on the scale of Galactic Resources.

The other big Canadian nickel miner, Falconbridge Ltd., is on the verge of getting an agreement completed with the Dominican Republic to get that island’s nickel mine back in operation. A tax dispute has kept a lid on production there for months. Falconbridge was firmer at $22.88.

After several weeks of doom and gloom mining stories, lets look at a turnaround story. Among genuine rarities, SherrGold Inc. appears to be legitimate (see front page story). Purchased by Hayes Resources, SherrGold owns the MacLellan gold mine in Manitoba. After changing mining methods, the former money loser made its first operating profit in April. The new owners are also increasing production from 40,000 oz in 1987 to 65,000 oz next year.

The good news was met with a 25 cents gain to $3 for SherrGold. Parent Hayes remained quiet at $1. Another beneficiary of SherrGold’s recent success at MacLellan, is Agassiz Resources. Agassiz holds a lucrative 7% net production royalty which skims off 7% of gold production at the mine site. We estimate that should be worth well over $2 million next year. Agassiz was quiet at $3.65.

Most of the senior golds were easier today. Lac Minerals slipped to $13.63 from $14. Echo Bay Mines closed at $26.13, down from $26.63. Placer Dome was also weaker, giving up 25 cents to $16.25.

On the exploration front, the market reacted to dismal exploration results released by Geddes Resources (see page three). Drilling on the company’s Windy Craggy deposit in B.C. yielded uneconomic gold values. Although only four holes were released, its a poor start. Geddes was easier at $2.20.

Two companies arranged gold loans this week for future mines. Augmitto Explorations has a $10-million deal for its Rouyn, Que., development. The issue was better at $1.28. Geodome gave up a nickel to $2.55. The company has arranged project financing for its heap leach property in Idaho.