Toronto Stock Exchange Rally continues amid rumors of third Eskay

A market rally sparked by renewed optimism over the U.S. economy appeared to gain some momentum today, May 30. The composite 300 stock index, which represents a wide measure of Canadian share values, gained 41.4 points before closing at 3565.55. It was the second day in succession that significant ground had been gained by the index and it reflects that investors are now discounting the possibility of a recession.

However, even though the metals and minerals index gained 66.67 points, the rally didn’t spill over into the gold sector where share prices headed downward in conjunction with a US$2-an-oz. decline in the yellow metal. It closed at US$366 on the second London fix.

A 50.32 point drop in the gold index may support the view that the spread between precious metal and share prices may leave gold companies vulnerable. “This spread should certainly be a cause for concern, as in the past seven years, any disparity between the shares and the metal has been followed by significant share drops,” says Bear Stearns & Co. Inc. Investment Research analyst Ronald Shorr.

Nevertheless, any doubts about the legitimacy of the Eskay Creek gold discovery in British Columbia were laid to rest during the week ended May 29 when mighty Placer Dome served notice of its intention to get involved.

The big Vancouver-based gold producer is offering to pay $67.50 each for all the shares of Stikine Resources, which holds 50% of the Eskay Creek discovery. The offer pits Placer Dome against Toronto-based Corona which has already agreed to acquire 40.66% of a new company resulting from the proposed amalgamation of Stikine and joint venture partner Prime Resources.

However, other companies have been up to take a look at the property and analysts aren’t ruling out a third bid by an international mining outfit. Kennecott, Rio Tinto Zinc, and United States Borax and Chemical are among the names being mentioned in investment circles.

Speculation that Placer Dome may also go after Prime Resources in a bid to secure operatorship of any future mining operation drove Stikine shares above the $67.50 offered price. The issue closed at $71 today. Placer Dome, by contrast was off 37 cents, closing at $18.88. Corona was even at $8.88.

The eventual winner of this Eskay Creek battle will obviously benefit from the British Columbia government’s decision to drive a 70-km access road into the camp. When completed next year, it will also provide access to Cominco’s Snip gold mine project and Skyline Gold’s Johnny Mountain mine. Cominco closed up 50 cents at $27 while Skyline gave up 25 cents, closing at $2.40

While Placer Dome was attempting to muscle into the Eskay Creek camp, Cambior was agreeing to succeed the big company as partner with Golden Star Resources at the Omai gold project in Guyana.

News that Cambior has secured an option to earn 60% in the project, where reserves stand at 54 million tons of grade 0.039 oz. gold per ton, made Golden Star an active trader this week. It, however, closed at $1.40, down 5 cents today. Reflecting the current malaise in the gold sector, Cambior gave up 50 cents to close at $13.50.

Meanwhile, another company which has made a big commitment to Third World mine development was suffering financially from production problems at a gold mine in Brazil. Toronto-based Consolidated TVX Mining said a drop in first-quarter earnings was directly attributable to its Novo Astro mine in the Amazon. TVX was even at $4.75.

During a busy week for Noranda (up 37 cents at $19.25), the company reported a new gold-bearing zone at a Harker Holloway, Ont., project held jointly with Freewest Resources. Situated on claims one mile north of American Barrick Resources’ Holt-McDermott gold mine, the zone was indicated by some wide intersections yielding values as high as 0.42 oz. gold.

Elsewhere, there appears to be no letting up in the hostility shown toward Agnico-Eagle Mines President Paul Penna by Jacques Forget who holds 3% of Agnico through Montreal-based Invesfor. After failing to prevent the amalgamation of Agnico-Eagle with affiliate Dumagami Mines, Forget through Invesfor has served Agnico with an interlocutory injunction restraining the company from going ahead with a public offering designed to raise $40 million. However, Agnico- Eagle gained 13 cents to close at $7.63.