US rate cut spooks northern investors

The biggest news of the Dec. 5-11 report period came from south of the border, where the U.S. Federal Reserve Board knocked another 25 basis points off the federal funds rate, thereby reducing it to its lowest level in four decades. The Bank of Canada is expected to follow suit next month, despite having just reduced its principal lending rate to its lowest level in 41 years.

The resulting pessimism pushed the Toronto Stock Exchange 300 index down steadily throughout the period. However, profit-takers were held at bay long enough for the benchmark to end the period ahead just over 1% stronger.

Resource stocks were mixed, with the gold and precious metals sub-group deflating 1.5% and the metals and minerals sub-group ballooning 2.9%. Gold issues unsuccessfully fended off a US$2.50 drop in the price of the yellow metal, which was fixed in London markets at US$273.25 per oz. on the morning of Dec. 12.

Franco-Nevada Mining was the most actively traded issue, slipping $1.03 to $21.97 on a volume of 9.9 million shares. The company has proposed merging with Denver-based Newmont Mining, assuming Newmont first succeeds in merging with Australian miner Normandy Mining. The 3-way merger is being fought by Johannesburg-based AngloGold, which also has its eye on Normandy. Normandy hit a 52-week high during the period, before settling back to $14.15, for a gain of 65.

Among the other gold issues, Barrick Gold rose 15 to $23.90; Placer Dome fell 44 to $16.51; and Kinross Gold fell 12 to 99. Also down was TVX Gold, which claimed force majeure at its wholly owned Stratoni silver-lead-zinc operation in Greece after a local mining inspector delivered a suspension order. TVX closed at 60, for a loss of one beaver.

Base metals were down across the board, with nickel taking the biggest loss of 15 to finish at US$2.24 per lb. on the morning of Dec. 12. Lead, copper and zinc each shed a penny.

Teck Cominco was the most active base metals issue, rising 65 to $11.75 on a volume of 8.7 million shares. Drilling uncovered a new gold zone at the 72%-owned Morelos North Reserve project in Mexico.

Falconbridge slipped 40 to $15.46 as it closed a debenture financing consisting of $175 million worth of 7-year notes carrying 8.5% interest.

Other base metals producers were mixed: Inco rose 76 to $25.65; Noranda slipped 43 to $14.07; Boliden climbed a penny to $6.06 (the company recently consolidated its shares on a 20-for-1 basis); and Sherritt International edged ahead 2 to $4.02. Also up were First Quantum Minerals, ahead 34 at $3.10, and Cameco, $1.96 higher at $39.95.

Junior Cumberland Resources slipped 5 to 80. The company announced it was nearing the end of an economic review of its Meadowbank gold project in Nunavut.