Toronto Stock Exchange Higher rates fueling downward correction

There’s nothing quite like a major market correction for knocking the euphoric wind out investors. These are nervous and tense days indeed, which have witnessed a 120-pt five day losing streak gain steam on the tse. Today, the composite index gave up 40.34 pts to close at 3,719.47 pts. Fears that the Federal Reserve Board in the U.S. will be forced to continue pushing interest rates even higher, are triggering the sell-off.

Gold prices, which also respond negatively to higher rates, bucked the downtrend by moving marginally higher on inflation concerns. Bullion closed at $462 (US) per oz. The markets will be watching closely how the Fed handles the growing U.S. trade deficit, which swelled to $16.47 billion (US) in July. A classic tightrope act, the Fed will have to defend the weakening U.S. dollar by raising rates — but not to a point which would trigger an all out economic recession.

Gold share prices, which have been discounting much higher gold prices, finally accepted reality and corrected downwards, despite a moderately stronger bullion price. American Barrick Resources dipped to $33.38. Hemlo Gold was also easier, closing at $22.13. Hemlo winner International Corona also gave up some ground, trading at $69.25 at the close. After the appeal of Lac Minerals was dismissed by the Ontario Court of Appeal last week, the issue soared to a new high of $85 before settling back.

Another law suit issue, Scintilore Explorations hit $5.50 today before coming back to $4.80. Scintilore is suing the two prospectors who found the Hemlo gold deposits, for all the benefits accruing to them from the properties. Several publications, which review legal suits from an investment view point in the U.S., suggest Scintilore has a chance at winning its case. Also, a motion by the prospectors to have the suit dismissed, was rejected by an Ontario court this week.

Cambior, which is starting a $20 million underground exploration program on its gold deposit in Quebec, remained steady at $25. Getty Resources has been on a rollercoaster ride for the past two weeks. First, news that Bow Valley Resources planned to buy control of the company moved Getty over $12. Then, just eight days after announcing the deal, Bow Valley bailed out refusing to provide details as to why. The market effect was immediate. Getty open lower and continued diving to $9 before coming back to $9.75. The company has a 49% interest in the Tundra gold deposit in the N.W.T. which could be a big producer in the early 1990s.

Base metals producers were the real winners, bucking the general downtrend. Majors such as Inco Ltd and Falconbridge Ltd are finally reaping the benefits of dramatically reduced worldwide nickel and copper inventories and renewed industrial demand for their products. Inco hit a new high today of $30.88, while Falconbridge hovered nearby at $29. Institutional buying of Inco, saw 590,912 shares trade hands today for whopping value of $18.1 million.

Companies within the Noramco Mining fold were steady following news that Emerald Lake Resources, Highland-Crow Resources and Noramco plan to amalgamate on a share basis of one for one. The three issues closed at $10.50, $10.25 nd $10.63 respectively. Noramco, which was created by R. A. Bruce McDonald, is a mining finance house with interests in a large portfolio of junior exploration companies. Emerald Lake gives Noramco direct exposure to gold production from that company’s Golden Rose mine located north of North Bay, Ont.

Equinox Resources was also stronger, trading to $4.70 before closing at $4.55. The company, which enjoys gold production from an equity stake in the Buckhorn gold mine in Nevada, has acquired an option to earn a 60% interest in the Maude Lake gold deposit near Matheson, Ont. by bringing it to production. Freeport McMoran Gold had a similar option on the project at the beginning of the year which was terminated following a drill program. Maude Lake is believed to host reserves of one million tons grading 0.2 oz gold per ton.