STOCK MARKETS — Gold bug party ends abruptly as TSE gold

The biggest one-day plunge on the Toronto Stock Exchange since 1990 was felt throughout the market sectors, but the overheated gold stocks were hit the hardest.

Following a 20% run-up in the market during the first half of the year, the July 8 correction knocked 51.9 points off the TSE 300. The gold and silver dropped 500 points, or about 5%.

With only a slight market recovery during the rest of our report period (the week ended July 13), some of the senior golds ended the week down sharply. American Barrick Resources lost $2 to $31.88, Placer Dome shed $1.88 to $26 and Lac Minerals lost 88 cents to $12.63. Placer fell another 37 cents today, July 14, to $25.63.

Agnico Eagle Mines, which is raising US$43.9 million through a public offering of 4.25 million shares, lost $2.25 to $14.25.

Gold ended the week in New York at US$393.75, down US$3. It inched up to US$394.40 in London today, but the gold index was walloped again, falling 225 points to just over 9000.

Several analysts, noting that gold stocks seem overvalued in relation to the gold price, have been calling for a big correction in the sector. The shake-up also spread to the highly speculative diamond sector. Dia Met Minerals, which started to slide immediately after announcing positive results from its Lac de Gras diamond property on June 21, fell below $40 during our report period before recovering somewhat to close the week at $47.50. It lost $1.50 to $46 today.

Analysts say the stock is likely to settle in the $50-60 range now that the initial exploration excitement attached to the Dia Met play is over. They recommend speculators switch into the satellite diamond plays, including Aber Resources, down 20 cents to $4.10; SouthernEra Resources, down 13 cents to $8.25; and the DHK group.

“The action is now going to focus on the other diamond stocks, particularly the ones that are starting their drill programs,” says John Hainey of Canaccord Capital.

He said speculators should also be looking to the west of Lac de Gras, where Pure Gold Resources, down 7 cents to 58 cents and Lytton Minerals, up 40 cents to $4.95, are expected to begin drilling soon.

New listings on the Toronto Stock Exchange include: Granges subsidiary Hycroft Resources and Development (owner of the Crofoot/Lewis gold mine in Nevada) and International Skyline Gold, a British Columbia-based exploration company.

Granges finished the week off 45 cents to $3.36 while Hycroft traded in the $3.75-3.85 range during its first day on the exchange.

Receiving conditional approval for a TSE listing was Gold Reserve, a Spokane, Wash.-based company exploring diamond and gold properties in southern Venezuela.

Down 50 cents to $11.75, Metall Mining confirmed earlier rumors that it is considering rolling its gold assets into a separate company. The decision hinges on a positive feasibility study for the low-grade Troilus gold deposit in Quebec, where Metall recently completed a bulk sample.

“We think Troilus would be a central part of the new gold company” (which would also include gold assets in Australia, Namibia and Turkey), said Vice-president Douglas Scharf. He said the Troilus feasibility should be complete by the end of August.

Having received approval for exploration and development on its Cuban properties, Joutel Resources lost 7 cents to 50 cents.

With plans to resume stripping at its Grum zinc deposit in July if a Yukon government loan is approved, Curragh Resources tacked on a penny to 47 cents. Curragh is hoping the Yukon government will provide a $34-million loan guarantee for development at Grum.