Toronto Stock Exchange Gold shares continue downward correction

Although the tse composite index advanced sharply by 21.99 pts today to 3,719.11 pts, golds continued to decline losing more than 114 pts to 7,935.12. Good news however, is that gold bullion prices are remaining strong above the $445 support level after repeated tests of this important resistence level. According to mining analyst John Lydall at First Marathon Securites, the trendless gold price is a bullish sign.

What the market is witnessing is a major correction in gold share prices which have been trading at price/earnings multiples as high as 80 times. Combined with generally mediocre first quarter financial results and flat gold prices, the share prices are correcting lower. However, the correction is undoubtedly offering up some good buying opportunites. Share prices of the major producers could rise just as fast as they have declined during any future period of rising gold prices.

Major producers which have felt the pinch include Battle Mountain which plunged more than $5 for the week to $39.25. American Barrick Resources was also in the doldrums, closing at $46.75 today.

Base metal miners appear to be holding their own. Falconbridge Ltd. was steady at $22.25 whereas competitor Inco Ltd. traded at $24. According to Mr Lydall, there is little sign of the traditional summer slowdown in the base metal markets this year. He credits this turn of events to much lower inventories, robust demand and a weak U.S. dollar. Northgate Explorations, which is exposed to both base and precious metal prices, was steady at $10.13. The company operates two major gold-copper mines near Chibougamau, Que.

News of a takeover bid for voting control of Sullivan Mines helped that issue climb to $6.75. St. Genevieve Resources, a Montreal Exchange issue, is offering $6.62 per share for a minimum of 51% of Sullivan’s outstanding shares. The offer is being backed by a Swiss bank which plans to finance the deal by taking down a St. Genevieve debenture for $43 million. Cambior Inc., the major shareholder of Sullivan with a 31% stake, remained quiet at $26. The entire deal hinges on Cambior accepting the offer (see front page story).

Someone clearly does not like the upcoming marriage of Dome Mines and Placer Developments. Short positions in Dome went from almost nil to more than 115,000 shares this week. Dome was weaker at $17.25 making the shorters buckets of money.

That old adage `buy on mystery and sell on history’ was never more truer than in the cases of Golden Knight Resources and Seabright Resources. The latter company was quiet at $10.25 after pouring its first gold bar from its mill in Nova Scotia. Golden Knight, which will become a gold producer at Casa Berardi, Que., next year drifted lower to $11.63.

Onitap Resources reached a new high of 75 cents before settling back to 62 cents . The company is meeting with encouragement at several of its Nova Scotia gold properties. Franco Nevada Mining Corp. traded at $14.88. The company plans to create an affiliate company called Euro Nevada Mining which will hold Franco’s non-producing mining assets.