Toronto Stock Exchange Metalsl index plummets as commodity prices

A modest 7.55-point gain on Oct 25 moved the composite index to 3906.68 points on light volume of 21.5 million shares. The gold and silver index added 15.4 points to 6075.8 points, reflecting generally directionless trading in equities and a small gain in bullion prices to $368.65 on the second London fix.

The drag on activity came from the metals and minerals index which plunged 1.52% or 53.13 points to close at 3446.28 points. For the week, the index was off by 105 points. Base metals issues, which have enjoyed a remarkable 2-year period of strength in the commodity markets, were sold off on news of weakness in copper and nickel prices.

The general perception among traders is that the base metals boom is coming to an end and a period of weakness is about to set in. This thinking stems from the same concerns about the health of the economy which triggered the mini-crash two weeks ago. If a recession develops, demand for metals will decline.

Signs that such a scenario is developing could be seen in a batch of corporate earnings reports for the third quarter which showed lower earnings for most base metals miners.

Casualties in the base metals sector included Cominco Ltd. off 37 cents to $26.13 and Inco Ltd., which closed at $35.25, down from $35.63. Cominco plans to begin zinc concentrate production from its Red Dog mine in Alaska next month. Inco has earned a record profit of $600 million(US) so far this year, but remains burdened by more than $1 billion of debt.

Noranda Inc. was unchanged at $25.13 as was Metall Mining, which closed at $12.75. Both control significant copper and zinc production.

The winner of the week was Euro-Nevada Mining Corp., which soared by more than 60% to close at $7.13. Street talk is the American Barrick Resources has hit big with a 500-ft hole grading around 0.3-0.4 oz gold per ton one of its Carlin, Nev. properties. Euro holds lucrative royalties on the site. Barrick was also firm advancing to $30.13.

In 1987, street talk of a phenomenal 620-ft hole, assaying 0.3 oz gold on Barrick’s Goldstrike mine just south of the Euro property, was eventually confirmed. The hole was the first in the immense Betze and Deep Post finds which host more than 12 million oz of gold.

Another company run by the same people behind Euro-Nevada, Redstone Resources, traded to a new high of $1.35 before settling at $1.33. Redstone picked up a 1% interest in Falcondo, which operates one of the world’s largest nickel mines. Big deal you say? Sure is. That 1% translates to about $2 million(US) per year in royalties, and more importantly, to a 1-year payback. The mine has a 15-year life.

LAC Minerals was strong, moving to $12.13 on volume of almost one million shares today. The company reports increased reserves at its zinc-gold mine in Chile.

Aur Resources was also actively traded. The issue took some heat during the sell-off of base metals issues, slipping to $12. Additional drill results from its big Louvicourt find in Quebec are expected by month-end.

Senior golds were generally unchanged with Placer Dome slipping marginally to $18.13, Corona Corp. firm at $8 and Echo Bay Mines unchanged at $16.75.

Junior base metals issues took it on the chin. Timmins Nickel, which owns a 51% interest in the Redstone nickel mine, tumbled to $1.60 before recovering to $1.75, its issue price last summer. Trimin Resources, which is developing a copper-zinc deposit in Saskatchewan, closed lower at $2.25.

Breakwater Resources wasn’t spooked by easing base metals prices. The company has a deal to manage the Caribou zinc mine in New Brunswick from East-West Minerals. The mine, shut down in June despite record zinc prices, was grossly mismanaged, sources say. Breakwater was up a few pennies to $2.50. Financing for the project is coming from U.K. sources (see front page story).

TOTAL Energold added a nickel to $2.30 despite the fact that the company’s Tundra gold deposit in the Northwest Territories is uneconomic at current gold prices.

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