Toronto Stock Exchange Recession warnings keep volumes at lower

The warning bells that everyone has anticipated were sounded during the week ended May 1 when figures released by Statistics Canada revealed that Canada could be on the verge of an economic recession. High interest rates and a strong dollar have already sent investors scurrying into bonds and Treasury Bills where, as one analyst put it, they can get a guaranteed and risk- free rate of return.

But news that Canada’s gross domestic product — the value of all goods and services produced — declined in both January and February appears to indicate that a recession may be just around the corner.

Canadian manufacturers say the price of borrowing has reduced consumer demand for their products and pushed the Canadian dollar to levels that make Canadian exports uncompetitive. Interest rates have also drawn investors out of the market as indicated by recent trading volumes on The Toronto Stock Exchange. While the composite 300 index gained 6.21 points to close at 3340.34 today, May 2, share prices for the most part have been heading south.

“It’s a difficult market for the average man in the street to play,” said a prominent Toronto mining analyst.

While remaining positive on the base metals side, he said he is not recommending gold stocks because multiples are already high and current gold prices are putting earnings of the major producers under pressure.

After dropping US$3.85 to US$367.75 per oz. earlier in the week, the yellow metal ended the day at US$369.60 on the London price fix. The gold-silver index fell in sympathy by 92.88 points to finish at 5849.50.

The biggest casualty in the gold sector was Echo Bay Mines which has elected to take a writeoff of $42.4 million rather than invest any more in Muscocho group’s Magino and Magnacon gold mines in Ontario. Echo Bay gave up $1.62, closing at $14.2.

Lower precious metal prices also put the squeeze on first-quarter earnings of a number of producers including Pegasus Gold which gave up 13 cents to close at $11.50.

After announcing its first-quarter results, Battle Mountain Gold was down 25 cents to $14.75. News that output at Hemlo Gold Mines’ Golden Giant mine failed to reach first-quarter targets may have caused today’s 13 cents drop in the company’s share price.

Bucking a trend in the gold sector was Corona, up 13 cents, which has agreed to up its stake in Breakwater Resources to 12%. Breakwater, which gained 9 cents, owns 49% of the Washington-based Cannon gold mine. It is also set to add the Caribou lead-zinc mine in New Brunswick to its portfolio by picking up all the issued shares of Bathurst Base Metals.

Earlier this week, copper prices moved upward on the London Metal Exchange as commodity traders hedged against the possibility of a near-term shortfall in supplies. Concerns about the supply of copper were raised when news leaked out that two shipments had become stranded off the coast of Panama and Portugal.

Shares of Noranda have responded by climbing 38 cents to $18.63. A number of other base metal producers including Inco and Cominco have also moved upward. Cominco gained 37 cents to end the day at $24.25.

Inco gained 50 cents to close at $29.25 after Chairman Donald Phillips announced that break-even pretax earnings during 1989 would have been achieved with nickel price realizations as low as US$2.65 per lb. Nickel was trading recently at US$4.27 per lb.

Phillips said the big nickel miner is also set to realize about $240 million from the sale of its 20% stake in P.T. International Indonesia as per a 20-year-old agreement.

Would-be copper-zinc producers Aur Resources and Societe Miniere Louvem suffered the consequences after drilling at Louvicourt Twp. failed once again to hit the target.

Aur gave up 30 cents to close at $3.50 while Louvem ended the day at $3.65 following a 15 cents drop in its share price. News that two new holes had come up empty was obviously too much for some investors who bailed out even before the results were released.

Elsewhere, steady buying of Stikine Resource shares by RBC Dominion Securities appears to indicate that Placer Dome is attempting to muscle its way into the Eskay Creek gold camp where Corona is trying to be the dominant player.

At $57.50, up $1 today, Stikine shares are pricey, compared with Eskay Creek joint venture partner Prime Resources ($7.25), but the investment would appear to make sense as Placer Dome, up 13 cents, is already established in the camp via its 66-million-ton grading 0.86% copper Kerr deposit.

Nevada Goldfields this week granted newly listed Crown Butte Resources an option to buy its Kingston mine and mill, its Manhattan property and two other exploration properties for $8 million cash, a promissary note and securities.