Mining juniors hit by
market fallout
By BARBARA SHECTER
The Financial Post
Junior mining stocks, which soared in the slipstream of the
Bre-X Minerals Ltd. story, were pummelled yesterday after
the Calgary junior's giant gold find turned out to be a scam.
"These things could trade down to the value of the cash they
have on hand," said Barry Allen, a mining analyst at Gordon
Capital Corp. in Toronto.
"What we have just gone through is a whole rethink on
exploration risk -- and what the market is prepared to pay
for it. As much as we overshot on the upside, we'll probably
overshoot on the downside," he said.
Bloodletting among the juniors weakened the Vancouver
Stock Index, which seesawed throughout the day before
closing at 1003.53, down 2.75% from Friday.
Companies with connections to Bre-X and Indonesia
continued the slide that began in March when doubts first
surfaced about Bre-X's Busang find in the Indonesian jungle.
Diadem Resources Ltd. (DIR/ME), which is partnered with
Bre-X affiliate Bresea Resources Ltd. on four projects in
Indonesia, saw its shares skid 56› to $1.18.
Shares in Toronto-based Indomin Resources Ltd.
(IRL/VSE), which owns the property next to Busang, fell 98›
to $2. Indomin president Paul Loudon said the company has
$17 million (85› a share) in cash.
Scorpion Minerals Inc. (SCP/TSE), which has interests in
five Indonesian partnerships, plunged $1.10 to $1.80.
Among other stocks, Mispec Resources Inc. (MPE/ME) fell
to 70› from $2 before recovering to $1.74, off 26› from
Friday's close. Mispec is drilling in West Java, Indonesia, and
has a project in New Brunswick.
Two companies with connections to Bre-X also had their
stock halted yesterday.
Minorca Resources Inc. (MAR/TSE), which closed Friday
at $1.94, has a royalty interest in the Busang property. The
other was Bre-X's sister company, Bro-X Minerals Ltd.
(BRO/ASE), which last traded at 70› before the trading halt.
Neil Winchester, head of the Toronto Stock Exchange's
market surveillance department, said Minorca would resume
trading as soon as the company indicates how it will be
affected by the Busang fiasco.
Meanwhile, investment bankers tried to put a brave face on
the continued slide of the juniors, but one confirmed a
"buyer's strike" that has already torpedoed at least two
financings.
Toronto-based Caledonia Mining Corp. recently scrapped
plans to raise $20 million after the Busang revelations.
Another Indonesian player, Yamana Resources Inc., has also
put money-raising efforts on hold.
Some of the smaller players are falling to "distress" price
levels and will likely be scooped up by larger companies if
they have any assets of value, said Todd Hinrichs, a gold
mining analyst at ABN AMRO Chicago Corp.
But there was good news for larger gold companies as the
depressed gold price received a bit of a lift yesterday. In
New York, the spot price rose US$2.70 to US$343 an
ounce.
Some analysts said investors were relieved by the fact bullion
markets won't have to cope with the 71 million ounces of
gold that Busang was thought to contain.
Barrick Gold Corp. (ABX/TSE), which pushed hard for the
right to develop Busang, rose 85› to close at $32.25
yesterday in heavy trading. Placer Dome Inc. (PDG/TSE)
rose 90› to $24.15.
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