Dear reg,
This does not sound very good for the whole mining sector.
Saturday, November 15, 1997
Gold hits the skids
As price of gold sinks below US$300 an ounce,
a 12-year low, high-cost producers close more
mines and take other drastic steps to survive
Fund managers pick over golds as bullion drops
By PAUL BAGNELL
Mining Reporter The Financial Post
The price of gold sank below US$300 an ounce Friday,
further pressing high-cost producers into drastic steps to
ensure their survival.
One such producer, Pegasus Gold Inc. of Spokane,
Wash., said Friday it is at risk of not meeting debt
obligations after taking a writedown of US$353.3 million
on an Australian mine where it is suspending operations.
Curtailing mining at other sites is also possible, it said.
Royal Oak Mines Inc. of Kirkland,
Wash., also said it was slashing costs to
not imperil its ability to continue
development of a low-cost mine in British
Columbia.
Campbell Resources Inc. of Toronto
said Thursday it was closing its Santa
Gertrudis mine in Mexico. The company
has also delayed development of a new Panamanian mine.
The spot price of gold in New York closed at US$303.70
Friday, down US$4.50 from Thursday.
The price sank to US$299.25 in morning trading. The last
time gold closed below US$300 an ounce was Feb. 25,
1985.
On the Toronto Stock Exchange, the
gold and precious minerals subindex was
down 209.27 points, or 3.1%, and closed
at 6535.36.
Once again, fear of more gold sales by
central banks was blamed for the selloff.
Predictions of low U.S. inflation offered
investors another reason to dump bullion.
Germany's central bank, the Bundesbank, confirmed
Friday it has been lending some of its gold reserves.
Investors took that as a further sign central banks are
cooling to gold as a store of value.
Since July, when the price of gold plunged sharply on
news of a sale of bullion by the Australian central bank,
analysts have pointed to Royal Oak, Pegasus and Echo
Bay Mines Ltd. as companies whose existence was
threatened by a prolonged period of low gold prices
because they are high-cost producers.
On Nov. 4, Echo Bay declared a US$310-million
writedown on its mine sites, dropping its asset value to
US$483 million from US$940 million a year earlier.
Pegasus said Friday it has halted mining at its Mount Todd
gold mine in Australia. The mine has an average cash cost
of production of US$370 an ounce.
The US$353.3-million writedown - equal to $8.55 a share
- has put Pegasus in breach of terms of a US$150-million
revolving line of credit, the company said.
"As a result of this writedown, the company is in default
of certain restrictive covenants," Pegasus said.
The company is in talks with its lenders and is working
with restructuring specialists to find ways to survive low
gold prices.
Creditors, however, could put the company out of
business, it suggested. "Absent adverse action by its
creditors, the company has sources of liquidity to continue
planned operations through 1998."
Meanwhile, Royal Oak said it will cut back mining at its
Pamour mine in Timmins, Ont., and its Giant mine in the
Northwest Territories.
Mining at the sites will only be done in areas of
high-grade ore that can be profitably extracted with a gold
price of less than US$300, the company said.
Royal Oak will cut jobs to reduce its spending but did not
say how many.
The company is staking its future on the Kemess
gold-copper mine in B.C., which it says can produce gold
at US$79 an ounce, assuming a copper price of US$1 a
pound.
The mine, expected to cost $430 million, is 70%
complete.
Earlier this year, Royal Oak closed its Colomac mine in
the Northwest Territories and the Hope Brook mine in
Newfoundland. It has also put several mine development
and late-stage exploration projects on hold.
Both Royal Oak and Pegasus made their announcements
late Friday.
Campbell Resources is putting its emphasis on the Joe
Mann mine in Quebec, said spokesman Steven Dawson.
If PGU goes under it will be a very bad sign for the mining industry.
GOLDIGER.
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