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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Lalit Jain who wrote (35706)	6/22/1999 11:27:00 PM
From: Alex	Read Replies (1) \| Respond to of 116779

6/22/99 - Dismal gold prices squeezing junior companies <Picture> TORONTO, Jun 22, 1999 (The Canadian Press via COMTEX) -- Canada"s smaller gold companies are being squeezed out of business as the dismal price of bullion leaves only the biggest producers viable. In recent months, smaller gold companies such as Royal Oak Mines, TVX and Borneo Gold have either gone bankrupt, consolidated or left the business as bullion prices hit their lowest levels in two decades. On Tuesday gold prices dropped another 40 cents an ounce to $259.40 US on the New York Mercantile Exchange. And while a shakeout of the industry may be good news for massive, low-cost producers like Barrick Gold Corp., it will be costly in the longer term. ""I think long-term there"s some very worrisome features to this,"" John Lutley, president of the Gold Institute in Washington, D.C. said Tuesday. ""If the small guys aren"t out there spending the exploration money, the pool of new discoveries is going to shrink."" Added to these cutbacks is the fact that big gold producers are focusing their exploration on existing ore bodies, said Lutley. Troubled times in gold exploration are being felt all over the globe. And Canada, as the fourth-largest producer in the world, is taking its share of the pain. According to Canadian government statistics, spending on mineral exploration this year will drop a startling 40 per cent from two years ago, down to $488.6 million from $820.2 million in 1997. The gold institute says gold mine production will begin to significantly decline in the next five years if these trends are not reversed. The collapse of gold prices has not just hurt Canada"s junior companies. Mid-sized producer TVX Gold linked up with Australian gold giant Normandy Mining in April to provide a needed cash injection for its mining projects in Greece. Meanwhile, crippled Royal Oak was pushed into bankruptcy after its high-cost mines were unable to dig the company out from under its massive debt load. The decision by junior companies such as Borneo Gold, LatinGold and Sikaman Gold Resources to leave gold exploration for the booming Internet sector is an example of the industry shakeout. Tony Andrews, executive director of the Prospectors and Developers Association of Canada, said while downturns in mining are expected, there"s been an ""unprecedented"" drop in prices for all metals, both base and precious. Working as a double whammy, Asia"s economic collapse wiped out demand just as the Canadian junior mining sector struggled with the spectre of Bre-X. The $6 billion mining scandal, where core samples were faked to give the impression of a massive gold find in the Indonesian jungle, scared off investors and made it incredibly difficult for explorers to raise vital capital. ""Bre-X has done us an enormous amount of damage,"" said Andrews. Mike Magrum, vice-president of Vancouver-based Borneo Gold, said the price of gold just kept falling. ""Junior mining companies would come out with good results and the market just didn"t care,"" said Magrum. ""At the end of the day there"s no reward there anymore."" Borneo is shelving its gold holdings and taking its $1 million savings to cyberspace. ""The people who invested in the junior mining stocks previously are the same ones that are investing in the Internet now,"" said Magrum. ""Because they"re looking for the high risk, high reward scenario."" The only ones not complaining about the downturn are producers like giant Barrick Gold. Despite languishing gold prices, Canada"s largest producer posted its fattest quarterly profits ever in April. This was attributed to the company"s ultra low cost mines and gold hedging programs. As junior companies face difficulties raising capital on the stock markets, producers with strong financial balance sheets are in a stronger position to make deals, said Barrick spokesman Vince Borg. Less exploration and ultimately less gold in the market is good for those that survive the downturn. ""The shaking down and the adjustment that"s going on in the industry as a result of the low gold price is helpful in terms of its overall health,"" said Borg. But even Placer Dome, Canada"s second-biggest gold producer, is feeling the pressure. Late Tuesday, the company announced it is cutting overhead and exploration spending in response to gold market conditions. The Gold Institute"s Lutley said the industry is in bad need of some good news. This could come if a lobbying effort pushes the U.S. congress into canceling a plan by the International Monetary Fund to sell 10 million ounces of gold to fund debt relief for poor countries. The plan would likely further erode gold prices. ""It is politically and morally irresponsible of a large holder of gold to be selling gold now,"" Bobby Godsell, chief officer of the world"s largest producer, South African Anglogold Ltd. ""Particularly when it"s a public institution dedicated to economic development."" Copyright (c) 1999 The Canadian Press (CP), All rights reserved.