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

To: Rarebird who wrote (37784)	7/26/1999 8:56:00 AM
From: Rarebird	Respond to of 116764

Warning of classic bear trap ahead for gold prices By Ian Howarth and Bruce Hextall Depressed profit forecasts for all Australia's major gold producers have put the lid firmly on the gold index but the outlook may not be so gloomy a couple of years on, according to analysts. The same applies to base metals producers and oil and gas companies. All have had a rough trot during the past year but are looking forward to improved earnings in the current year because of some improvement in prices. More important, however, are the huge cost reductions put in place when prices were at rock bottom. The gold sector has the most room for improvement. There remain plenty of bears as far as the metal's future price is concerned. But there is also a widening view that the sector could be on the brink of springing a classic bear trap. The bulls suggest gold prices could run wild on a change in sentiment. CIBC World Markets Australia last week supported this view in a report on the sector. "Record levels of short selling and record levels of call options outstanding alone set the stage for a bear trap," CIBC said. "This indicates potential for an explosive short-covering hedging rally as call options writers buy into rising markets to mitigate their exposure to outstanding options granted, " the CIBC report said. CIBC's gold outlook, which coincided closely with the World Gold Council, was about the only ray of light for the gold market. Profit forecasts for Australia's major gold producers remained poor. Newcrest Mining, according to CIBC, could lose $31.6million in the June year, despite lifting gold output strongly and reducing production costs. By contrast, Normandy Mining was expected to earn profits of $105million in the year to June 30, a respectable result given the prevailing tough times. In the wider resources market, the picture was not much prettier, with most major companies likely to report only meagre profits for the past year. For instance, WMC Ltd was likely to report an after-tax profit of less than $150million for the full year to December 31 following a skinny first half. Rio Tinto Ltd's first half earnings were expected to dive to around $500 million or even less, compared with the $551million last year, due to lower prices for aluminium, copper, coal and iron ore. However, the company remains poised to return to earnings growth because of a growing production profile and continued focus on reducing costs. Meanwhile, base metals producers, including MIM Holdings and Pasminco, were likely to report at best break-even results. These have already been factored into the market which is now focusing more on the prospect of an earnings recovery next year, fuelled by production increases coupled with cost savings. In MIM's case, a steady return to respectable earnings was expected following the recapitalisation of its assets. This has resulted in nearly all operations being pushed down the cost curve to the point where they will be earnings positive, even at the bottom of the price cycle. Growth in Pasminco's current year earnings would be largely dependent on the successful commissioning of its Century zinc project in Queensland. While expected to come in on time and on budget, Century's contribution in 1999-00 would depend on how quickly the project could be brought up to speed. afr.com.au