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To: Johnny Canuck who wrote (42521)	7/7/2005 12:51:34 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 68225

Mining profits squeezed as rising costs outweigh strong prices: Merrill Lynch Craig Wong Canadian Press Wednesday, July 06, 2005 ADVERTISEMENT VANCOUVER (CP) - Mining and metal companies are expected to be in tough when they report second-quarter results as higher gold and metal prices have been offset by rising production costs, Merrill Lynch said Wednesday. "While the gold price rose 8.6 per cent, most companies will be hard pressed to report meaningful growth in year-over-year profits," the investment firm said in a research report under the headline: Sunnier Days Ahead, But More Pain in the Short Term. "We expect the majority of gold companies will exhibit little profit growth." Merrill Lynch said gold producers have faced continued cost pressures with the strengthening of currencies around the world against the U.S. dollar, rising fuel prices, higher labour and material costs and lower ore grades. "These could easily add five per cent to Q2 2005 cash cost bases compared to a year ago," Merrill Lynch said. North American precious and base metal producers start releasing second-quarter results later this month, with Place Dome leading off the senior gold producers July 27. Growing demand from China and India coupled with ongoing U.S. consumption has helped drive metal prices in recent quarters. According to Merrill Lynch, the average price of gold in the second quarter was $427.75 US per ounce, up from $393.80 a year earlier. On the base-metal side, copper was up 21.7 per cent, while zinc gained 24 per cent. Merrill's report warned that if companies fall short of profit expectations the market may not be kind. "This potential weakness could be exacerbated by recent strength in the S&P/TSX gold index placing valuations at pricey levels," the firm said. However, it said comments by executives suggest a stronger second half to the year as several companies expect higher ore grades and new projects to come online. "This should lead to a sharp rebound in profits," Merrill Lynch said. "Companies anticipating a better second half of 2005 include Barrick Gold (TSX:ABX), Newmont Mining, Placer Dome (TSX:PDG), Agnico-Eagle (TSX:AGE), Cambior (TSX:CBJ), Glamis Gold (TSX:GLG), Golden Star (TSX:GSS), Hecla and Northgate." Merrill Lynch also suggested several firms could have positive exploration news including Meridian Gold, Centerra Gold (TSX:CG), Iamgold (TSX:IMG) and Bema Gold (TSX:BGO). ©