Gold stocks swoon amid falling bullion prices; environmental challenges

TORONTO – Gold stocks took it on the chin again and were down more than five per cent at midday as bullion prices plunged more than US$67 an ounce Friday, accelerating a slide that has been going on for months.

Friday capped what was a particularly dismal week for Barrick Gold (TSX:ABX), one of the world’s biggest producers, after an environmental challenge in Chile halted one of its major projects.

Barrick stock dropped $1.50 or six per cent at $23.50 near midday on heavy volume of 6.1 million shares at the Toronto Stock Exchange.

That came in the wake of a decision by a Chilean court to halt construction on its $8-billion Pascua Lama mine on the Andes border with Argentina.

Since the end of last week, when Barrick shares closed at $27.13, its stock value has dropped about 13 per cent.

However, other gold stocks were also hurting Friday, with gold miners the six most active issues — and all in the red — on the Toronto Stock Exchange.

Overall, the TSX gold sector led decliners, down 5.25 per cent as the June bullion futures contract fell $67.10 to US$1,497.80 an ounce.

Gold prices, which hit a record highs near US$1,900 an ounce back in August, but have been falling since the beginning of the year and stock prices have fallen with them.

Earlier this week, Goldman Sachs dropped its bullion price forecast for 2013 to US$1,545 an ounce, down from a prior forecast of US$1,610.

As well, minutes from the latest meeting of the U.S. Federal Reserve showed some support for an early end to quantitative easing, making gold less important as a hedge against inflation and undercutting support for prices.

But it’s not just bullion prices also , said Robert Gorman, chief portfolio strategist at TD Waterhouse.

“Miners face a host of other issues,” he said. ” . . . it’s your extraction costs, it’s your political risk and so on.”

An prime example was the Chilean court decision halting construction on Barrick’s Pascua-Lama mine project after indigenous groups successfully argued that it threatened area water supplies.

The company is also facing problems in the Dominican Republic where the government wants to rewrite the royalty contract for its Pueblo Viejo mine.

Other miners are also facing similar demands from environmental groups and money-strapped governments in other jurisdictions.

Among other gold stocks trading in Toronto, Yamana (TSX:YRI) was down 7.17 per cent at $13.21, Kinross (TSX:K) off 6.98 per cent at $6.40, Goldcorp (TSX:G) down 4.44 per cent at $30.11, Iamgold (TSX:IMG) down 7.67 per cent at $5.78 and Torex Gold (TSX:TXG) off 5.92 per cent at $1.43.