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Skittish investors have grown sensitive to any hint of problems in the gold sector after four years of falling metal prices and disappointing share performance.
They demonstrated their anxiety on Thursday by chopping 10 per cent off Goldcorp Inc.’s share price after the company reported a surprise loss for the quarter, largely as a result of inventory adjustments and other non-cash items.
Analysts said the fall in Goldcorp’s share price was also related to teething problems at a number of its operations. At its new Éléonore mine in Quebec, for instance, folds and cracks in the rock are resulting in lower-than-expected ore grades being mined. In addition, the company is facing labour issues at its Cerro Negro mine in Argentina and is having to rethink how it approaches the Cochenour ore deposit in Ontario after exploratory drilling revealed a different shape from what had been expected.
The problems seem temporary, but they underscore the concerns surrounding the sector, especially at a time when the U.S. Federal Reserve appears poised to raise interest rates. Higher rates could make gold less attractive by boosting the return from other stores of wealth.
Despite the pall cast by the Fed, there is a lot to like in this week’s batch of quarterly results from a trio of major Canadian gold miners. Goldcorp, Barrick Gold Corp. and Agnico Eagle Mines Ltd. each reported strong output, falling debt and cheaper production costs.
The problem is that all the good news adds up to a short-term challenge for an industry grappling with low gold prices.
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