Gold

Global context

• The price of gold has experienced an overall gain since 2001 despite a number of significant fluctuations. The average price per ounce in 2004 was $409 US (London PM Fix), up 12.6% from the average price of $363 in 2003, and compared to $310 in 2002. The daily price ranged from a floor price of $375 US in May, to a ceiling of $454.20 in December – a height not seen since 16 years ago. Nevertheless, gold’s performance was more moderate when measured in other currencies (e.g., euro, yen) and its value even fell for some (e.g., Australian dollar, rand). This situation reflects the significant decline in the value of the American dollar, the currency of quotation for gold, compared to other currencies. For this reason, the average price of gold was $532 CA in 2004, up only 4.7% from its 2003 level of $508 CA.
  
  
• The performance of the Canadian S&P/TSX Gold Index, which consists of companies that own gold mines in Canada or elsewhere, was down by 9.0% in 2004.
  
  
• The direction of the gold price in 2004 was largely determined by its demand as an investment purchase, where many short term investors were active in the market. The weakness of the American dollar – due to the double deficit of the United States (Budget and current account) prompted investors to turn to gold as a safe haven and alternative asset. The other main factors that contributed to the demand included:
  
  
  • the low real interest rates in the United States (and other countries);
  • the persistence of strong geopolitical tensions;
  • the increase in the price of petroleum;
  • the arrival of new financial vehicles that make it easier to invest in gold (like StreetTRACKS Gold of New York, launched in mid-November);
  • increased investor interest for commodity investments in general.
    
    
• Despite all the attention given by market observers to the effect of investment-driven gold purchases, the positive influence exerted by other basic factors should not overlooked. Indeed, there was an overall reduction in supply due to a combination of declining worldwide mine production, lower sales from central banks (due in part to the renewal of the Washington Accord that limits sales from central European banks) and less recycling of jewellery and other goods. As for demand, the manufacture of jewellery and other gold-bearing goods was up, and decreased hedging activities from mining companies also helped boost the demand for the precious metal.

Québec’s situation

• According to preliminary data, the volume of gold shipments from Québec’s mines dropped by 14% compared to 2003 figures, reaching 24.3 tonnes (777,214 ounces). The production value declined by 10%, from 458 million dollars in 2003 to 415 million dollars in 2004. This shortfall was mainly due to the temporary shutdown of the Mouska mine, the lower production at the Doyon mine, and the processing of lower grade ore at the Beaufor mine.

• In September, Cambior began its reorganization of mining operations at Doyon, resulting in a loss of 130 jobs and
  a 30% reduction in throughput, from 1,000,000 to 700,000 tonnes of ore. Cambior is currently mining pillars, which noticeably impacts mining costs and the life of the mine.
  
  
• The Sleeping Giant mine (Cambior/Aurizon Mines) reported a 3% improvement in production for 2004.
  
  
• In October, Cambior restarted production at the Mouska mine, which had been shut down since January 2004 to allow for deepening of the internal shaft.
  
  
• During the first quarter of 2004, Met-Chem Canada was awarded a contract by Aurizon Mines to conduct a feasibility study of the Casa Berardi project. Aurizon also awarded a shaft raising contract to the mining contractor Ross-Finlay. The project began at the end of the second quarter and nearly 660 metres of exploration drifts have since been constructed. In addition, more than 240 m of the shaft collar have also been successfully completed. The company is expected to announce during the first half of 2005 when production will begin.
  
  
• In September, Century Mining announced that it had finalized its acquisition of the Sigma-Lamaque complex from McWatters Mining. The transaction was the result of an agreement reached with McWatters’ creditors. The agreement stipulates, among other things, that Century Mining will assume responsibility for a loan made by Investissement Québec. In November, the company began a drilling program in the Sigma-Lamaque pit to evaluate and define the ore-waste rock contact. These data will be used to re-evaluate mining reserves and, if the case allows, to determine the feasibility of bringing the project back into production during the first half of 2005.
  
  
• Agnico-Eagle Mines reduced its annual production to 300,000 ounces of gold in 2004 and lowered its predictions for future years. The company continued its major development work on the Lapa, Bousquet-Ellison, Goldex and LaRonde II properties in 2004 by investing 14 million dollars. In August, the company began a 40 million dollar development project at the Lapa property. This work, which should take almost two years, will include the sinking of a 825-m exploration shaft.
  
  
• In September, Richmont Mines completed the construction of surface installations at its East-Amphi project. It also completed the entrance to the access ramp and 770 m of ramp tunnelling to a depth of 130 metres, only 70 m short of their final goal.
  
  
• Wesdome Gold Mines initiated an ambitious 15 million dollar exploration and development program on its Kiena, Shawkey and Wesdome properties.
  
  
• In March, management at the Troilus mine announced an investment of 18.5 million dollars to increase daily production from 15,000 to 17,500 tonnes. Integration of the new equipment began in December. Mining of the J-4 zone, which began in 2004, now contributes a significant percentage of the mine’s production.

Outlook for 2005

• In 2005, the gold price will continue to be largely determined by the trend in the value of the American dollar relative to other currencies. Indeed, despite an environment in which the main factors affecting gold supply should increase (mining production, sales from central banks, recycling), and the factors affecting demand should decrease (the manufacture of jewellery and other goods, the de-hedging by producers), the most prominent gold market analysts still predict an average price of $425 to $450 US per ounce. They are evidently confident that gold will remain in high demand as an investment in response to the weak American dollar. The United States’ double deficit will continue to weigh heavily on its currency, and it appears that a strong rebound is now unlikely. The predicted behaviour of other key economic factors, such as low effective real interest rates in the United States and elsewhere, an inflation hike and persisting geopolitical tensions, will also have a positive effect on the investment demand for gold.
  
  
• The volume of gold shipments from Québec in 2005 should be similar to that of 2004.