Doug Ashbury
Northern News Services

NNSL (May 12/99) - Gold continued its slide on Monday in the wake of the Bank of England revealing that it would sell 60 per cent of its gold over the next few years.

Central banks are more inclined to sell the gold and invest the cash in interest-bearing financial instruments such as government bonds, according to industry analysts.

The British central bank's disclosure "wreaked havoc" on world gold markets, said Todd Ferguson, a financial analyst with TD Evergreen in Edmonton.

The Toronto Stock Exchange's gold and precious metals sub-index fell just over four per cent mid-morning Monday. That drop followed a whopping 11 per cent slide on Friday.

Friday's decline was the largest in a decade and the third biggest since records have been kept.

It was "one of the worst trading days for gold stocks in Canadian history," Ferguson said.

But there could be an upside.

Ferguson said as gold stocks drop, it could mean "moderate" gains for diamond stocks.

"Pension fund managers (may) begin to favour other sub-components of the precious metals index -- where they have a requirement to be invested in precious metals," Ferguson said.

Those other components include diamond mining companies.

"This may not transpire overnight, but they (fund managers) may give diamonds a closer look."

London's Monday afternoon gold fix was $278 US, down $9.95 US from the Thursday afternoon fix of $287.95 US.

The Bank of England's announcement, and the subsequent slide of gold stocks and gold's price, comes as the future of Yellowknife Giant Mine is uncertain.

Insolvent Royal Oak, which owned Giant and other gold properties, collapsed under massive debt and is in receivership.

Giant, as well as the rest of Royal Oak's assets, are now under the management of court-appointed monitor PricewaterhouseCoopers.

Just what PricewaterhouseCoopers plans to do with Giant and its 280 employees is unknown. Numerous calls to the firm by the Yellowknifer have gone unreturned.

Despite an uncertain future, Giant has played a key part in the city's history.

One of the most comprehensive presentations about Giant was given by Royal Oak Mines Exploration Manager Malcolm Robb at last year's Geoscience Forum in Yellowknife.

To examine Giant's financial story, Robb converted data from half a century of annual reports to 1997 dollars and factored in the consumer price index.

Major economic forces acting on Giant include the volatility of gold's price since 1971, and the decline of the Canadian dollar against the US dollar since 1974.

In terms of revenues, Giant has generated about $2.5 billion, Robb said.

83 per cent of the $2.5 billion in revenue is from gold bullion sales with the rest generated by dollar exchange rates, interest income, assistance from the Canadian government in the 1950s and 1960s, and gold hedging gains.

In the 1950 and 1960s, the federal government invested $40 million into Giant through its Emergency Gold Mining Assistance program.

It has taken $1.6 billion to operate the mine since startup. Included in the total is $270 million in initial sustaining capital expenditures and $30 million in local area exploration, to recover about seven million ounces of gold. In the mid-1960s, annual production reached a maximum of about 260,000 ounces a year, but during the 1990s, production was between 85,000 ounces and 100,000 ounces annually.

Of the $600 million not spent on Giant and its immediate exploration area, direct taxes and royalties of $80 million have been paid. Some $270 million in dividends has been distributed to shareholders and $115 million has been invested in capital and exploration into other NWT projects.

As well, $60 million has been spent on corporate overhead to manage the mine.

It is difficult to determine the exact number for the mine's contribution to the NWT economy, but an estimate can be made, Robb said.

He suggests about $1.45 billion, or just under 60 per cent of total revenues, have remained in the NWT.

To come up with the $1.45 billion figure, personal income tax, direct tax, total labour costs, mill and mine operating supply costs, dividends, corporate overhead, and non-NWT expenditures were considered.

Of the billion dollars that left the NWT, about $400 million represents direct federal (corporate, royalty and personal) and indirect (employment insurance, Canada pension plan, workers' compensation) taxes plus pension costs (few people retire in the NWT), leaving about $600 million in supplies and dividends that truly flowed out of the NWT and not to government, he said.

On jobs, Giant has generated 17,500 person-years of employment, Robb said.

"The Giant mine has made significant contributions to the economy of the NWT in the last 50 years and has repaid at least some of its stakeholders (government, employees and local business in Yellowknife) well."

Giant Yellowknife Gold Mines was incorporated in 1937.

Gold mineralization was originally located on the Giant property by Burwash Yellowknife Mines prospectors J. Baker and H. Muir.

Giant has been producing gold continuously since May, 1948.

Regarding the mine's longevity, Robb notes that globally, few mines celebrate 25th anniversaries, let alone 50 years.

At the time of his presentation last November, Robb pointed to the Dome and Pamour mines in Timmins, Sigma in Val D'Or and the Campbell mine in Red Lake among those to have set the gold standard for years of continuous operation.