Bloomberg News

Canada Stocks Slump on Slowing Gold Demand, U.S. Jobless Data

November 15, 2012

Canadian stocks fell for a fourth day after a report showed world gold demand dropped the most since 2009 and U.S. jobless data disappointed investors.

Bombardier Inc. (BBD/B), which had its credit rating cut by Standard & Poor’s yesterday, fell 6.3 percent after postponing its $1 billion debt offering. Poseidon Concepts Corp. (PSN), a seller of tanks to the oil and gas industry, plunged 62 percent after it posted worse-than-estimated earnings. Alacer Gold Corp. (ASR) and Nevsun Resources Ltd. fell at least 5.4 percent as gold slipped to a one-week low. Birchcliff Energy (BIR) Ltd. rose 7.7 percent after reporting record production in the third quarter.

The Standard & Poor’s/TSX Composite Index (SPTSX) fell 118.41 points, or 1 percent, to 11,811.38 in Toronto. The benchmark Canadian equity gauge is down 1.2 percent this year. Trading volume was 50 percent higher than the 30-day average.

“Gold and precious metals shares are down due to demand slowing and also a drop in risk appetite,” said Bob Decker, a money manager at Aurion Capital in Toronto. His firm oversees about C$5.5 billion ($5.5 billion). “The unlikely scenario of a quick fix for the fiscal cliff is dawning on investors. The complacency that prevailed before the election has now evaporated, so it’s an abrupt change in sentiment we have here.”

Gold demand dropped 11 percent in the third quarter, the most since 2009, from a record a year earlier as slowing growth in China cut investment and jewelry purchases, the World Gold Council said in a report. Global demand slipped to 1,084.6 metric tons in the quarter compared with 1,223.5 tons a year earlier.

Gold Mining

Gold mining companies contributed most to losses in the S&P/TSX as eight of 10 industries retreated. The metal for December delivery fell 0.9 percent to settle at $1,713.80 an ounce in New York, the biggest percentage loss since Nov. 2.

U.S. initial jobless claims surged by 78,000 to 439,000 last week, the most since April 2011, as superstorm Sandy wreaked havoc on the job market.

The U.S., Canada’s largest trading partner, faces a so- called fiscal cliff of $607 billion in automatic tax increases and spending cuts in 2013 if policy makers do not come to a compromise before then. The Congressional Budget Office estimates the U.S. economy will go into recession in the first half of the year if a solution is not found.

Poseidon Concepts tumbled 62 percent to C$5 after at least six firms lowered their recommendations on the stock. The company reported adjusted earnings of 10 Canadian cents a share, compared with the average analyst forecast of 48 cents, according to a Bloomberg survey.

Poseidon Tumbles

Michael Mazar, analyst with BMO Capital Markets, cut the stock to underperform from outperform and said the company may cut its dividend. Poseidon has reduced its spending forecast and added only 40 tanks in the quarter, well behind the estimated 60 to 84, he wrote in a note to clients.

“The lowered capex and slow ramp up in tank additions are particularly troubling,” he said. “A reduction in the dividend is likely over the next several quarters.”

Alacer Gold decreased 5.4 percent to C$4.75 and Nevsun Resources lost 6.7 percent to C$4.05. Fortuna Silver Mines Inc. fell 7.4 percent to C$4.54 as the S&P/TSX Materials index fell 2.2 percent.

Nexen Inc. (NXY), the Calgary-based oil and gas producer that China’s Cnooc Ltd. has offered to acquire, rose 2.9 percent to C$25.26. Paulson & Co., the hedge fund run by billionaire John Paulson, bought a $153 million stake in Nexen during the third quarter, according to U.S. filings.

Birchcliff Energy jumped 7.7 percent to C$7.94 after reporting record current production of 27,500 barrels of oil equivalent a day, compared with a forecast of 26,000.

Bombardier fell 6.3 percent to C$2.99 after delaying a bond offering due to market conditions, according to Isabelle Rondeau, a spokeswoman with the company. In an interview with Bloomberg, Rondeau declined to say when the commercial aircraft maker planned to issue the debt.

To contact the reporter on this story: Eric Lam in Toronto at elam87@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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