Record gold price fails to stop slide in Hochschild shares

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The Independent Online

Hochschild Mining, the London-listed gold and silver miner, found itself the odd man out yesterday after the share prices of gold miners around the world reached record levels as the price of the yellow metal set yet another historic high.

The metal closed at $878.00 per ounce in New York, less than a week after it hit $861.10 to shatter its old record of $850 per ounce, reached in 1980.

Shares in Barrick Gold and Goldcorp, the top producers, set 12-month highs on the metal's rally, but Hochschild, which operates mines in Peru, Argentina and Mexico, saw its shares slump by 22.8 per cent after reducing its earnings forecasts for 2008 due to poor-quality deposits and dwindling production at some of its older mines. By the end of the day, the company had fallen back to the value, about 1bn, at which it went public in London in November 2006. Its shares ended the day at 353p.

The falling production at legacy mines that struck Hochschild is one of the reasons why the gold price is continuing its upward trend. The top three gold-producing nations, South Africa, Australia and Canada, have all passed their peak production and are now in decline.

"We have already reached peak gold," said Ross Norman of The BullionDesk.com. He predicted that the price will con-tinue to rise this year because demand against falling production remains strong. "The supply and demand dynamics are very compelling," he said.

There are several reasons why investors are flocking to the metal. Continued geopolitical tension, the most recent flashpoint being the assassination of the Pakistan opposition leader Benazir Bhutto, have burnished the metal's status as a safe-haven investment. The proliferation of exchange-traded funds that invest in gold has also opened a massive new market of investors who were previously unable to access the market. Valued in US dollars, gold becomes even more attractive to foreign investors as the greenback weakens.

Mr Norman predicted that, even at these levels, prices could go much higher still. The $850 reached in 1980 would be equal to about $2,000 in today's money.

That would be welcome news for Hochschild, which said yesterday that its gold production this year would be less than 2007.

The company has doubled its mines in operation from three to six and hopes to offset steep drops at older mines with production from the new sites.

The company said: "We remain positive on the fundamentals for silver and gold given continued US dollar weakness, heightened geopolitical tensions, depleted above ground stocks and increasing investment demand."

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