Wednesday 18 August 2010

Miners and energy companies push down FTSE 100

Overview: the markets were in correction mode following yesterday’s rally today with the FTSE 100 giving away half of Tuesday’s 1.4% gain. In the only significant news of the day, minutes of the Bank of England’s (BoE) latest interest rate meeting revealed that the monetary policy committee was split on whether to leave the rates at the current 0.5% and ended up voting 8-1 in favor.
Quality and safety services provider Intertek (LON:ITRK) emerged atop the leaderboard with a 5.5% advance. Satellite telecommunications company Inmarsat (LON:ISAT) and insurer Legal & General (LON:LGEN) followed with gains of 3.7% and 3% respectively. Airline British Airways (LON:BAY) and plumbing and heating equipment manufacturer Wolseley (LON:WOS) added nearly 2%. Clothing retailer Next (LON:NXT) moved up 1.5%. Temporary power provider Aggreko (LON:AGK) and another retail company Marks & Spencer (LON:MKS) tacked on 1%.
Miner Eurasian Natural Resources (LON:ENRC) was at the bottom of the pile with a 3% decline. Sector peer Anglo American (LON:AAL) and platinum miner Lonmin (LON:LMI) followed, sliding 2.4%. The world’s largest miner BHP Billiton (LON:BLT) and banking group HSBC (LON:HSBA) retreated 2%. British American Tobacco (LON:BATS) lost nearly 2%.
The Dow Jones Industrial Average and the broader S&P 500 are currently projected to open flat.
Commodities
Oil prices track losses in equities
Oil prices pared gains and then slid below yesterday’s levels after US inventories were reported to have risen, while the rally in equity markets ran out of steam and most European stock market indexes headed south.
The American Petroleum Institute (API) said yesterday that crude stockpiles in the US added 5.87 million barrels last week to indicate lower demand in the world’s largest energy consumer, while analysts were expecting another drawdown. A more closely inventories report from US Energy information Administration (EIA) will be released tomorrow.
September Brent Crude slid to US$76.15/barrel, while US light, sweet crude for September delivery declined to US$75.05/barrel.
Most blue chip oil and gas producers moved into the red today. BP (LON:BP) declined 1.3%. Fellow supermajor Shell (LON:RDSB) posted a small loss, as did Cairn Energy (LON:CNE) and Tullow Oil (LON:TLW).
BG Group (LON:BG) was little moved.
Oil and gas engineering firms Amec (LON:AMEC) and Petrofac (LON:PFC) posted small gains.
Dragon Oil (LON:DGO) and Premier Oil (LON:PMO) added less than 1%, while other midcaps were in decline. Dana Petroleum (LON:DNX), JKX Oil & Gas (LON:JKX), Salamander Energy (LON:SMDR) and Soco International (LON:SIA) posted small losses. Heritage Oil (LON:HOIL) and Melrose Resources (LON:MRS) slipped 2%.
Services companies Wood Group (LON:WG) and Wellstream Holdings (LON:WSM) shed less than 1%.
Energy investor Xtract Energy PLC (LON:XTR) moved with the majors, retreating 14%. Europa Oil & Gas (LON:EOG) and Africa focused energy company Dominion Petroleum (LON:DPL) outperformed the sector, advancing 6.5% and 5.5%.
Gold finds support to stay above $1,220
Gold inched lower, but remained above US$1,220/oz as investors apparently lacked confidence in the markets after yesterday’s rally. The FTSE 100 and then the Dow Jones Industrial Average and the broader S&P 500 index in the US surged after US housing starts increased by 1.7% in July, while retail giants Walmart (NYSE:WMT) and Home Depot (NYSE:HD) released strong earnings reports.
However, Japan said that its GDP growth slowed to 0.4% in Q4. Last week, both the Federal Reserve and the Bank of England (BoE) left their respective interest rates unchanged, boosting gold’s appeal as an inflation hedge, and also offered a bearish economic outlook. The Fed said it would start buying US bonds to bolster the economy, while BoE governor Mervyn King stated that the recovery would be “choppy.”
Current macroeconomic fundamentals do not appear to be strong enough to support a sustained positive trend in the markets, which keeps safe haven demand at a high level.
Gold declined to US$1,222/oz, while silver and platinum slipped to US$18.44/oz and US$1,535/oz respectively.
Major mining stocks turned negative today.
Silver miner Fresnillo (LON:FRES) and platinum miner Lonmin (LON:LMI) slipped 2.1% and 1% respectively. Gold miner Randgold Resources (LON:RRS) managed to stay even.
African Barrick Gold (LON:ABG) declined marginally, as did specialty chemicals firm Johnson Matthey (LON:JMAT).
Midcaps followed. Gold miner Petropavlovsk (LON:POG) lost 2.8% and  silver producer Hochschild Mining (LON:HOC) shed less than 1%.
Aquarius Platinum (LON:AQP) went against the tide, posting a small gain.
Junior diamond miner Stellar Diamonds (LON:STEL) and Turkey focused gold miner Ariana Resources (LON:AAU) moved with the majors, slipping 10% and 7.5% respectively. Africa focused gold deposit developer Cluff Gold (LON:CLF) and Turkey and Saudi Arabia operating gold explorer KEFI Minerals (LON:KEFI) did better, climbing 5.5%.
Base metals miners slide as metal prices decline
Copper and nickel slid to US$3.33/lb and US$9.88/lb, while zinc declined to US$0.95/lb.
Base metal miners were in decline. Eurasian Natural Resources (LON:ENRC), Anglo American (LON:AAL) and BHP Billiton (LON:BLT) led the retreat, sliding 3%, 2.5% and 2% respectively. Vedanta Resources (LON:VED) declined 1.5%, while Kazakhmys (LON:KAZ) and Rio Tinto (LON:RIO) shed just over 1%, as did Xstrata (LON:XTA).
Antofagasta (LON:ANTO) was sitting just below the opening level.
London's only listed pure iron ore producer and FTSE 250 constituent, Ferrexpo (LON:FXPO) outperformed the sector, advancing 1%.
Indonesia focused Finders Resources (LON:FND) led the juniors with an 8.5% advance. South Africa operating chrome miner Chromex Mining (LON:CHX) moved in the opposite direction, slipping 7%.
Banks, insurance private equity
Banking stocks didn’t show much movement with the exception of HSBC (LON:HSBA), which shed 2%. Barclays (LON:BARC), Royal Bank of Scotland (LON:RBS) and Standard Chartered (LON:STAN) posted small losses and Lloyds (LON:LLOY) added less than 1%.
Standard Life (LON:SL) was the heaviest faller among the insurance companies with a 1.7% loss. Aviva (LON:AV) followed with a 1.2% decline.
Old Mutual (LON:OML) and RSA Insurance Group (LON:RSA) were sitting just below the opening levels. Admiral Group (LON:ADM) and Prudential (LON:PRU) made small advances.
Legal & General (LON:LGEN) led the sector with a 2.8% gain.
Private equity group 3i (LON:III) rose marginally.
Small Cap Movers
Other notable movers among the small caps included developer of CAD and image analysis software Medicsight (LON:MDST) and developer of advanced vision based industrial systems Seeing Machines (LON:SEE), which lost 8% and multi-currency payment and data processor Planet Payment (LON:PPT) with a 14% loss.
Novel pesticides and plant nutritional products developer Plant Impact (LON:PIM) did better, tacking on 6.5%.
Small Cap News
Ambrian Capital PLC (LON:AMBR) said it has acquired the physical bio-fuels business of the Masefield Group, strengthening its physical commodities trading capability.
In its interim results for the first half, DiamondCorp (LON:DCP, JSE:DMC) revealed that the underground development of the Lace Diamond mine, in South Africa, is ahead of schedule and within budget. Meanwhile, in Botswana the company’s ‘exciting’ kimberlite exploration programme is also progressing well with each of the first four holes intersecting kimberlite. In a note to investors, Fairfax Securities focused on DiamondCorp’s positive interim results. The stockbroker said that whilst the company’s share price "remains at distressed levels", the broker believes that the Lace mine’s upside potential “should meet expectations” and successful bulk sampling “could see a major increase in valuation".
The enigmatic Falkland islands oil play took another twist today, after Rockhopper Exploration (LON:RKH) revealed that the Ernest exploration well in the North Basin came up dry. After reaching 2,249m, initial logging confirmed that “no hydrocarbons have been encountered”.
Africa and FSU operating oil and gas junior Victoria Oil & Gas (LON:VOG) reported more progress from its Logbaba gas and condensate project in Cameroon, where the second well continued to show good flow rates and current improvements along with the first gas delivery remain on track for December 2010. The company has also signed gas sales agreements covering the first five years.
Copper and gold miner EMED Mining (LON:EMED) has announced that its wholly owned subsidiary EMED Tartessus has received formal clarification from the Department of Industry of Andalucía of certain regulatory administrative matters which were previously reported as outstanding.
Europa Oil & Gas (LON:EOG) has been awarded two licenses for underground coal gasification (UCG) off the east coast of England by the Coal Authority. The new licenses are adjacent to Europa’s existing East Midlands licenses.
Synchronica (LON:SYNC) continues to expand both its pipeline and the size of its addressable market, with yet another new contract with a major mobile operator in the emerging markets. In a deal with the Philippines' largest mobile operator, Smart Communications, Synchronica will facilitate push-email service. Smart’s GoMail service is based on Synchronica's Mobile Gateway ‘middleware’. The company highlighted Mobile Gateway's ‘100% device compatibility’, and said GoMail will be available to all of Smart’s subscribers.
Broker Daniel Stewart & Company (DS&C) called the update from Victoria Oil & Gas (LON:VOG) “very solid” with “solid if not stellar” rates shown by the La-106 well at the Logbaba gas and condensate project in Cameroon.
Cove Energy (LON:COV) has made the first liquid hydrocarbon discovery in deepwater offshore East Africa after the Ironclad-1 well in the Area 1 offshore Mozambique license block encountered oil and gas saturated sands. The presence of oil has been confirmed by geochemical analysis.
Lonrho’s (LON:LONR) 63%-owned port operator, Luba Freeport, has agreed a significant deal with TENARIS (NYSE: TS) which will ultimately see the major oil and gas service group establish a regional hub at the Freeport in Equatorial Guinea.
Avia Health Informatics (LON:AVIA) has reached an agreement with European shipping group Intresco Ltd, to trial its first product in the Odyssey MobileAssess range. The Odyssey MarineAssess system is designed to remotely assess the condition of an ill or injured crew member, and reduce the potential costs associated with diverting a shipping vessel.
Large and Mid Cap News
Brit Insurance Holdings NV (LON:BRE) has promoted Ray Cox to the chief executive officer position of its UK Strategic Business Unit with effect from September 1 2010. He will join the executive management committee and report directly to group CEO Dane Douetil.
In its interim results statement, the Henderson Group (LON:HGG) highlighted strong growth, with revenues up 50% and profits up 80% from a year earlier, overcoming “market volatility and fragile investor confidence”. Assets under management (AUM) grew by 19% to £58.2bn.

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