Market Report: Deutsche Bank puts miners back in favour

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The Independent Online

A bullish note on the mining sector from the influential broker Deutsche Bank attracted investors to a sector that has been out of favour in recent weeks. Top pick for the broker is Vedanta Resources, the Indian copper mining group that has just joined the blue-chip index, along with the established heavyweights Rio Tinto and BHP Billiton.

The Deutsche Bank mining analysts John Mackinnon and Tama Willis said the recent sell-off was a blip in an otherwise bull market, and set ambitious new price targets of 1,730p, 1,260p and 3,960p respectively. Vedanta, which has hit 1,740p this year, performed strongly as the price of copper firmed in the futures markets, adding 27p to close at 1,363p. Rio Tinto gained 24p to 2,859p. BHP Billiton, the Anglo-Australian group that is the world's largest integrated mining company, rose 18p to 1,049p.

Talk of a takeover bid for Centrica by the Russian gas giant Gazprom has done the rounds plenty of times this year, and the rumours were widespread yesterday. The Government has said it will not block a bid, despite the former dominating the British domestic supply market. Shares in Centrica, which hit an intra-day high of 331p when speculation about a Gazprom bid first surfaced in late January, rose 11.25p to close at 285.25p on heavy volume, with almost 35 million shares changing hands.

Money managers are enjoying the revival in global equity markets after a grim May. The London market is up almost 6 per cent from the low for the year, and Amvescap, 17.75p stronger at 495.25p, Schroders, 15p better at 1,010p and Man Group, up 34p at 2,548p, have been among the beneficiaries. Asset management groups tend to be the closest proxy to a tracker fund - with the value of assets under management rising in line with markets, a strong FTSE 100 usually spells good news for the sector.

The FTSE 100 continued its good week by closing 41.9 better at 5,833.4, as traders bought into the rally in the belief that US rates, up by 25 basis points on Thursday night, will not rise again in the short term.

Contrary to popular belief, getting promotion to the FTSE 100 doesn't always mean a boost for the share price. The money broker Icap, promoted at the expense of the airports operator BAA, found few friends on its first day at the top table, as the shares topped the FTSE 100 fallers, down 10.75p to 498p.

Thursday's trading statement from the publishing group Trinity Mirror confirmed what bears have been thinking about the sector for some time - that things are going to get worse before they get better. The US broker Lehman Brothers became the latest to voice its fears over the company and advised an "underweight" stance on the stock with a price target of 485p. However, since the shares have fallen from a 632.5p high earlier this year, some traders said the bad news is already in the price. The shares closed 0.5p weaker at 488p.

Considering many investors' reservations about valuations in the online gambling sector, punters are still prepared to back consolidation prospects. 888 Holdings, the second largest London-listed online casino operator, was 14p firmer at 214p, as investors speculated that PartyGaming will use the proceeds of a £500m bond issue to bid for it. Rumours that PartyGaming will bid for Rank Group died down, as traders said it will need to break the bank to persuade the Rank board to accept an offer from an online competitor funded almost entirely with debt. PartyGaming added 1.25p to 115.5p; Rank fell a quarter of a penny to 199.5p.

The knives are still out for iSoft, the struggling software provider. Comments from Accenture, the consultancy group that has three contracts with iSoft to provide solutions for a £10bn NHS contract, hinted that the group would consider switching provider from iSoft, which would spell disaster for the firm. Numis Securities reiterated its price target of 35p, less than half the current value. A large number of short positions are thought to have been taken out in iSoft in the past week, forcing the shares 4.75p lower to 77.25p.

There was an encouraging first day of dealing at China Biodiesel, a renewable energy business, after a placing with institutions at 85p by the broker Evolution Securities. The company raised £8m of new capital and the shares rose to 99p, a 16.5 per cent premium.

Small mining investors will be on the lookout for Greatland Gold, a precious metal prospector with assets in Western Australia and Tasmania, when it makes its AIM debut on Monday. Several senior managers at Greatland have been involved in major mining groups. The company raised £1.1m through a placing priced at 2p organised by the nominated adviser ARM Corporate Finance. The serial small mining investor Bruce Rowan has an 18.9 per cent stake in the group through two investment vehicles.

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