Market Report: Traders detect a rich vein in mining stocks

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The Independent Online

After a handful of quiet trading sessions, the mining sector was back, driving the London market higher as traders warmed to good results from Kazakhmys and hurried to cover short positions.

There was strong demand across the entire mining sector, adding to the view that the industry is in a long-term bull run, fuelled by demand from the Chinese and Indian economies. Kazakhmys, which is primarily involved in the copper market, rallied 88.5p to close at 1,042p, having listed only in October at a little more than 550p. Other large-cap miners enjoying strong demand were Rio Tinto, up 150p to 2,981p, and the Chilean copper miner Antofagasta, up 102p at 2,160p, while BHP Billiton, the world's largest integrated mining company, firmed 48.5p to close at 1,071.5p, an all-time high.

With another FTSE 100 reshuffle approaching, the second-line mining stocks Lonmin and Vedanta Resources, still the favourites to claim a coveted spot in the main index, were well bid with vague bid rumours doing the rounds at Lonmin. Vedanta added 91p to close at 1,376p while Lonmin were 52p better at 2,620p.

Among possible promotion candidates into the FTSE 250, according to Aberdeen Edinburgh Tracker are Qinetiq, Wolfson Microelectronics and Rightmove.

Despite the controversy surrounding its flotation in February, Qinetiq has been spectacularly dull since then. The shares dropped another 0.25p to close at 187.25p yesterday, 20p lower than the initial price. Rightmove, another newcomer to the London market, was unchanged at 382.5p, while Wolfson, the highly rated microchip business, lost 3.25p at 438.5p.

There was also strength in financials, as continued corporate activity speculation saw Royal Bank of Scotland 43p firmer at 1,895p, Alliance & Leicester 27p better at 1,217p, another all-time high, and the perennial takeover favouriteLloyds TSB 4p better at 556p. A&L is thought to be a target for France's Crédit Agricole and Spain's BSCH. A&L declined to comment on the situation. Strength across the board powered the FTSE 100 back through the 6,000 level, peaking at 6036, a rise of 76.8, before late profit-taking saw gains pared back with the market closing at 6015.2, up 56.0.

The long-running takeover saga at the London Stock Exchange took another surprise turn as the US exchange Nasdaq continued the current trend of pulling out of talks almost as soon as it confirmed that they had begun. Not surprisingly, shares in LSE were hammered as they had been trading at a significant premium to the 950p offered by Nasdaq. Significantly, the amount of LSE stock lent in the past three weeks has doubled, indicating an increasing amount of short sellers. LSE was the worst FTSE 250 performer and closed 76.5p worse at 1,043.5p.

Elsewhere in the mid-caps, the academic and business publisher Informa Group was well bid all day with talk of a bid from a trade source - dealers talked about Reed Elsevier or United Business Media as potential suitors. However, as both are thought to be uninterested in making acquisitions in the current climate, the focus switched to private equity. The shares added 17.25p to close at 487p, with market sources speculating a bid would have to value the company at about 550p per share, or £2.3bn.

Despite reporting that results will be in line with expectations, Homeserve, the home repairs insurer, succumbed to a bout of profit-taking before the end of the tax year. The stock has performed wonders since dipping below 400p in early 2003, but fell another 90p yesterday to close at 1,455p. The brokers Dresdner Kleinwort Wasserstein and Panmure Gordon published upbeat notes on the back of the numbers, with Panmure raising its price target on the shares to 1,850p.

In the small caps, Azure Dynamics, a Canadian electric train developer which is dual listed in London and Toronto, surged 11p to 63.5p as it confirmed it had appointed the investment bank Rothschild to consider its strategic options. One trader said: "I'm yet to see an investment bank recommend a company continue as before after a review. This company is gearing itself up for a sale and may be trying to take advantage of the optimism on alternative energy stocks."

Alpha Airports was well bid, up 5p at 73p, on the back of strong results, with pre-tax profits for 2005 up by 40 per cent to £18.4m. It manages retail outlets and catering for airlines and airports, and is the second-largest airport retailer in the UK after BAA. The company said it was taking legal action against a supplier over an alleged £2.5m fraud.

Finally, the unsecured finance lender London Scottish Bank was in demand as traders talked of a possible 130p bid for it. The stock closed at 112p, a rise of 8p.