Market Report: Evraz soars after iron ore mine deal
Thursday 13 September 2012
Diamonds might be forever, but iron ore isn't. Russia's state-owned diamond miner, Alrosa, has sold a 51 per cent stake in its iron ore mine to Roman Abramovich's Evraz. The company, Russia's largest steel maker and part-owned by Mr Abramovich, shot up the leaderboard on the news as punters across the market regained some of their appetite for risk yesterday.
Alrosa bought the rights to develop four deposits of iron ore in eastern Siberia in 2008. It had been searching for a partner for the project and Evraz said in March that it could invest up to $1.5bn (£931m) in the Timir project over five years. Evraz mined a 7.9p gain to 269p.
The iron ore price also headed back above $100 a tonne yesterday for the first time in nearly a month amid hopes of fiscal stimulus in China.
But the FTSE 100's platinum miners were having a poorer time of it. Unrest among South African miners has spread to Anglo American Platinum – the world's largest platinum producer. The group, which is 80 per cent-owned by Anglo American, was forced to shut operations at its Rustenburg mine. It lost 53.5p to 1,901.5p.
After an initial burst of enthusiasm following news of the go-ahead by Germany's constitutional court for the eurozone bail-out funding, the FTSE 100 lost some of these gains to end 10.11 points down at 5782.08.
Traders are hoping the "sell in May and go away; don't come back until St Leger Day" adage will come true and buyers will return to the market next week. The St Leger Festival kicked off in Doncaster yesterday and the St Leger Day race takes place on Saturday.
Sir David Walker, the incoming chairman of Barclays, reignited the top pay debate by calling for banks to release the details of all those earning more than £1m. But the UK banks were in favour as concerns disappeared that the European Central Bank would step up its control of them via the European Banking Authority.
The expected announcement this week of plans for the float of Royal Bank of Scotland's (RBS) Direct Line car insurance business helped the bank dial up gains. City scribblers think it is a good time to buy. Cormac Leech at Liberum Capital retained his buy recommendation for the bank and increased the price target to 270p.
Mr Leech thinks that as the eurozone "shifts towards a more pro-growth fiscal strategy" and if "eurozone integrity were assured" he could even move the share price target to 310p. RBS advanced 10p to 274.7p, while Lloyds Banking Group ticked up 1.44p to 38.5p, Barclays edged up 3.5p to 217p and HSBC gained 4.5p to 569.1p.
Speculation of corporate activity has surrounded the defence giant BAE Systems in the past week, and yesterday it emerged it is in merger talks with EADS, Europe's largest aerospace company. BAE soared to the top of the leaderboard, up 34.9p to 363.6p.
Trader talk about the bid prospects for accountancy software group Sage heightened, after a week of vague speculation. Private equity firms – perhaps one that lost out on Misys earlier this year – were speculated to be potential suitors, as well as the German software giant SAP. Sage gained 9.5p to 315.3p.
After the close, the FTSE 100 committee confirmed broker Icap, up 0.2p to 338.4p, and Ashmore, down 2.9p at 328.1p, are being relegated to the FTSE 250.
Gaming group bwin.party, which sponsors Real Madrid's kit, jumped 1.7p to 103.2p on news it has agreed a deal with Nordeus, the Serbian social gaming start-up behind Facebook game Top Eleven. Bwin said it will develop a social sports betting ap with the company.
Over on Aim, Jefferies' analysts like the look of Frank Timis's African Minerals' long-term value. Scribes rated the Sierra Leone-focused miner a buy with a share price target of 550p. The group, which recently sold a stake in its Tonkolili iron ore project to China's state-owned Shandong Iron & Steel, revealed a rise in operating losses yesterday. Meanwhile, the company is in talks with Standard Bank about securing a covenant waiver on its loans.
Despite these issues Jefferies reckons there is "attractive, long-term, deep value" at Tonkolili, but also warned of "project execution and iron ore price risks". Jefferies viewpoint was backed up by buy recommendations from Deutsche and Citigroup. Some dealers think the company is now looking cheap as it retreated another 7.75p to 286.5p.
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