Market Report: Investors scour mining sector for bargains

The FTSE 100 remained firm last night as investors sought bargains in the mining sector, taking copper miner Kazakhmys to 337.75p, up more than 18 per cent or 52.25p.

The session opened with Kazakhmys valued at about £1.5bn, while compatriot ENRC, up 40p at 349.25p, had a market capitalisation of about £4bn. Since Kazakhmys owns about 25 per cent of ENRC, the market was valuing Kaz's business at about £500m, a clear anomaly according to analysts and traders.

Matt Hasson at Arbuthnot Securities pointed out that "Kaz has copper, gold and power businesses which to many would be worth more than £500m" while Merrill Lynch noted that the market was paying between 2.4 and 5.4 times earnings for the copper business. By comparison, Merrill estimated that rival producer Antofagasta, 17.25p at 396.75p, was trading on multiples of 8.6 times earnings.

The hunt for bargains also aided the wider sector and Xstrata gained 109p to 1,164p, while Vedanta Resources climbed to 912p, up 62p.

Overall, bargain-hunting in the mining sector and expectations that the Bank of England was gearing up to reduce interest rates this week drove the market. The FTSE 100 gained 65.94 points to 4443.28 while the FTSE 250 climbed to 6443.71, up 161.16p.

Deutsche Bank economist George Buckley said he expected a half-point cut to 4 per cent from the Bank of England, although considering the economic conditions and the Bank's own forecasts for economic growth and inflation, the Monetary Policy Committee might cut more aggressively. He said: "We remain of the view that the Bank will need to ease policy sharply over the coming months and we continue to see [UK rates] being eased to 2.5 per cent by the middle of next year."

On the FTSE 100, the market continued to express its displeasure at Barclays' plans to raise capital from the Middle East. The stock was down 4.14 per cent or 7.4p at 171.5p despite words of support from UBS, which said: "Unfavourable comparisons with the funding on offer from the UK Government miss the point in our view.

"The Barclays business model (strong growth in IRCB [international retail and commercial banking] operations and investment banking) is incompatible with the UK Government as [an] investor whose agenda is necessarily domestic and focussed on de-leverage."

HBOS was up 6.14 per cent or 6.1p at 105.4p after publishing a trading statement that Collins Stewart said was weak, but as expected. Speculation that a European financial services group was preparing a bid to counter Lloyds TSB's merger offer also helped the stock buck the sector trend. Lloyds TSB, which also issued an update to market yesterday, was flat at 197.8p while the Royal Bank of Scotland lost 3.41 per cent or 2.3p to 65.2p.

Société Générale issued a "sell" note on Tesco, which traded lower, losing 6.7p to 332.7p. "Tesco faces a weakening UK grocery market, with the ebb tide of easing inflation set to reveal poor underlying volumes" the broker said. "There are also problems brewing for overseas businesses: exposure to foreign mortgage debt in Poland; austerity measures in Hungary; [and] a likely fall in consumer spending in Korea in response to a slowing export driven economy ... We see no prospects for positive news from Tesco for some time to come and in these volatile markets poor news, especially from a perceived safe haven stock, is likely to be severely punished."

On the second tier, the outlook for interest rates bought more buyers into the housing sector, taking Taylor Wimpey to 13.75p, up 37.5 per cent or 3.75p, and Barratt Developments to 86p, up 11.69 per cent or 9p.

Traders said investors were hopeful that a cut in the base rate, coupled with falls in interbank lending rates, would help unclog the mortgage market, which in turn should spark a recovery for the troubled sector. Market sources attributed some of the Taylor Wimpey gains to a short squeeze as the buying forced short sellers to abandon their downside bets.

On the downside, Aquarius Platinum lost 7.69 per cent or 11.75p to 141p after reports from South Africa suggested that large-cap peer Lonmin, down 39p at 1,108p, was considering lay-offs after a dip in demand for platinum from the car industry.

News of a 77 per cent fall in first half-profits at Ryanair bore on Easyjet, which eased back to 294.75p, down 4.3 per cent or 13.25p.

Among smaller companies, marine equipment manufacturer Raymarine gained 56.67 per cent or 8.5p to 23.5p, amid talk that recent lows might prompt a bid for business. Private equity and Nasdaq-listed Garmin were mentioned as possible predators.