Market Report: Lonmin on the slide as Footsie heads south

Weaker commodities prices, as well as concern about the fate of Xstrata’s stake, left Lonmin more than 8 per cent lighter last night. Xstrata, which this weekend confirmed its interest in a “merger of equals” with Anglo American, owns around 25 per cent of Lonmin, the platinum producer which itself was the subject of an abortive bid from the famously acquisitive Anglo- Swiss miner last year.

In the event of a merger, traders said Xstrata may end up selling the Lonmin stake to satisfy competition authorities, as the combined group would emerge as the leading player in a number of key markets. Citigroup, for example, estimates that the resultant entity would end up as the world’s largest platinum producer.

One trader suggested the news was “grim for Lonmin on [two] fronts”.

“One, the Xstrata stake is likely to be sold off,” the trader said. “And two, Lonmin will be very much sidelined in the mining industry. It will be all about themajors, especially if Rio [Tinto] and [BHP] Billiton get their acts together.”

Citi also raised the stake sale issue, saying a combination of the two may entail a “potential forced sale due to competition rulings of [Xstrata’s] 24.9 per cent Lonmin stake”.

At close, Lonmin, which like the wider sector was also hit by weaker metals prices, was 102p behind at 1148p. The stock may well regain ground this morning, as Anglo turned down Xstrata’s proposal after the close last night.

Xstrata was 6.7 per cent or 45.9p lighter at 635.1p, while Anglo bucked the trend, rising to 1698p, up 4.6 per cent or 75p. BHP Billiton was 4.3 per cent or 61p behind at 1345p and Rio Tinto fell by 3.8 per cent or 80.5p to 2014.5p.

Overall, the FTSE 100 was 2.6 per cent or 111.88 points behind at 4234.05, while the mid-cap FTSE 250 index fell to 7174.84, down 2.2 per cent or 159.5 points.

The weakness in the mining sector, and in oil & gas issues, pushed the benchmark on to the back foot, with traders blaming the sell off in commodities on news that the World Bank had cut its global growth forecast for the current year.

Early losses on Wall Street – the Dow Jones Industrial Average was around 1.8 per cent down as the session in London came to a close – only served to exaggerate the losses on this side of the Atlantic.

The weakness was all pervasive, hitting oil majors like Royal Dutch Shell, which closed at 1516p, down 4.7 per cent or 75p, and explorers and producers like CairnEnergy,which was 3.7 per cent or 85p behind at 2216p.

On the upside, besides Anglo American, only a handful of blue chips managed to close in the black, with Smiths Group rising to 671.5p, up 3.5 per cent or 22.5p after Deutsche Bank switched its stance to “buy” from “hold”. Other risers included Bunzl, the distribution group, which was 2p firmer at 485.5p, and water group Severn Trent, which was 3p ahead at 1107p.

Back on the downside, Liberty Internationalwas almost 4 per cent or 15.2p weaker at 386.5p after Evolution Securities slapped a “sell” rating on the commercial property group’s stock, highlighting the “late rights issue, high tenant failures and little incremental income from developments” as its main sources of concern.

“Although the company has indicated a minimum 16.5p dividend this year, we do not believe that earnings will be sufficient to cover it,” the broker said, sending investors rushing for the exit.

Sector peer Hammerson, which is rated “buy” at Evolution, was caught in market-wide downdraft, easing to 306.5p, down 2.2 per cent or 6.75p, despite comments from its chief executive indicating that the slump in UK commercial property market may be moderating.

Further afield, Yell, the directories group which re-entered the FTSE 250 as the results of the recent index review took effect, fell to 25.5p, down 13.6 per cent or 4p, after the company’s annual report warned that, owing to uncertain trading conditions, it may need to reset its financial covenants to avoid a breach.

In response, Panmure Gordon said thatwhile Yell’s capital structure problems were known, the news “highlights the increased risk to the remaining equity value”.

“Covenants have already been reset once,” the broker said. “Further resetting may entail a higher interest charge than the current 8 per cent.”

Also on the FTSE 250, Aggreko, the temporary power supplier, was 2.7 per cent or 14p firmer at 524.5p thanks to Numis Securities, which moved the stock to “buy” from “add”, saying that the recent share price fall may have been misguided.

“The share price fell 9 per cent last week on the back of fears that [today’s update] will be cautious,” the broker said. “However, we feel management will maintain guidance for the year even though trading is likely to have been tougher in the second quarter.”

Among smaller companies, Cashbox, the AIM-listed ATM machine supplier and operator, climbed to 3.62p, up 0.5p or 16 per cent, after unveiling an agreement with BT that will see its ATM sites double up as Wi-Fi hotspots, allowing internet access via the BT Openzone service.