Market Report: Miner Amplats digs itself into a hole

 

News that the world’s top platinum producer has bowed to union pressure and slashed the number of job cuts it planned has left investors worried about the future of the industry.

Anglo American Platinum, 80 per cent owned by Anglo American, yesterday said it will reduce planned redundancies to 6,000 from the 14,000 that it announced in January, to try to appease government and unions in South Africa.

But the City is concerned. Analysts at Liberum Capital said the “backdown leaves the industry vulnerable”.

South Africa’s mining belt has been plagued with extreme violence after strikes at platinum mines escalated and fights involving union groups, police and miners led to fatalities last year.

Amplats said the remaining cuts will take 250,000 ounces out of global platinum production this year and a further 100,000 ounces a year in the medium term. But investors are more concerned about what it means for future negotiations on jobs in the sector.

Liberum said there are “headwinds of a watered-down Anglo Platinum review, hostile wage negotiations and continuing union rivalries” that could affect other miners in the sector, including small cap miner Aquarius Platinum.

The unions are demanding fewer job cuts, even after Amplats’ reduction yesterday.

But Amplats’ chief executive, Chris Griffiths, denied it is caving in to government pressure and said it is working with the Government on the restructuring plan to put it in a “much better shape by the end of 2014”.

Amplats’ plan to reduce costs and cut production is a bid to lift the price of platinum and eventually return to profit.

Anglo American was buried at the bottom of the benchmark index, down 76p to 1,591p, while Aquarius lost 1.25p to 47p.

Staying with miners, the gold extractor Centamin Egypt was knocked by news that a report from Egyptian officials on its Sukari mine was “not positive”. But the gold miner insisted that the recommendations do not “address the substantive merits of Centamin’s appeal” over rights to mine in the country. The shares tarnished 7.73p to 37.87p.

The FTSE 100 sailed past the 6,600 mark, a level not seen since October 2007, and added 32.24 points to 6,624.98, stretching its winning run to a seventh trading session.

Mike van Dulken, head of research at Accendo Markets, said: “Sceptics have already begun pointing to limited upside now. But the bulls simply point to peer bourses trading at all-time highs. Why shouldn’t the FTSE100 follow suit, breezing through the next hurdle to go on to ‘party like it’s 1999?’”

The telecoms giant BT was top of the tree and at a six-year-high as annual profits jumped. The shares dialled up a 33.8p rise to 309.5p.

Earlier in the week, vague takeover rumours re-emerged for Shire. The pharmaceuticals group was 85p healthier at 2,019p after last night’s news that it had won a patent trial for one of its treatments. British Airways-owner International Airlines Group reported a €278m (£235m) first-quarter loss and nosedived 4.6p to 275.9p.

Over on the mid-league table, the insurer Catlin Group reported a 12 per cent rise in premiums in the first quarter, and said growth was coming from its international business across Asia, Europe and Canada. It gained 1.5p to 538p.

The City questioned what is Sir Stuart Rose’s endgame at Ocado. Yesterday’s AGM marked the handover of the chairmanship from Lord Grade to the former chief executive of Marks & Spencer. A perennial Ocado bear, Panmure Gordon’s Philip Dorgan, argued that if you “assume that the endgame, as led by Sir Stuart Rose (seller of businesses extraordinaire), is a sale” then he thinks there should be some sort of bid premium added to the share price. He increased his target from 50p to 130p. But Mr Dorgan remains a seller of the business because, despite its talks to enter into a distribution tie-up with Morrisons, it will “continue to lose market share to multichannel operators”. The shares rose 16p to 224.6p, well above the 2010 float price of 180p.

The AIM-listed touchscreen specialist Zytronic issued a full-year profit warning yesterday. It said “despite there still being an encouraging pipeline of opportunities” the conversion rate to orders is much slower than it expected and “year to date profitability will be more than halved.”

It insisted it is still “cash generative” with cash of £4.6m and borrowings of £1.8m, but the shares touched down 113p – or 38.5 per cent – to 180.5p.

Buy

Sweett Group

Snap up shares in Sweett Group, Westhouse suggests. The failed boardroom coup by Sweett’s former chairman Francis Ives is good news for the group. The non-executive chairman, Michael Henderson, has delayed his retirement from the board until the end of this financial year and Westhouse rates the group a buy with a 45p target price for shares that are currently 24p.

Sell

Pearson

Flog shares in the publisher Pearson, Liberum Capital suggests. Its US rival Cengage reported it will take a $2.75bn (£1.79bn) goodwill impairment charge related to its domestic assets in the US – not a good sign for the sector. Liberum thinks there are concerns on the longer-term prospects for the business and rate it a sell at 1,050p for shares that are 1,206p.

Hold

BSkyB

Hang on to shares in BSkyB, Investec implores. It says “life just got tougher for Sky” when BT revealed its new free sports TV for broadband customers but thinks Sky’s “sports content offer is far more attractive”. Investec reduces BSkyB’s target price to 825p, from 880p, for shares that are 806.5p and rate it a hold.

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