Market Report: Miner Talvivaara is in a hole over debt

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The Independent Online

Although Talvivaara has plugged the leak in its nickel mine, it now might need to plug a gap in its finances. The miner's shares sank more than 30 per cent when it revealed the leak in a gypsum pond at its mine at Sotkamo in eastern Finland on 4 November. Production was halted and the likely financial impact to correct the damage to the environment caused investors to bail out.

But yesterday the miner finally stemmed the leak and is waiting for permission to restart. Shares began to recover and raced to the top of the mid-cap index gaining 26 per cent, up 21.6p to 105p.

But the City thinks with an upcoming debt problem to resolve and the major environmental issues still to deal with, it will need to raise cash.

If the miner issues new shares it will dilute the existing share price. But it is expected that the Finnish government, which owns around 9 per cent, will also invest.

Bank of America Merrill Lynch analysts downgraded the stock to neutral and said: "With €514m [£413m] in net debt and €77m in convertible bonds due in May 2013, we don't rule out a capital raise. The company has indicated that it 'is undertaking an assessment of a range of funding options'."

Talvivaara said it will update its nickel production target when it is allowed to restart the plant – it has already lowered its output forecast on a number of occasions this year. The Finnish Environment Institute said water samples showed levels of contamination high enough to kill fish, and has asked Talvivaara for further details by today, before allowing production to restart.

Some traders complained that the City has become dull as fund managers begin to try to keep their books flat to stop any risk or potential disasters for their portfolios in the final six weeks of the year.

The benchmark index couldn't hold on to yesterday's gains as concerns on the eurozone crisis – focused on Spanish and Greek debt – and the US's fiscal cliff remained. The FTSE 100 followed Wall Street down and lost 64.24 points to 5,722.01.

Toward the bottom was the miner Evraz, down 16.4p to 217.4p as investors turned their back on more riskier stocks.

Centrica, which lost 2.75 per cent the day before, recovered and ended up at the top of the index after denying any alleged irregular gas trading. Its shares hissed up 7.5p to 318.3p.

The supermarkets were in focus as Sainsbury's reported storming trade. But rival Morrisons continued to suffer. Its attempts to woo customers with discounts could backfire, City analysts reckon.

The supermarket is offering some shoppers 10 per cent discount cards, but it hasn't lured scribblers at Panmure Gordon or Shore Capital.

Panmure Gordon's Philip Dorgan claims Morrisons' "latest marketing wheeze looks likely … to obey the law of unintended consequences. Whilst seeking to gain sales from promiscuous customers, it may lose some of its core customers".

Shore Capital's Clive Black and Darren Shirley agree. They have kept their sell rating and share price target of 262p, saying: "We struggle to see the merit of such marketing activity in the digital age. We have outlined … our concern about current trading momentum and our expectation for further downgrades to our profit forecasts."

Morrisons' shares checked out 3.4p to 259.7p while Sainsbury's retreated 8.4p to 338.8p.

The bank Standard Chartered still has some fans. Investec's banking expert Ian Gordon, who has been one of a number of analysts on a trip to Beijing with the bank, gave it a "buy" rating and a share price target of 1,800p. He reckons rising bad debt concerns "miss the point" while concerns on "slowing Asian growth" is "hardly a new concept and misses the point that Standard Chartered is still taking share in higher value world bank segments". The shares dropped 17p to 1,444p.

Back on the mid-cap index there was better news for investors in the Egyptian miner Centamin. It faces problems over rights to its Sukari mine and a court case is ongoing, but its results yesterday revealed record quarterly earnings and Liberum Capital analysts gave it a buy rating. Its shares edged down 0.4p to 70.5p.

The plant and tool hire group Speedy Hire returned to profit in the half year and said turnover rose 4.5 per cent to £169.1m. The shares crept up 1p to 34.5p.