Market Report: Potash price war scares off investors

Investors in the AIM-listed Sirius Minerals who had hoped to cash in on fertiliser production from underneath the North Yorkshire moors took fright yesterday after one of its house brokers warned that a potash price war could make the project unviable.

Analysts at Jefferies rated the group underperform and slashed the price target from 30p to just 9p as they warned on the potential new risks for the proposed potash mine under the national park. When the note was released Sirius plunged more than 30 per cent. Later in the afternoon, Sirius issued an update on its position and said the brokerage contract with Jefferies had already been terminated. The broker’s three month notice period ends on 26 August.

Sirius – which has attracted hundreds of small investors and first-time shareholders from around the site of the proposed mine – faces "major funding hurdles" and a "rising challenge" as potash prices reset, Jefferies said in its note.

Changes in the crop nutrient market, caused by the split of specialists Belaruskali and Uralkali – who were partners for eight years in a venture that held 43 per cent of global potash exports – spells bad news for others, the analysts added. The end of the partnership could mean a price war.

Experts predicted the price of potash could drop 25 per cent to below $300 a tonne. Jefferies argued that the price war, coupled with delays in securing project development approval means "the risk/reward balance has turned against Sirius in recent weeks".

The mining company has also experienced a difficult time of late as it seeks approval from the local planning authority. It plans to get approval to start production by 2017. Last month it got a deferral of a critical ruling by the authority to allow it more time to respond to environmental concerns.

Sirius defended the situation and said that "there are no significant or fundamental environmental issues… that cannot either be addressed or mitigated". But many investors decided not to take risks and shares dropped 1.5p, or 9 per cent, to 15.38p – its lowest in a year.

The wider market was in the red as traders worried that the US might change its monetary stimulus programme this year, prompting the FTSE 100 to drop 15.37 points to 6,604.21.

Contrasting news over dividends dominated the top and the bottom of the benchmark index.

Investors were rushing to check into the giant Intercontinental Hotels Group after it announced a return of $350m (£227.8m) to shareholders.

Punters had been expecting Intercontinental to return cash after a $500m buyback announced last year, but not this soon or so much. Consequently, shares in the group climbed 122p to 2,030p, bolstered in afternoon trade when the US market opened.

News of the special dividend came as the business also provided a set of first-half results that were ahead of City expectations on both sales and margins.

At the other end of the Footsie, bad news on a payout left the Mexican gold and silver miner Fresnillo buried in last place. It fell 112.5p to 924.5p after announcing a half-year dividend much lower than last year and at the same time reporting a drop in first-half profits.

One strong performer was the testing and inspection specialist Intertek after analysts at RBC Capital raised its rating to "sector perform" from "underperform" with a 3,050p price target for shares that added 73p to 3,158p.

The British aircraft parts-supplier Meggitt said its first half is in line with expectations but analysts at Jefferies said they remained "wary" and rated the Airbus and Boeing parts supplier a hold with a 365p price target for shares, which slipped 10.5p to 544p.

The mid-cap online gambling outfit 888 Holdings struck a deal to provide online gaming with Caesars Interactive Entertainment when the US state of New Jersey relaxes its gambling rules. Numis said 888's "routes to enter the US poker markets are now clear in Nevada, Delaware and New Jersey". 888's shares were up 3.6p at 165.9p.

The AIM-listed e-commerce software provider @UK said its half-year results will be in line with expectations and it produced a 2.75p gain to 13p. Walker Greenbank, the wallpaper group, reported an upbeat set of half-year results and it advanced 2.5p to 138p. The animal food supplier NWF rose 4.5p to 120p after revealing record profits.

Newly listed financial trading platform group Plus 500 got a boost from its advisor Liberum Capital which rated it a buy with a 180p target price for shares that were 3p better at 135.5p.