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Rich seam of speculation in mining

This article is more than 16 years old

Rio Tinto's hefty $38bn agreed bid for Canadian aluminium business Alcan set light to the mining sector today.

Rio itself fell 183p to £38.10 as it topped a $28.8bn offer for Alcan from rival Alcoa, but other miners moved higher as analysts speculated on the next bid target.

BHP Billiton added 60p to £15.54. Some traders believed BHP — which was also said to be interested in Alcan — could now move for Alcoa instead.

"Alcoa, with a question mark placed over its expansion plans, may now become a target for BHP," said Graham Neale of Killik & Co. "With the exception of Rio, the mining sector is pushing ahead on the renewed consolidation momentum, with Lonmin and Vedanta Resources [among] the leading risers."

Evolutions Securities said: "We are raising our target prices on the large cap miners to reflect a higher bid premium prompted by Rio Tinto's offer for Alcan. We have ascribed approximately a 20% additional bid premium. We believe [Rio] could still remain vulnerable to, for example, private equity or Chinese buyers, even if it is successful with Alcan."

Vedanta rose 109p to £18.00, while Lonmin was 150p better at £43.50. Antofagasta added 43p to 715.5p and Xstrata climbed 153p to £34.27.

The strength in the miners meant leading shares were on the way up today. By the close the FTSE 100 was 82.6 points better at 6697.7, helped by an opening 150-point rise on Wall Street after some good US retail sales figures, notably from Wal-Mart.

Oil prices continued to rise, with Brent crude jumping more than $1 to nearly $77 a barrel, while the pound moved above $2.036 before slipping back slightly during the afternoon.

With the strength in the oil price, Royal Dutch Shell A shares added 32p to £20.97 despite news that UBS had cut its recommendation from buy to neutral. This follows a downgrade from Goldman Sachs yesterday.

Other risers included hedge fund manager Man Group, up 24p to 616.5p after it said its assets under management had risen from $61.7bn at the end of March to $67bn in June.

Heading in the other direction was ITV, down 0.7p to 111.3p after analysts at Bear Stearns cut their recommendation from peer perform to underperform.

Leisure business Whitbread lost 48p to £18.98 as takeover speculation faded. Yesterday the shares were pushed higher by talk that US group Starwood Capital was planning a £24-a-share offer.

But Citigroup said in a note: "A bid from the current speculated candidates is unlikely. The Whitbread chairman bought £250,000 worth of stock on June 28. Such a purchase is a positive signal. However, if he knew of any bid for Whitbread, he wouldn't have been able to do that." However traders pointed out that this could just mean that no approach has yet been made.

There was some takeover news at Cadbury Schweppes, but it was not exactly what the market had been hoping for.

Instead of Cadbury, or perhaps part of it, being bought by private equity or a larger rival, the UK chocolate and fizzy drinks business has turned acquirer. It is buying US bottler Southeast-Atlantic Beverage for an undisclosed sum, and the shares — after an early fall — edged up 1.5p to 663.5p.

Among the mid-caps, insurance group Admiral was 28p lower at 862p after it ended talks with private equity companies about selling them a stake in its price comparison website, Confused.com.

Graham Neale at Killik said: "Potential acquirers had given implied valuations in the range of £600m to £650m. [These] were rejected by Admiral, which stated that it believed it was in the company's and shareholders interest to retain a 100% stake in the unit."

But Bluetooth specialist CSR rose 47.5p to 853p as Morgan Stanley upgraded from underweight to equal weight, and raised its price target from 620p to 720p.

ABN Amro also said CSR could benefit after mobile phone group Motorola warned of a sales slowdown, probably to the benefit of Nokia.

"We believe Infineon, CSR and Wolfson are the main beneficiaries of Motorola's [market] share loss, as they have no exposure to [the company]," said ABN.

Lower down the market, an experimental treatment for ovarian cancer developed by Antisoma and Swiss group Novartis has failed a mid-stage clinical trial. Antisoma shares slumped 6.5p to 37p, a 15% fall.

A positive update from IT staffing group FDM saw its shares climb 8.5p to 155p. Analysts at Daniel Stewart have raised their earnings forecast for this year by 15% and set a 190p price target.

But fuel cell developer Acta slipped 0.5p to 113p after Japanese investment firm Sumitomo paid 115p a share or £4.6m for a 10% stake.

Finally shares in Omega Diagnostics were suspended at 0.9p awaiting acquisition and fundraising news, as reported here.

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