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Yesterday’s trading: The mining prop begins to creak

By Geoff Foster for MailOnline
Updated: 04:17 EDT, 21 May 2008

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Exactly where would the Footsie be without the 20%-plus rise in the heavyweight mining sector over the past three months? Dealers reckon about 800 points lower, that's where.

Market watcher: Geoff Foster, Daily Mail

Markets have been artificially propped up by commodity stocks and this has helped camouflage the havoc wrought elsewhere, particularly in the financial sector. When miners have a bad day and the prop is removed, watch out.

It happened yesterday when Wiktor Bielski, Morgan Stanley's European metals and mining analyst, advised clients that the time might have come to take a more cautious view on the sector and called for a 10-20% correction in the short-term. A tidal wave of profit-taking thereafter left the sector flat on its back.

Triple digit falls were commonplace as Kazakhmys plummeted 151p to 1792p, BHP Billiton 173p to 2023p, Eurasian Natural Resources 111p to 1424p, Rio Tinto Zinc 485p to 6593p, Anglo American 227p to 3453p, Xstrata 263p to 4157p, Vedanta Resources 143p to 2637p and Lonmin 165p to 3431p.

With mines accounting for over 50 points of its fall, the Footsie slumped 184.9 points to 6,191.6. The market was also suffering from acute indigestion after yet another blue chip company passed the hat round to shareholders for much needed cash.

As expected, Imperial Tobacco jumped on the fundraising bandwagon rolling out a heavily discounted £4.9bn rights issue - on the basis of one share for every two at a price of 1475p - to help finance its acquisition of Franco-Spanish group Altadis. Dealers registered their disapproval, sending the shares crashing to 2455p before they closed 163p off at 2455p.

Wall Street exerted further downward pressure before the close, falling 199 points on growing concern about the record $129 a barrel oil price and after inflation fears were revived by a government report that showed a continued increase in producer prices. Billionaire hedge fund manager T. Boone Pickens expects the oil price to touch $150 a barrel this year.

Continuing concern about sky-high fuel costs dragged British Airways a further 15p lower to 207¾p and no-frills airline EasyJet 12½p down to 276p. BA's fuel bill now tops £2bn, while industry sources say Virgin Atlantic's fuel bill has quadrupled in the last three years from £250m to £1bn-plus.

Vague bid gossip helped exhibitions and trade fairs group ITE climb 10½p to 176¾p. Spreadbetting giant IG Group jumped 16p to 386p after Merrill Lynch upgraded to buy from neutral. It has been a major beneficiary of the prolonged market volatility and its new European operations have got off to an encouraging start. Merrill views IG as a pioneering force in the industry with considerable long term growth potential. Its target price is 450p.

Selling sparked by rumours of a bearish trading update left Kesa Electricals 11¼p lower at 205¼p. Social housing group Mears rose 3p to 323p on talk of more contract wins and promotion soon to a full listing.

Drug discovery company Immupharma touched 80p and closed 13½p better at 70p. Buyers piled in on hearing about positive pre-clinical research results for prospective cancer therapy IPP-204106. The compound has been found to effectively halt growth in a range of cancers, including breast cancer, prostate cancer, melanoma, glioblastoma, luekaemia, colon cancer and pancreatic cancer. Landsbanki remains bullish with a sum-of-the-parts valuation of 116p.

Dog of the day was Payzone which crashed 29¼p to 18½p on a full-year profits warning.

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The consumer payments and cash distribution group said it expects a loss of £24m after a 'challenging trading period' and difficulties relating to the integration of the Cardpoint and Alphyra businesses.

Anite dropped 3½p to 44½p after saying talks regarding a potential offer for the company have been terminated. Analysts await further details when the company wheels out a trading update next week.

Liontrust Asset Management jumped 32½p to 313p on news of a bid approach. Broker Numis believes the potential takeout price could be 360p a share. Liontrust, which is a pure equity focused fund manager, has £15m cash in the bank.

Funeral services group Dignity was in the doldrums at 754p, down 27½p. Evolution initiated coverage with a reduce rating and target price of 670p.The broker said its high valuation is based on its defensive business qualities, but it is no longer a defensive investment. It sees no short-term reason to buy the shares.

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