FTSE in-depth: Petropavlovsk loses its sparkle

By Geoff Foster for MailOnline
Updated: 04:46 EDT, 4 November 2010

Dealers were miffed after Russian gold miner Petropavlovsk's management wheeled out much worse than feared third-quarter production numbers and then had the temerity to partly blame the extremely harsh weather conditions in the region.

Foster: Many investors took some profits ahead of the Federal Open Market meeting.

That, along with delays in the delivery of major mining equipment, apparently caused a 30pc decrease in mining works during the first nine months of the year.

With all its years of drilling experience in Russia, surely the City could have been spared such a lame excuse. In March, chairman Peter Hambro clearly gave an over-optimistic 2010 gold production forecast of between 670,000 and 760,000 ounces. That figure has been coming down ever since.

Yesterday, the figure was downgraded to between 510,000 and 530,000 ounces, which makes a 20% downgrade from the most recent implied guidance of 635,000 ounces and a 24% downgrade from the March figure.

Petropavlovsk's shares retreated 35.5p to 903.5p. The excuses certainly cut no ice with Collins Stewart, which advised clients to sell down further to 845p.

The broker said production delays are symptomatic of issues such as insufficient mine planning, inaccurate forecasting and suboptimal growth. What a difference a year makes.

The stock touched £13-plus last December before dropping like a stone when the company missed promotion to the Footsie by a whisker.

It's always better to be safe than sorry, so many investors took some profits ahead of the Federal Open Market meeting and the $600bn second quantitative easing package, or QEII, which world markets hope will stimulate the US economy.

The Footsie eased 8.46 points to 5,748.97 and the FTSE 250 lost 51.22 points to 10,876.28. Wall Street dipped 4 points in early trading.

Banks, however, found selective support with part-nationalised Lloyds Banking Group closing 1.81p dearer at 69.2p. It followed the appointment of Santander UK's head Antonio Horta-Osorio as the black horse bank's new chief executive to replace Eric Daniels. Standard Chartered jumped 38.5p to 1852p, HSBC 12.1p to 670p and Barclays 4.35p to 279.4p.

Ahead of today's third-quarter sales figures, Wm Morrison cheapened 1.8p to 290p. Broker Matrix forecasts underlying sales growth, excluding petrol and VAT, of 1.5% with new space to contribute another 1.5%. It says the company is well run, with strong growth prospects and profit margins that are fast approaching Tesco's (7.7p lower at 424.1p) market-leading levels.

All Bar One and Browns pubs giant Mitchells & Butlers frothed up 10.6p to 337p in belated response to a Liberum Capital buy recommendation and £4 target price ahead of the full-year results on November 23. It expects strong figures and a return to the dividend list in 2011. The group also has a £500m 'war chest' that should be put to good use next year.

Credit Suisse is a big fan of plumbing supplies giant Wolseley, 21p better at 1751p. It remains its top pick on the UK investment scene as it has a high (about 60%) exposure to renovation activity, which is typically more resilient than new-build, and only 7% exposure to government-funded projects, which is an area of concern as the Government steps up its squeeze on spending.

Selling ahead of next month's interims dragged chip designer Imagination Technologies 19.2p lower at 407.8p.

Investors got out of Coal of Africa, 21.5p, or 25pc, down at a year's low of 65p, after the company revealed it had received an order from South Africa's Mpumalanga Provincial Government to address environmental concerns at its Mooiplaats colliery.

Patagonia Gold on the other hand sparkled at 26.5p, up 5.25p. It has found exceptional high-grade gold and silver at its projects in Argentina.

GW Pharmaceuticals rose 5p to 92p after announcing that its cannabis-derived treatment Sativex has been approved in New Zealand for the relief of spasticity in multiple sclerosis. It is the fourth territory to approve the treatment, following the UK, Spain and Canada. KBC Peel Hunt's target price is 145p.

Speculative oil stock BowLeven gushed 15.5p to 190p on hopes for some good news about its Sapele-1 exploration well with next week's results.

African Medical Investments, where entrepreneur and former England cricketer Phil Edmonds is chairman, added 0.75p at 10.25p. It has increased patient numbers and sales at its private boutique hospitals in Maputo and Dar es Salaam. The construction of a third hospital in Harare is almost complete and is planned to open in early 2011.