Overview: miners absorbed heavy hits today to drag down the FTSE 100, which tumbled 2.6% to fall below 5,500. First it was confirmed that Australia decided to levy a 40% tax on mining companies including majors Xstrata (LSE: XTA) and BHP Billiton (LSE: BLT). Then it was reported that China raised the reserve requirements for banks in the latest move to tighten its monetary policy. The International Copper Study Group said on Friday that the country’s demand for copper could decline 13% in 2010 after jumping 38% in 2009.
Satellite communications company Inmarsat (LSE: ISAT) led the blue chips with a 2.4% gain. Security services group G4S (LSE: GFS) and British American Tobacco (LSE: BATS) added 1.8%. Defence and aerospace systems manufacturer BAE Systems (LSE: BA) and outsourcing group Capita (LSE: CPI) were the only other FTSE 100 constituents to gain more than 1%, adding 1.5% and 1.3% respectively.
Miners and banks were the heaviest fallers in the index with Eurasian Natural Resources (LSE: ENRC) falling to the bottom of the index with a 11.3% decline.
US stocks plummeted in early trade. The Dow Jones Industrial Average slipped 2% to fall below 11,000. The broader S&P 500 index was down 2.2% and the technology heavy NASDAQ composite dropped 3%.
Commodities
Oil prices pulled back today after gaining at the start of the week in the wake of supply concerns and optimism about Greece’s debt situation.
Greece secured a multi-billion bailout from the European Union and the International Monetary Fund (IMF), agreeing to slash spending by €30 billion over three years on top of numerous austerity measures that it had already implemented to bring the ballooning budget deficit under control. The debt-laden country will now receive €110 billion over 3 years to meet its commitments and avoid a default that seemed to be likely after Germany refused to provide financial aid unless Greece passed reforms to curb spending and tackle its deficit.
The news lifted the euro, which had been under pressure for weeks as Europe’s fiscal crisis unravelled. Today, however, the US dollar rose against Europe’s single currency to make dollar denominated commodities such as crude more expensive for holders of other currencies, denting demand. Investors aren't convinced that the bailout is not going to be sufficient to solve all of Greece’s problems and will only delay its insolvency.
BP's (LSE: BP) ongoing oil spill debacle in the Gulf of Mexico, where oil is on course to reach the coast of Louisiana, has triggered concerns about a possible decline in oil supplies and restrictions on offshore drilling in the US. Investors will be looking to today’s inventories data from the American Petroleum Institute (API) and Wednesday’s more closely watched report from Energy Information Administration (EIA) for more clues about the strength of oil demand.
June Brent Crude slipped to US$87.73/barrel, while US light, sweet crude for June delivery moved down to US$84.81/barrel.
Blue chip oil and gas producers were in decline today. BG Group (LSE: BG) was at the bottom of the pile with a 4% loss. BP (LSE: BP), which is still struggling to contain the oil spill in the Gulf of Mexico, tumbled 3.5%. Fellow supermajor Shell (LSE: RDSB) shed 3%, as did Tullow Oil (LSE: TLW). Cairn Energy (LSE: CNE) kept its losses to a minimum.
Oil and gas engineering firms Petrofac (LSE: PFC) and Amec (LSE: AMEC) followed, sliding 2.5% and 1.3% respectively.
Midcaps also suffered heavy losses except for Dragon Oil (LSE: DGO) and Melrose Resources (LSE: MRS), which managed to post gains of less than 1%. JKX Oil & Gas (LSE: JKX) was flat.
Salamander Energy (LSE: SMDR) lost nearly 6%, Dana Petroleum (LSE: DNX) and Premier Oil (LSE: PMO) dropped more than 3%, Soco International (LSE: SIA) was down 2.1% and Heritage Oil (LSE: HOIL) retreated 1.8%.
Services companies Wood Group (LSE: WG) and Wellstream Holdings (LSE: WSM) declined 3.5% and 1.1% respectively.
Energy investor Xtract Energy PLC (AIM: XTR) slipped 14%. Ukraine focused gas producer, Regal Petroleum (AIM: RPT) and Oil and gas company with assets in Iraq, Syria and Gulf of Mexico, Gulfsands Petroleum (AIM: GPX) lost about 9% each, while Eastern Europe focused junior Aurelian Oil & Gas (AIM: AUL) declined 8% and Europa Oil & Gas (AIM: EOG) shed 5%.
Gold reaches $1,190
Gold jumped to yet new 2010 highs today, approaching its all time record of US$1,200/oz on safe haven buying amid doubts that the €110 billion of financial aid provided by the European Union and the International Monetary Fund (IMF) to Greece will be enough to save the debt-laden country from bankruptcy. Gold is increasingly seen as a safe-haven asset, while it previously provided an alternative to the US dollar and usually moved inversely to the American currency and in tandem with the euro. Now investors are turning to the yellow metal amid volatility in currency and equity markets.
Gold has reached US$1,190/oz.
Other precious metals declined with silver and platinum slipping to US$18.69/oz and US$1,707/oz respectively.
Major mining stocks fell heavily as metal prices declined. Platinum producer Lonmin (LSE: LMI) and silver miner Fresnillo (LSE: FRES) pulled back 4.7% and 3.8% respectively, while gold miner Randgold Resources (LSE: RRS) lost 1.4%.
Specialty chemicals firm Johnson Matthey (LSE: JMAT) remained flat.
Aquarius Platinum (LSE: AQP) slid to the bottom of the sector in the FTSE 250 with a 7.5% loss. Gold miner Petropavlovsk (LSE: POG) declined 3.8%, while silver producer Hochschild Mining (LSE: HOC) slid 1.4%.
South American based explorer Mariana Resources (AIM: MARL) and Western Australia operating Norseman Gold (AIM: NGL) slipped 10% and 9% respectively. Turkey focused gold miner Ariana Resources (AIM: AAU), Africa focused gold deposit developer Cluff Gold (AIM: CLF) and London listed Australian gold producer Leyshon Resources (AIM: LRL) all lost 5%.
Africa operating gold miner GMA Resources (AIM: GMA) and Lesotho operating diamond miner Kopane Diamond Developments (AIM: KDD) outperformed the sector, climbing 4.3%.
Miners plummet as metals fall
Base metals declined sharply. Copper and nickel moved down to US$3.21/lb and US$11.35/lb, while zinc dropped to US$0.97/lb.
Miners were the heaviest fallers among the blue chips today. Eurasian Natural Resources (LSE: ENRC) tumbled 11.3% to slide to the bottom of the FTSE 100. Antofagasta (LSE: ANTO), BHP Billiton (LSE: BLT) and Xstrata (LSE: XTA) all lost more than 7%. Kazakhmys (LSE: KAZ) and Anglo American (LSE: AAL) were down 6.8% and 6.3% respectively. Rio Tinto (LSE: RIO) and Vedanta Resources (LSE: VED) retreated 5.5% and 5% respectively.
London's only listed pure iron ore producer and FTSE 250 constituent, Ferrexpo (LSE: FXPO) moved with the sector, shedding 9.2%.
Australia focused coking coal producer Caledon Resources (AIM: CDN) lost 15.5%. Botswana operating nickel and copper miner Discovery Metals (AIM: DME) and iron ore focused investor Red Rock Resources (AIM: RRR) declined 8% and 5% respectively.
South American focused junior miner Herencia Resources (AIM: HER) outperformed the sector, rising 7.5%.
Banks, insurance, private equity
Financial stocks also were in decline today. Part-nationalised Lloyds (LSE: LLOY) and Royal Bank of Scotland (LSE: RBS) were at the bottom of the banking sector with declines of 6.2% and 5% respectively. Barclays (LSE: BARC) tumbled 4%, while HSBC (LSE: HSBA) shed 1.3% and Standard Chartered (LSE: STAN) posted a small loss.
Insurers followed. Aviva (LSE: AV) declined 4.5%, Prudential (LSE: PRU) shed 3.2%, Old Mutual (LS:E OML) slid 2.4% and Legal & General (LSE: LGEN) lost 1.9%, as did Standard Life (LSE: SL). RSA Insurance Group (LSE: RSA) and Admiral Group (LSE: ADM) were little moved.
Private equity group 3i (LSE: III) added nearly 1%.
Small Cap Movers
Other notable movers among the small caps included African focussed soft commodity specialist, Agriterra Limited (AIM: AGTA) and biopharmaceutical group Lipoxen (AIM: LPX) with losses of 10% and 7% and Latin America operating power producer Rurelec (AIM: RUR), which shed nearly 30% after its Bolivian business was nationalized by the government. Mobile email and data synchronisation group Synchronica PLC (AIM: SYNC) did well with a 6% gain.
Small Cap News
Patagonia Gold (AIM: PGD) has raised £13 million in new capital, with the completion of a placing for 80m shares and a subscription of 1.25m shares, with all new shares being issued at 16p each. The net proceeds will be used to advance exploration and development work and to begin a trial heap leach operation at the Lomada de Leiva gold project in the Santa Cruz province of Argentina.
Supplier of human tissue-based services Asterand (LSE: ATD) announced that its subsidiary BioSeek has secured a two year collaboration agreement with Japan-based human health care company Eisai.
Stellar Diamonds (AIM: STEL) has reached agreement with Petra Diamonds Limited (AIM: PDL) to gain full control of the Kono kimberlite project in Sierra Leone, with an equity-based deal, worth £900,000, for Petra's 51% interest in the project. Kono has been on care and maintenance since May 2009, and Stellar now believes the project is well positioned as diamond prices are recovering.
Landore Resources (AIM: LND) told investors that its drilling program at the Junior Lake-Lamaune gold prospect in Ontario continues to intersect widespread gold mineralization. Since drilling recommenced in January, 41 drill-holes, totalling 6,082 metres, have been completed on the Lamaune prospect confirming the presence of gold mineralization, and identifying two distinct zones.
Africa focused energy company Dominion Petroleum (AIM: DPL) halved its pre-tax losses in a “transformational” 2009, while raising money for its 2010 drilling programme that it said could help it uncover its “significant upside exposure".
Rurelec (AIM: RUR) believes it is due to receive at least US$70m (£46m) from Bolivia’s state power company ENDE in relation to the nationalisation of its 50.01%-owned Bolivian subsidiary Empresa Guaracachi SA.
Forte Energy (AIM, ASX: FTE) has received assay results from its Bir En Nar uranium project in Mauritania with grades reaching 6,130 ppm (parts per million) uranium, expecting to announce a maiden JORC resource for the project shortly as final results become available.
Minera IRL Ltd (AIM, BVL: MIRL, TSX: IRL) reported an above-budget gold production for the first quarter to end-March 2010 of 7,071 ounces from its Corihuarmi gold mine in Peru, saying the quarterly cash operating costs of US$432 per ounce were in line with expectations.
Uranium and copper explorer Kalahari Minerals (AIM: KAH) announced that Hong Kong-listed natural resource focused investor APAC Resources (HK: 1104) has agreed to acquire a 7.1% stake in the company for £1.85 per share, giving Kalahari funds of £29.6 million along with “further support for strong institutional backing” and increased exposure to the growing Chinese market.
Lonrho (AIM: LONR) said turnover in Q2 reached £24.5 million, marking a 25.4% year-on-year increase, which was delivered by strong organic growth from existing operations.
In a release to the London Stock Exchange, Oil India Ltd (BOM: 533106) and Indian Oil Corp (BOM: 530965) said they do not intend to make an offer to acquire Gulfsands Petroleum (AIM: GPX).
Stratex International PLC (AIM: STI) said its joint venture partner Teck Madencilik Sanayi Ticaret AS - a wholly-owned unit of Tech Resources Ltd - has started a 2,000m drilling programme at the Hasançelebi high-sulphidation gold project in central Turkey.
Specialty chemical company BioNeutral Group Inc (OTC-BB: BONU) said it has received test results from ATS Labs indicating that its Ygiene hospital-grade antimicrobial has passed the stringent sporicidal GLP test requirements for hospital and medical environment sporicide efficacy claims in Canada and Australia.
Astaire Securities issued a note on Specialist Energy Group (AIM: SEGR), saying that clearly stating its intention to concentrate on the engineering business and to put no further resources behind the Nviro technologies that have so far failed to prove viable is welcome news for SEG shareholders.
Herencia Resources (AIM: HER) announced it has received assay results from a further four holes in the current diamond drilling campaign at its 70 percent owned flagship Paguanta zinc-lead-silver-gold project in northern Chile, confirming the depth and strike extension to the high grade Cathedral vein.
Metals Exploration (AIM: MTL) has completed its feasibility study for the RunRuno gold-molybdenum project in the Philippines, confirming the project’s viability with average production of 96,700oz gold per annum for a ten-year mine life. Additionally, the company classified 780,000oz gold as Proven and Probable Mining Reserves.