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Monday 10 November - afternoon update
Shareholders of South African miner Lonmin were today again contemplating what might have been had they agreed to the offer from earlier this year.
Goldman Sachs has rubbed salt into their wounds by adding Lonmin to its influential Conviction Sell list. It warns falling production next year and a platinum-market surplus mean prices of the metal will remain low.
Lonmin's earnings are, therefore, expected to slide dramatically. The broker has already cut its full-year estimates for this year to reflect the recent annual production report.
“Commodity prices represent the main risk to our estimates and target prices. The main risks for Lonmin are faster volume recovery or cost deflation,” Goldman says.
In August, Xstrata launched a £5 billion offer for Lonmin, which valued the platinum provider at 3300p a share. Xstrata later pulled the bid after the Lonmin board said the offer was not enough. This morning its shares were trading 109p higher at just 1200p against their peak this year of 3671p.
Just a few weeks ago, Lonmin warned about the impact of weak platinum demand, and this was behind the move by UBS to cut its rating on the shares from neutral to sell. Mining shares in general were marked higher on news of a $586 billion move by China to boost its economy. Six out of the 10 best-performing blue-chips were mining companies.
Slowing demand from China has meant the mining sector has been one of the poorest stock-market performers in recent months. Xstrata rose 142p to 1210p, Anglo American 161p to 1511p, and Antofagasta 32½p to 404¼p. Evolution Securities questions the likely effectiveness of the fiscal stimulus and expects to see demand for commodities to remain weak with economies around the world also contracting. It has repeated its sell rating and 1820p target price on Rio Tinto, up 272p at 2890p.
However, the move by the miners also helped underpin the rest of the market, which made a positive start to the week despite shares trading below their best levels of the day. The FTSE 100 index rose 78.5 points to 4443.4 in exceptionally thin trading. Wall Street opened sharply higher again this afternoon despite electrical retailer Circuit City filing for bankruptcy. The Dow rose 147.5 to 9091.4.
Vodafone slipped 0.9p to 105.8p following weekend reports suggesting the mobile-phone giant will use tomorrow's trading update to tell brokers their forecasts are too high. These will be the first results under new chief executive Vittorio Colao. Vodafone has seen its shares fall sharply in recent months following a slowdown in the UK and Spain. RBS has cut its target for Vodafone from 135p to 115p.
Legal & General was up 0.3p at 80.3p following the flurry of activity in the shares that coincided with Friday night's auction, which marked the closure of official trading. A line of two million L&G shares went through at 160p — 80p above the ruling price —prior to the auction. The London Stock Exchange promptly cancelled all the uncrossing trades in LG that took place during the auction.
Drugs giant AstraZeneca gained 105p to 2789p after positive tests for its fat-busting drug Crestor. The study also showed the drug reduces the risk of heart attack by as much as 44% in healthy patients. Brokers say the findings could change guidelines for doctors prescribing the drug and help boost sales of statins, the class of drugs that includes Crestor. Exane BNP Paribas continues to rate AstraZeneca a buy.
Keep an eye on AIM-listed West China Cement, up 13p at 74p, where a big buyer has been stalking the shares. The buyer is said to have taken out a stock overhang on Friday, when more than a million shares changed hands, and was back in the market place looking for stock today
