London Stockpile: Heavyweights drag down the rest

Finance

Miners were among the worst-performing stocks in the FTSE 100 this week, despite an improved outlook and higher demand expectations from China.

Only two Main Market resource stocks made gains by the end of the week. On AIM, things were more stable.

The FTSE All-Share Index slumped 2.3% in a week, while the equivalent AIM index strengthened 1.8%.

Analysts at Dahlman Rose & Co commented on the volatility since the start of the year. The firm said: "Metals and mineral prices moved sharply higher in the month of January, driven by a weak dollar, strong demand from China and improving economic fundamentals in the developed world."

Dahlman analysts anticipate that "commodity and equity markets may exhibit meaningful volatility, as monetary policy is adjusted in China and economic growth may prove to be somewhat uneven, with some pockets of weakness. But we believe that the underpinnings of the secular move higher in metal and mineral prices remain in place, and we believe that investors who can withstand the volatility will be rewarded over the long-term."

New World and International Ferro Metals were the aforementioned risers on the main board, gaining a modest 2% and 1%, respectively. International Ferro has had a particularly good start to the year, being one of the few LSE mining stocks showing a share increase since December.

Positive news from diamond producers Namakwa and Gem Diamonds didn’t help the companies.

Namakwa recently purchased Gem's DRC portfolio for US$5 million, which should allow the company to nearly double its production. As a result, RBC Capital Markets increased their net-asset-value estimate for the company to £42 million, rising to £60 million at end-August 2011. However, RBC said Namakwa's projects still carried significant risk, and despite it receiving a mining licence for the 51%-owned Kao kimberlite project in Lesotho, "more information is needed before the true contribution of the orebody can be determined".

Gem released a trading update late in the week, reporting an increase in the average price from its 70%-owned Letšeng mine in Lesotho, to US$1,894/ct from US$1,710 in the September quarter.

The firm was upbeat, saying: "The substantial price weakness in the rough-diamond market experienced in the first half of 2009 was ameliorated by extensive producer cutbacks in production and sales.

"Recent reports from the very important Thanksgiving to Christmas holiday season in the US indicate a rise in diamond jewellery retail sales compared with the same period in 2008. Anecdotal evidence also suggests continued strong demand from India and China."

Anglo American had another poor showing, dipping the most out of the big-four producers; down more than 8% by Friday. BHPB fell about 4%, Xstrata was down nearly 7% and Rio Tinto nearly 8%.

Xstrata announced an upgrade to the mineral resource for the Horse-Ivaal-Trukai (HIT) deposit at the Frieda River copper-gold project in Papua New Guinea. The new resource estimate included significantly increased inventory and improved confidence levels, including a 26% increase in resource tonnage.

Measured resources were reported for the first time, and measured and indicated tonnes now total 40% of the increased resource inventory. The new HIT resource estimate indicates a measured, indicated and inferred resource of more than 1,000Mt at 0.53% Cu, 0.29g/t Au and 0.8g/t Ag (cut-off 0.3% Cu).

The biggest losers on the main board were Central Rand Gold, Fresnillo and Hochschild Mining.

Investors shunned a £3.7 million raising and board shuffle from Central Rand, which will see the appointment of a new chairman, and two new directors. The company, which is currently the main board's lowest-capped constituent at £40 million, slid 9%. Funds from the share placing will be used to advance the company’s Slot 8 gold project in South Africa.

Record annual output figures from Hochschild (28Moz silver-equivalent) couldn’t help the company from taking a dive of nearly 12%.

Fresnillo, the world's largest-primary silver producer, dropped 10%.

Arian Silver Corp rocketed more than 50% on news it will proceed with a deal to sell the Tepal copper-gold project in Mexico to Geologix Exploration Inc for US$3 million. Arian is has a market value of £17.8 million.

European Goldfields took a hit, sliding more than 17%.

Kalahari Minerals may face a coup from a group of shareholders led by Niger Uranium. Niger could force the company to offload the majority of its 40%-holding in emerging uranium explorer Extract Resources to shareholders.

Extract's Rossing South deposit in Namibia is tipped to become one of the world’s largest uranium mines. Extract was the top performer on the ASX in 2009, and a wealth of companies, large and small, have paid to get a piece of the stock. Most significantly, Rio Tinto holds about 14% of both Extract and Kalahari, and operates the Rössing uranium mine adjacent to Rossing South.

Without its Extract stock (which has driven its share price in the past 18 months), Kalahari's flagship assets will be a suite of small, early-stage uranium and base-metals projects. The stock dropped more than 10% by Friday.

Niger's largest shareholder has requisitioned an extraordinary general meeting to gain control of the board and to requisition a meeting of Kalahari to distribute the Extract stake. However, Niger only holds 13.5% of Kalahari, so it would require the support of other Kalahari shareholders both to request an EGM and get the proposal approved.

Mark Heyhoe from Westhouse Securities said: "Some [Kalahari] holders, such as Rio Tinto, may be keen to hold the Extract shares directly but the proposal would require the approval of other shareholders. Niger has stated that it will issue additional information in due course and we await an announcement before considering the impact on our valuation."