London Stockpile: Majors reinstate dividends, lifting markets

Finance

Large-cap commodity producers restarted dividend payments this week, giving the London market a much-needed boost.

BHP Billiton, Xstrata and Rio Tinto rallied after announcing their financial results, and pushing the FTSE All-Share Index up about 2% week-on-week. However, the AIM market was shaky, managing only a slight gain during the five days.

Metals prices dropped late in the week. Gold fell on Friday as investors sought to make profits after a week of solid gains. Gold for immediate delivery lost more than US$6 to about US$1,090/oz on Friday, however the precious metal was up more than 2% for the five days and headed for its first rise in five weeks.

On Friday, copper dropped in London on speculation that demand may slow from China. The metal price in Shanghai rose 1.7%, below the 6.2% jump a day before on the London Metal Exchange. Copper rose 8.7% for the week, partly on speculation that prices lower than in Shanghai would spur Chinese imports.

Ukraine iron-ore producer Ferrexpo was the main market’s top stock, firming more than 11%.

Xstrata had a stellar week, resuming dividend payments and gaining nearly 9%. Dividends were scrapped in the first half of 2009 due to failing demand for metals and mounting corporate debt. Profits for the year to end-December fell from US$4.7 billion to US$2.7 billion on the back of weaker metal prices. However, with the assistance of a rights issue, Xstrata’s net debt dropped from US$16 billion to US$12.3 billion.

Rio Tinto also announced the resumption of dividends after asset sales in the past 12 months, and a rights issue helped ease the company’s debt by nearly US$20 billion to US$18.9 billion. Rio was up nearly 7% for the week.

BHPB also upped its dividend, to US$0.42/share, helping to push its stock up more than 4%.

It was hard to pick a star performer on AIM, with investors showing a preference for the main board’s blue-chip miners.

However, £725 million company Western Coal Corp improved an impressive 18%, on news it had taken a further 4% of takeover target Mandalay Resources, increasing its stake to 48.6%.

Western owns 55% of Welsh coal producer Energybuild, which was in the top ten fallers this week. The company dropped more than 8% when it announced a slump in profit for the first six months to December 31. Sales figures fell to £4.5 million from £9.6 million in the same period of 2008 causing the group to swing to a pre-tax loss of £0.1 million from a profit of £1.1 million last time. Energybuild said it felt the effects of a lack of opencast coal production and lower coal prices as a result of the economic downturn.