London Stockpile: Metals price concern brings down equity

Finance

Prices for major mining companies wallowed early on, but turned around on Friday, salvaging an otherwise dire week.

Mining shares in the Stoxx 600 rose 1.2% on Friday, bouncing back from seven consecutive days of decline. Analysts suggested fears of a slowdown in economic recovery and pushed metals prices down, taking equities with them.

Metal prices came under particular pressure on Thursday, with copper dropping about 3% and aluminium decreasing by nearly 2%. Analysts at Dahlman Rose & Co said: "We anticipate that metal prices and shares of metals and minerals producers may remain volatile over the near-term, as China continues to tighten monetary policy. Further, the Reserve Bank of India has raised the cash reserve requirement for Indian banks to 5.75%, up from 5%, in a move aimed at decreasing inflation in that country, which could also dampen demand for raw materials. These efforts, along with a firmer US dollar, are the key drivers behind our near-term concerns."

BHP Billiton, Rio Tinto, and Xstrata stopped three days of losses, each bouncing back a few percent by Friday. However they were down 2.5%, 5% and 7.7% respectively, for the week. Anglo American was down nearly 6%.

The Main Market's best-performing miner of note was Talvivaara. The Finnish nickel producer firmed about 1.5%; one of the few miners in the black for the five days.

The result was due to the signing of a zinc-supply deal with  Nyrstar. Talvivaara agreed to deliver 1.25Mt of zinc (2Mt of concentrate) to Nyrstar for a US$335 million up-front payment. The deal allows the firm to refinance its existing project loan. First deliveries will start in February and by 2012 the mine is expected to ramp-up to 90,000t/y of zinc-in-concentrate. Talvivaara also has a nickel and cobalt off-take agreement with Norilsk Nickel's Finnish subsidiary. The company said it would produce 30,000t of nickel in 2010, and expects to reach full-scale production of 50,000t from 2012.

Things were grim on AIM, with very few companies making ground.

The outlier was China Goldmines, which soared more than a third on news it had received a further payment of US$2.2million from the disposal of Westralian Resources.

The firm said it now held US$23 million in cash and was "in the process of a strategic review to assess how best to serve shareholders in its current status as an investing company".